WASHINGTON — Maryland Gov. Martin O’Malley hailed the budget he signed into law last week as a way to secure the state’s triple-A bond rating, but a new Moody’s Investors Service report warned the new budget could hurt the credits of more than 20 municipalities.

The budget balances a $1.1 billion structural deficit by shifting teacher pension costs from the state to localities, along with spending cuts and tax increases. At the signing last week, O’Malley said a modern economy requires investments to create jobs.

“These investments are not free,” he said. “That’s why with the FY 2013 budget, we’ve taken a balanced approach of cuts, revenues and investments to protect Maryland’s triple-A bond rating and put our state back on the path to fiscal responsibility.”

Moody’s analyst Jennifer Diercksen’s report agreed with O’Malley’s belief that the budget provision that shifts $136.7 million of pension costs away from the state would be a positive for Maryland’s credit. But it also concluded that the shift could hurt local credits because steps taken to offset the burden may not be enough. The state is projected to save more than $500 million over the next four years by shifting nearly $800 million of pension costs.

“The savings will be a financial reprieve for the state, which, compared with its Aaa-rated peers, has a high ratio of unfunded pension liabilities to [gross domestic product],” the report said. “Maryland’s pension funded level was reported at 64% as of June 30, 2011, much lower than the 87.8% reported in 2005.”

The state provides offsets over that time period, including increased income taxation and increased state aid, totaling $135.6 million to alleviate the increased burden on its 23 counties and on Baltimore. However, the report warned, many of those sources aren’t as reliable as the new liabilities will be.

“Approximately 79% of the revenue enhancement comes from volatile and economically sensitive sources in fiscal 2013, falling to a still significant 50% by 2016. The state’s estimates for these revenues are not guaranteed, and local governments are not authorized to alter pension plans to reduce costs,” Diercksen wrote.

The most affected counties will be the A1-rated Allegany County, which will experience an increased pension liability of $2.77 million by fiscal 2016, and Aa3-rated Wicomico County, which will see a $4.05 million increase by that year, according to projections of the Maryland General Assembly.

The Moody’s report also reiterated its analysis last month stating that legislation restricting localities from cutting education spending below the previous year’s level could exacerbate the problem. If a municipality cuts K-12 spending, the state can interdict funds originally slated for that locality and redirect it straight to affected school boards.

“As a result, the finances of Maryland’s counties and the city of Baltimore will experience negative budgetary pressures as pension costs continue to increase and education spending requirements remain inflexible,” the report says.

Maryland remains triple-A-rated by all three rating agencies, though it remains on negative outlook from Moody’s.

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