State retains bond rating

Wall Street to keep eye on slots decision

Wednesday, July 23, 2008

The reaffirmation on July 11 came in advance of the state’s sale of $415 million of general obligation bonds that helps fund the construction of schools, community colleges and prisons.

Maryland is one of only seven states to receive the AAA rating, the highest possible mark, from Fitch Ratings, Moody’s Investors Services and Standard & Poor’s, the major bond houses.

‘‘Retention of our AAA rating represents a clear signal that bond rating agencies and investors believe that Maryland’s financial management is prudent and strong,” said Treasurer Nancy K. Kopp in a statement. ‘‘While the economy is experiencing a slowdown, our leaders continue to take tough actions to ensure that the state’s fiscal control is firm and steady.”

The high ratings allow the state to pay relatively low interest rates on money borrowed for capital improvement projects.

The Board of Public Works conducted the bond sale July 16 in Annapolis.

‘‘It’s a good stamp that says we do a good job managing our state fiscally,” said Del. John L. Bohanan Jr. (D-St. Mary’s), a leading budget writer in Annapolis. ‘‘That is the culture that we have and that is not going to change anytime soon.”

Although leaders were elated that the state maintained its high classification, the poor national economy and its effect on state coffers muffled the cheers.

‘‘We should not let this news lull us into ignoring the underlying fiscal challenges we face,” said Comptroller Peter V.R. Franchot in a statement.

Income and sales tax collections have fallen below projections for several months and it’s unclear whether those numbers will rebound any time soon.

Sales tax receipts for fiscal 2008, which ended June 30, are ‘‘notably behind expectations” with one month of data left to analyze, according to a June revenue report from Franchot’s office.

Lottery sales were one of the few bright spots. Despite declining 6 percent in June, it maintained a 6.1 percent growth rate for the full fiscal year, well beyond the last fiscal year’s growth of just 1 percent. Alcohol and tobacco tax receipts also increased by 64.1 percent in June, largely due to the doubling of the cigarette tax that was instituted earlier this year.

The bond houses all said they will keep a close eye on the outcome of the slots referendum, which is projected to generate up to $700 million a year for the state – about half for education — once fully online.

‘‘Should voters reject the proposal,Ê or if there are delays in [video lottery terminals] coming online, the state will again face significant budget deficits, for which resolution may pose more challenging after the significant efforts to cover the fiscal 2009 budget gap,” the Moody’s report said.

During last year’s special session, lawmakers passed about $890 million in tax increases, reduced spending by $550 million and authorized voters to break the legislative impasse on whether to allow slots in Maryland.

The referendum will ask voters whether to allow 15,000 slot machines at locations in Allegany, Anne Arundel, Cecil and Worcester counties and Baltimore city.

The Board of Public Works last month approved an additional $50 million in cuts to the fiscal 2009 budget — $75 million when federal matching funds are included — to help offset the repeal of the unpopular 6 percent tax on computer services passed during the special session.

State leaders have conceded that more cuts may be necessary if the economy continues to tumble, even though the legislature bolstered the Rainy Day Fund this year.

Further tax increases, however, should not be an option, said Franchot, a vocal slots opponent who has called for more investment of the life sciences industry.

The state will not do anything to jeopardize that AAA bond rating, Bohanan said.

‘‘It has become a cultural thing in the state that we maintain and protect that AAA bond rating and it’s almost like Green Bay, or the Orioles or the Redskins when they start winning their World Series or Super Bowls,” he said. ‘‘It becomes an expectation. It’s almost ho-hum when we get that AAA but it would be a major defeat if we ever lose it.”