NEW YORK -- The tough economic climate is likely to put further pressure on Maryland's vaunted AAA bond rating as well as on the credit ratings of the local governments within the state, requiring further austerity, tax increases or both, according to Standard & Poor's. But there are at least tentative indications that better times may be on the horizon.
"My gut tells me that the worst may be behind us, but I'm surprised states continue to find budget gaps and shortfalls," said Richard Larkin, an analyst with S&P who co-authored a report on regional credit issues published yesterday.
An accompanying survey by DRI/McGraw Hill, an economic forecasting affiliate of Standard & Poor's Corp., suggests the groundwork for a regional recovery has already been laid.
"You are not seeing continued job losses" regionally, said Clifford Milligan, an economist at DRI. "You hear about the problems at Westinghouse, Du Pont or General Motors, but you don't hear about the individual hirings at small firms."
Retail sales and income data were particularly decisive in the positive projection, Mr. Milligan said. However, he noted that the information is several months old and in the process of being updated. It therefore omits many recent adverse events, including major layoffs.
The downturn's unusually severe effect on the finances of Maryland's state and county budgets, which are managed more prudently than most in the nation, may reflect a far weaker overall economy than generally acknowledged, Mr. Larkin said. "Maybe it's an indicator of how bad this recession is."
Maryland's response has been unusually prompt and effective, he added. Consequently, although the state's public finances are being closely monitored, there is no effort to put them under a formal review, as has been the case with many other states. Maryland has not resorted to one-shot financing techniques such as asset sales, refinancings or multi-year reconciliations used in New York, New Jersey and California, among other states, "that just fill a hole for one year and make a bigger one for the next."
A result of the state's austerity program, though, has been reduced financial assistance for the counties and Baltimore. "They are going to have to face losses that they haven't faced before, at the same time that they are facing a lot of other pressures of their own," Mr. Larkin said.
The result will be that local governments "will have to cut expenditures at all department levels," including education and public safety. Counties with financial reserves -- common in Maryland, rare elsewhere -- will have to use them. Hiring and capital programs will continue to be deferred or eliminated, and furloughs and wage freezes will be common.
Still, despite the difficult circumstances, the credit ratings of only two of Maryland's counties are currently considered at risk of being downgraded, top-rated (AAA) Montgomery and highly rated Howard (AA plus).
Outside Maryland, several major municipalities have been downgraded. Last summer, New Jersey's credit rating was reduced from AAA to AA plus, and last year the District of Columbia's was cut from A to A minus. In sharp contrast to Baltimore's ability to maintain a strong A rating is the fate of Philadelphia. Its bonds received a speculative CCC last fall. Frantic efforts to restructure the city's finances have so far been unsuccessful.
"The Philadelphia Story," Mr. Larkin wrote, "is evolving from a miniseries to a long-running serial."
B6 Bond ratings in the region over the last 10 years.
.. .. .. .. Current
Issuer.. .. rating.. High.. ..Date.. ..Low.. Date
Baltimore.. .. A. .. .. A.. .. 11/81. A. .. 11/81
Delaware .. .. AA+.. .. AA+ .. 3/88 . AA .. 11/81
D.C.. .. .. .. A- .. .. A .. ..12/84. A- .. 5/90
Maryland .. .. AAA.. .. AAA. ..11/81. AAA . 11/81
New Jersey. .. AA+.. .. AAA. ..11/81. AA+.. 7/91
Pennsylvania.. AA-.. .. AA-. ..10/85. A+ .. 11/81
Philadelphia.. CCC. .. BBB+. ..11/81. CCC.. 9/90
Virginia .. .. AAA. .. AAA . ..11/81. AAA.. 11/81