A
"Maryland General Obligation bonds for many years helped define generic AAA scales in muni bonds," said Michael Pietronico, senior portfolio manager, and credit analyst for MTAM Miller Tabak Asset Management, via a post on X. "That is no longer the case."
"Utah is the strongest state credit but doesn't trade enough to price a generic yield curve. Look to North Carolina to price the AAA scale."
The Moody's downgrade reduced the state's issuer rating, and General Obligation bonds to Aa1 from Aaa.
According to Moody's, "The downgrade was driven by 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."
Annual appropriation obligation bonds for essential purposes and Maryland Infrastructure Financing Intercept Program bonds went to Aa2 from Aa1.
Annual appropriation obligation bonds for less essential purposes, Built to Learn Revenue bonds and Bay Restoration Fund Revenue bonds, were downgraded to Aa3 from Aa2.
Baltimore City Public Schools Construction and Revitalization Program Revenue bonds, were downgraded to A1 from Aa3.
The repercussions of the downgrade may first be felt by a $200 million sale of tax-exempt consolidated transportation bonds slated for June 4.
A bigger test looms on June 11, when the state is scheduled to go to market on a General Obligation bond sale to raise money for capital projects. Last year $1.2 billion in taxable and tax-exempt bonds were sold.
The state's Governor, Lieutenant Governor, Treasurer, Comptroller, House Speaker, and Senate President responded to the downgrade with a joint statement by blaming the President's efforts to shrink the federal workforce by calling it a "Trump downgrade."
Per their statement. "Last week, we met with Moody's to discuss our collective work protecting the full faith and credit of the State of Maryland.
"Together, we turned a deficit into a surplus, gave the middle-class tax relief while still raising critical revenue through strategic tax reforms, and reduced spending by over $2 billion – the largest amount that's been cut in a Maryland state budget in 16 years."
The pitch did not stave off the downgrade as Moody's cited strong reserve levels that are still "lower than those of Aaa-rated states."
The immediate effect on secondary market trading have been minimal so far but market analysts say it may be soon to tell about longer term changes.
Maryland GOs 5s of 2026 at 2.93% on May 6 versus 2.95%-2.96% on April 28 and 3.11% on April 11.
Maryland 5s of 2030 at 3.13%-3.06% Tuesday.
Maryland GOs 5s of 2039 at 3.79% Tuesday versus 3.76% on May 1 and 4.13%-4.08% on April 1.
The downgrade was telegraphed as the state struggled to fill a $3 billion budget gap that was eventually solved by tax increases that Moody's applauded.
"These actions closed a budget gap although the need for further corrective steps may arise directly from federal funding cuts or the economic consequences of federal layoffs and other policy shifts, to which Maryland has a very high degree of exposure," said Moody's"
So far, Fitch Ratings and S&P Global Ratings are holding their fire on the state by sticking with triple A's on GO debt.
Other voices are piling on by laying the blame for the downgrade on Democratic leadership in the statehouse.
"This is Moody's saying that Maryland's propensity to raise taxes is not enough anymore," said Maryland Senate Minority Leader Stephen S. Hershey Jr.
