County Impresses Wall St.

Budget Plans Keep Bond Ratings Strong

April 16, 1991|By Samuel Goldreich | Samuel Goldreich,Staff writer

A promise to cut the county budget and more than double its surplus has protected Anne Arundel's credit on Wall Street.

All three major New York bond rating houses renewed their strong approval of countymanagement Friday, despite a $9 million shortfall in revenue from original projections.

The first budget cuts after 25 years of charter government are seen as "both good news and bad news," Cathy Krust, municipal bond analyst for Moody's Investors Service, said yesterday.

On the one hand, the county will end the year with a $7.5 million surplus, down from$39.3 million in fiscal 1990.

But County Executive Robert R. Neall won high marks for plans to cut the operating budget from $617 million this year to about $610 for fiscal 1992, which begins July 1.

"It's certainly good news," Krust said. "There was some concern because of the need to draw (on the fund balance). But they have shown strong financial management."

Moody's again judged the county's bondsAA1, the second-highest rating. Standard and Poor's Corp. and Fitch Investor Service both rated the county AA-plus, their second-highest rating.

The ratings are an expression of investor confidence in the county's financial strength, said County Administrator Adrian Teel, at a time when governments throughout the Baltimore-Washington region are tightening their belts.

The most dramatic decline has occurred in Montgomery County, the richest jurisdiction in the state. Its proposed $1.6 billion budget includes $88 million in new taxes and cuts of $102 million that would produce larger school classes, trimmed library hours, fewer bus routes and emergency shelters and reduced psychiatric treatment for youthful offenders.

In contrast, Neall is not expected to seek any major cuts and will propose increasing the surplus from less than 2 percent of the 1991 budget to 3 percent ($18 million) next year.

"Fund balances are there to provide you protection against insecurity," said Richard Raphael, a Fitch bond analyst."The generally accepted level that analysts want is a 5 percent fundbalance."

Neall said last month that he will seek legislation establishing a surplus as part of the budget. Under his predecessor, O. James Lighthizer, the county "created" surpluses by conservatively estimating revenues, because the charter mandates a balanced budget.

Improving the county's credit rating is one of Neall's goals, but the task will not be easy. Bond raters are slow to downgrade counties and even slower to upgrade them, Teel said.

For example, MontgomeryCounty remains a Wall Street favorite -- with a AAA rating -- even though voters adopted a charter measure last year limiting growth in property tax revenue to the rate of inflation.

"That could hinder financial flexibility, but it did not affect Montgomery's outstanding bonds," Krust said. "Montgomery County's triple-A rating has historically been based on their affluent population, their high-quality tax base and their prudent financial management."

She contrasted Anne Arundel's reliance on the construction industry and property taxes tosupport government services with Montgomery's diverse economy and strong business tax base.

Neall briefed the bond agencies on plans to expand the county's tax base, drawing on development expertise in the private sector.

"If he can stimulate that area, he can push thecounty into that triple-A position," Teel said.

But County Auditor Joseph Novotny warned that both the county's bond rating and economic health eventually could be threatened by Neall's plan to keep all real estate transfer taxes for the general fund and stop sharing the revenue with the Department of Utilities.

The utility debt servicefund, created to pay for sewer and water projects, has mushroomed from $800,000 in 1982 to a projected $70 million this year. The fund, Novotny warned, could dwindle quickly.

"It looks good. We have a lot of money built up, but we have a lot of obligations also built up."

But the bond agencies agreed with Teel that the utility fund has become self-supporting, through capital connection fees.

"There wasn't concern about that," Krust said.

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