Maryland’s state credit ratings remain high, but come with a warning

Analysts continue to wave warning flags that Maryland’s economic headwinds and budget pressures could trigger a ratings downgrade, even as the state maintains a high credit rating.

Three ratings agencies granted the state a top AAA bond rating, the government version of a personal credit score. The higher the rating, the less the state pays in interest on the bonds it sells to investors to raise money for construction projects.

But one agency issued a negative outlook and warned that the rating could drop in the future. And the state cut ties with another agency that downgraded Maryland last year.

The ratings were announced before the state issued $800 million worth of bonds Wednesday to fund projects ranging from highway improvements to school buildings to new parks. It’s the primary way that governments raise money for capital projects.

Members of the state Board of Public Works, which oversees the bond sale, said little about the state’s finances and made no mention of the latest bond ratings.

“Maryland bonds are just good business,” said Treasurer Dereck Davis, a Democrat. He said the state has a ”good reputation.”

Gov. Wes Moore, also a Democrat, said the bond sale “continues to highlight the strength and the foundation that this state sits on.”

Maryland’s state government faces a long-term imbalance between planned spending and how much money is coming into state coffers. If left unaddressed, Maryland’s structural deficit would grow to billions of dollars, though the governor and lawmakers are required to pass a balanced budget each year.

This year, they relied on spending cuts, but the last two years saw tax and fee increases.

One of the major drivers is the Blueprint for Maryland’s Future, an ambitious but expensive plan to improve public schools. When the Blueprint was approved in 2020, some funding sources were dedicated to its programs, but not enough to cover full implementation.

The state also faces economic uncertainties from rising inflation and President Donald Trump’s efforts to reduce the federal workforce and pull back on social safety net benefits.

S&P Global Ratings gave the state an AAA rating but classified the future outlook as negative, reflecting a view “that growing budget pressures could lead to a lower rating if the state does not make timely adjustments and prioritize a sustainable plan to bring it back to structural balance.”

Fitch Ratings, meanwhile, gave the state a AAA rating with a stable outlook. Fitch’s experts also noted that the state could be downgraded in the future if it can’t balance “rising spending demands” with revenues.

And, for the first time, the state sought a rating this year from Kroll Bond Rating Agency. Kroll assigned the state a AAA rating with a stable outlook.

Kroll replaces Moody’s Ratings, which downgraded the state from AAA to Aa1 last year — the first time in decades that the state didn’t get a AAA score from the three major ratings agencies. The year before Moody’s downgraded the rating, it changed the outlook on the state’s debt from stable to negative.

Republicans accused the state of shopping for a favorable ratings firm instead of addressing the root causes of the challenges to its finances.

“Maryland Democrats just fired Moody’s because they didn’t like what Moody’s had to say,” Sen. Steve Hershey and Sen. Justin Ready, the top Senate Republican leaders, said in a statement.

“This isn’t fiscal leadership,” Hershey and Ready said. “This is shooting the messenger.”