Credit downgrade: State, city and counties wait and see on local effects

Seven municipalities on Moody's watch list for now

August 08, 2011|By Gus G. Sentementes, The Baltimore Sun

As the United States coped with the fallout of its first-ever credit downgrade, officials in Maryland were taking a wait-and-see approach Monday on the possible trickle-down effects on local governments' finances.

Standard & Poor's has not cut the credit ratings for Maryland or any of its cities or counties in the wake of its decision last week to downgrade U.S. debt from AAA to AA+.

But Maryland is on a short list of states that credit analysts believe could be affected by the federal downgrade, because its economy benefits disproportionately from federal agencies, contracts and employees.

A weaker bond rating could make it more expensive for the state to borrow money in the bond markets to fund capital expenditures.

"We're still assessing the situation," Susanne Brogan, a spokeswoman for the Maryland State Treasurer, Nancy K. Kopp, said Monday.

Moody's Investors Service affirmed Maryland's credit rating last week, but warned that the state and several of its cities and counties were being placed on a watch list for the immediate future until it could take a closer look at their finances. They included Baltimore, Harford, Howard, Montgomery and Prince George's counties and Bowie and Rockville.

"We're all sitting here on pins and needles waiting for the other shoe to drop," said Raymond Wacks, head of Howard County's budget office.

A spokeswoman for Baltimore County said officials there don't anticipate a downgrade because the county recently received AAA status from Standard & Poor's, Moody's and Fitch, the three major ratings agencies.

"We're really confident both in our sound fiscal management and changes we've made," spokeswoman Ellen Kobler said.

Baltimore finance director Edward Gallagher said he didn't see any near-term impact to the city from S&P's downgrade of the U.S. rating. Gallagher said he is concerned, however, that interest rates in the public markets will rise, which would make borrowing more expensive.

Anne Arundel County's budget officer, John Hammond, echoed Gallagher's concern. But he said the downgrade for the U.S. government should have only a "miniscule effect" on the county's finances.

Hammond said the county's stagnant revenues due to the recession are a bigger concern.

"I don't think any hurdles we face would be because of the federal credit rating downgrade," Hammond said.

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