Maryland treasurer suggests dumping Moody's after downgrade

State of Maryland

The aftershocks of Maryland's downgrade by Moody's Ratings are still reverberating. 

"To hell with Moody's," said Maryland State Treasurer Dereck Davis. "Now you're seeing why, if you do some research, more and more states are also moving away from Moody's." 

The comments came during a Board of Public Works meeting with Gov. Wes Moore and Comptroller Brooke Lierman last week as covered by Maryland Matters.   

The state absorbed a downgrade to its issuer rating and general obligation bonds to Aa1 from Aaa earlier this month, which may play a role on June 11 when $1.6 billion of GOs bonds are scheduled to go to market through competitive sale. 

Fitch Ratings affirmed its AAA rating after Moody's announced its downgrade; S&P Global Ratings currently has the state at AAA and is expected to weigh in on the June offering prior to the sale. 

There may be an earlier indication of things to come as Maryland is planning a $200 million competitive sale of tax-exempt Department of Transportation Consolidated Transportation Series 2025A bonds on June 4.  

The Moody's downgrade encompassed Maryland Department of Transportation Consolidated Transportation Bonds, also cut to Aa1 from Aaa.

"The downgrade, which affects about $2.7 billion of outstanding debt, resulted from the downgrade of the State of Maryland's issuer rating to Aa1 from Aaa. The outlook has been revised to stable from negative," the rating agency wrote.  

Moody's cited the state's strong coverage of maximum annual debt service ratio of 6.7 while commending it for sustaining and increasing Transportation Trust Fund revenue, which includes "pledged taxes on motor fuels, motor vehicle titles and short-term vehicle rental sales and a portion of the state's corporate income tax receipts." 

Davis also called out subscription prices and possible motives for the downgrade that go beyond financial analysis. "When you're paying $229,000, they got to give you something. They're not going to just hand out, as we say in school, A's for nothing," he said. "You got to give people a reason to buy it."

The discrepancies between the big three's ratings are raising concerns among other state lawmakers. 

"Maryland's fiscal outlook, particularly with the actions we took last session, remains strong," said House Appropriations Chair Ben Barnes, who represents Anne Arundel and Prince George's County.   

"This is evidenced by our retention of our AAA rating with Fitch. So, Moody's report does seem a little contradictory, not just with other rating agencies but with their own assessment which called our economy 'wealthy and diverse.'"  

Earlier this year Senate Budget and Taxation Chair Guy Guzzone who represents Howard County said, "I felt like we did everything we possibly could as a legislature and a state. I think we over performed."

Moody's said the GO and issuer downgrade reflects Maryland's economic and financial underperformance compared to Aaa-rated states, which is expected to continue given the state's heightened vulnerability to shifting federal policies and employment, and its elevated fixed costs. The state entered the year grappling with a $3 billion budget deficit.

Moody's downgrades have also been felt across the state line in Washington D.C by way of an April reassessment which affected six groups of bonds issued by the District of Columbia that also saw it's issuer rating drop to Aa1 from Aaa.   

Despite the downgrade Washington executed a nearly $1.5 billion oversubscribed sale  of Income Tax Revenue and Refunding Bonds earlier this month. 

The Trump administration is taking some of the blame for the financial struggles in areas that are home to federal workers that are being laid off or encouraged to seek other employment.