Maryland’s credit rating outlook has recently been changed to negative by Moody’s, citing concerns over the depletion of the state’s general fund surplus. This downgrade comes despite the state’s issuer and general obligation bond ratings remaining at Aaa. The looming structural imbalances and planned depletion of reserves are highlighted as key areas of concern that could undermine Maryland’s performance relative to its peers.
The rapid growth in expenditures in areas such as education and healthcare, along with mounting retirement benefit liabilities, pose significant challenges for Maryland’s fiscal health. These negative trends are compounded by the reluctance to implement spending cuts or new taxes as potential solutions. The precarious state of the state’s rainy-day fund further adds to the credit risks faced by Maryland.
The recent collapse of the Francis Scott Key bridge following a ship strike has been identified as a credit risk that could potentially have a positive impact once the bridge is rebuilt. This unexpected event serves as a reminder of the vulnerability of critical infrastructure and the potential financial implications of such incidents on Maryland’s credit rating.
Despite Moody’s negative outlook, both Fitch Ratings and S&P Global Ratings have maintained stable outlooks for Maryland’s credit rating. They cite the state’s diverse and wealthy economy, strong fiscal management, and budgetary flexibility as key strengths. However, concerns about education funding, retiree benefits, and long-term budgetary balance are raised as areas of potential risk.
Governor Wes Moore’s administration recently passed a $63.1 billion budget, featuring reductions in general fund appropriations and overall spending. The revenue forecast for fiscal 2025 shows a moderate increase in general fund revenues, accompanied by healthy cash and rainy-day fund balances. Despite these positive indicators, the challenges posed by escalating expenditures and managing long-term liabilities remain significant.
Maryland’s credit rating outlook is at a critical juncture, with multiple challenges on the horizon. While the state’s strong economic fundamentals and proactive budget management are acknowledged by rating agencies, the escalating expenditures and structural imbalances present pressing concerns. It will be essential for Maryland to address these challenges effectively to safeguard its credit rating and ensure long-term fiscal stability.