WASHINGTON — Anne Arundel County, Md., today expects to competitively price $185.7 million of general obligation bonds, including its first Build America Bonds, as it faces negative credit pressures stemming from the housing market.
The county’s outstanding debt of about $1 billion last week was downgraded by Fitch Ratings to AA from AA-plus, while Moody’s Investors Service placed a negative outlook on its Aa1 rating. Standard & Poor’s rates the credit AAA.
Trouble in the housing market continues to hurt revenues in Anne Arundel and other suburban Maryland counties. Since fiscal 2008, the county has been losing revenue as fewer homes are sold and fewer mortgages are attained.
With real estate tax collections falling, the government has relied on one-time fixes and reserve withdrawals to balance the budget.
It withdrew $15 million from its reserve stabilization fund in fiscal 2009 and expects to tap it again for $16 million in fiscal 2010, according to Moody’s.
The drawdown in reserves contributed to Fitch’s downgrade, analysts said. “We were concerned by the rapid diminishment of the reserve levels,” said Barbara Ruth Rosenberg. “We thought it showed more limited financial flexibility.” She said the county expects to restore the reserves in fiscal 2012.
The transaction includes $68.1 million of general improvement and $13.9 million of water and sewer tax-exempt GO bonds that will mature from 2011 through 2020. The county also will price $76.1 million of general improvement BABs that will mature from 2021 through 2030 and $27.7 million of water and sewer BABs maturing from 2021 through 2040.
The bonds will be used to retire bond anticipation notes issued last May and to provide additional funding for general and water and sewer improvements.
McKennon Shelton & Henn LLP is bond counsel and Public Resources Advisory Group is financial adviser.
Anne Arundel last issued new-money bonds in a competitive deal in April 2009. The bonds were sold to Wachovia Bank NA, now Wells Fargo Securities, at a true interest cost of 3.50%. County Controller Richard Drain said that deal received nine competitive bids. The county traditionally sells debt competitively, he said.
Investors have not expressed concerns with the county’s credit because Standard & Poor’s maintains its AAA rating. The agency raised Anne Arundel’s GOs to AAA from AA-plus in March 2007.
County Executive John Leopold is expected to introduce the fiscal 2011 budget by May 1. The county counsel will review the budget for a month before deciding whether to approve it. The government’s fiscal year begins July 1.
Anne Arundel is expected to cut spending with further salary reductions. A hiring and spending freeze will continue into next year, according to Drain. The county also is negotiating with union workers about options that would bring additional savings to the county, he said.
Other Maryland counties also drawing credit concerns. In December, Fitch assigned a negative outlook to Frederick County due to declining revenue.
The credit outlook of Anne Arundel’s neighbor to the west, Prince George’s County, was revised to negative by Fitch in November. In August, Prince George’s lost a lawsuit in federal court to furlough workers in an attempt to save $59 million in fiscal 2009.