Feared drop in bond rating would increase state's debt Loss of AAA rating would cost millions, legislators told.

February 04, 1992|By Laura Lippman

ANNAPOLIS -- A drop in Maryland's triple-A bond rating could cost the state up to $86.9 million over the next 25 years, according to a report by the Department of Fiscal Services.

Several legislators have said they're worried that the state's bond rating, which has been triple-A for at least 50 years, could be jeopardized if the state ends the current fiscal year with a deficit.

While analyst Ann Marie Zalawski did not address that concern directly in testimony yesterday before the Senate Budget and Taxation Committee, she did say a drop in the bond rating would cost the state more in interest and put other types of bonds at risk, including bonds for transportation and environmental projects.

For example, if a drop from a triple-A rating to double A-plus rating meant bonds paid 6.1 percent interest instead of 6 percent, Ms. Zalawski said the additional interest would be $43.4 million for bonds issued from 1992 through 2015.

The additional interest would rise to $86.9 million if the state drops to a double-A rating, she said.

The general obligation bonds with the triple-A rating are constitutionally backed by Maryland's property tax. The state sells other types of bonds, such as transportation bonds, which are backed by the gasoline tax.

Ms. Zalawski warned committee members that once a bond rating drops, it can take years to regain the triple-A rating.

Sen. Laurence Levitan, D-Montgomery, the committee chairman, said he was more concerned about the damage to the state's reputation than the interest costs.

"In terms of total interest you pay, that's not so bad," he said. "But to lose it, it would be a real blow to Maryland's overall status as a state that can manage."

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