Baltimore's bonds receive high marks

March 30, 1995|By Eric Siegel | Eric Siegel,Sun Staff Writer

Baltimore has once again received high marks -- and praise for its management of money -- from two of the nation's leading raters of municipal bonds.

As the city prepares to issue $76 million of bonds today, Moody's Investors Service has given Baltimore an A1 rating -- an evaluation the city has maintained since 1976. Standard & Poor's Ratings Group has given the city an A rating, which it has done at least since 1987.

Baltimore's ratings, considered "upper medium" grade, are equal to -- or better than -- those of other major Northeastern cities, including New York, Philadelphia and Washington. And ratings are important because a slip can add millions of dollars in interest costs to a city's bonds.

Both rating services praised the city for maintaining a balanced budget despite continued high unemployment and little growth in the tax base.

Moody's noted the city's "conservative budgeting practices and the timely implementation of cost-control and containment measures." It also cited "strong state support" for Baltimore.

Standard & Poor's mentioned Baltimore's "sound financial performance" and called the city's outlook "positive."

Although the ratings reports were favorable, they did point out some deep-seated problems. Moody's noted that the city's population "has continued to decline and resident wealth levels are growing at a rate slower than the state." S & P said "sluggish economic growth is limiting the city's ability to generate revenues."

But Baltimore finance officials welcomed the reaffirmation of the bond ratings. The higher the investment rating on bonds, the lower the interest that must be paid on them, though the rating of some issues, including the $76 million to be issued today, can be enhanced by the purchase of insurance.

Currently, an A-rated bond carries an interest rate of 5.8 percent; while the next lower-rated bond carries a rate of 6.53 percent, officials said. Interest savings on a $67 million issue over 17 years would be $10.5 million, they said, offering one example.

"I feel good about it," William R. Brown Jr., Baltimore's finance director, said of the ratings. "It reflects their confidence in our ability to manage what resources we have."

He added, "Things have been really tight over the last several years. We've been able to manage by evaluating programs and downsizing government."

Cost-cutting moves by Mayor Kurt L. Schmoke during his seven-year tenure have included dropping some 4,000 jobs from the city's work force, which now has about 26,000 workers. He also has merged departments and privatized some city functions, including the operation of the Baltimore Arena and, most recently, the management of municipal markets.

During the height of the recession in the early 1990s, the mayor imposed a hiring freeze on the police department and cut hours of public libraries in an effort to balance the budget in the face of substantial cuts in state aid.

His actions drew fire from critics who charged he was jeopardizing public safety and shortchanging children. But they may have helped the city avoid having its ratings lowered -- a fate that befell Philadelphia four years ago and Washington earlier this year.

"The older East Coast cities are the ones that have had some problems ratings-wise," said Robert T. Reeves, senior vice president at Ferris Baker Watts. "Baltimore has been immune to that."

This year, Moody's raised Philadelphia's rating from junk bond status to Baa, and lowered the rating on the Washington's bonds from Baa to Ba. Among other cities, Detroit is a Ba1, New York is a Baa1 and Cleveland is an A.

The highest bond ratings issued by the services are the so-called Triple-A issues, which are regarded as "gilt-edge" and all but risk-free.

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