Maryland Retains Triple AAA Bond Rating, To Sell $900 Million of General Obligation Bonds

ANNAPOLIS (July 7, 2014) – Maryland State Treasurer Nancy K. Kopp announced
today that all three bond rating agencies have re-affirmed the State's strong AAA bond
rating in preparation for the upcoming retail sale of General Obligation Bonds and the
competitive institutional sale of State Bonds on Wednesday, July 23, 2014.

Maryland is one of ten states* to hold the coveted AAA rating, the highest possible
rating, from all three major bond rating agencies. Standard and Poor’s has rated the
bonds AAA since 1961. Moody’s Investors has assigned the bonds a rating of Aaa since
1973, and Fitch Ratings has rated the bonds AAA since 1993.

Treasurer Kopp said, “Today’s news of Maryland receiving AAA ratings from the three
major bond rating agencies is affirmation of Maryland’s strong, stable and prudent
financial management and overall fiscal strength. We are pleased the rating analysts
recognize the contribution of Maryland’s diverse economy, our well-educated workforce,
and above-average wealth and income levels to the overall quality of an investment in
Maryland.”

“Retention of the Triple AAA ratings allows us to continue to save millions of taxpayer
dollars resulting from the lower interest rates achieved because of these ratings,”
Treasurer Kopp said.

Fitch, in assigning its AAA rating and stable outlook, said: “Debt oversight is strong and 

centralized, and the debt burden is moderate. The state has policies to maintain debt 

affordability, and the constitution requires GO [General Obligation] and transportation 

bonds to amortize within 15 years.” 

 

Fitch Ratings further said: “Financial operations are conservatively maintained, with the 

state consistently demonstrating a strong commitment to budgetary balance through the 

downturn and slow recovery that has followed. The state has maintained flexibility in the 

form of its rainy day fund (RDF), which remained funded at or near 5% of general fund 

revenues through the downturn, as well as it practice of responding quickly to changing 

budgetary circumstances through repeated spending cuts, fund balance transfers and 

revenue increases.” 

 

Moody’s, in explaining its Aaa rating and stable outlook said: “The highest quality rating 

reflects Maryland’s strong financial management policies and stable economy with high 

personal income levels. The rating also acknowledges the state’s above average debt 

burden and large unfunded pension liabilities relative to the size of its economy.” 

 

Moody’s also noted that “Consistent with its history of strong financial management, the 

state has been appropriately addressing its structural budget gap and pension funding 

concerns even under pressure from federal budget reductions.” 

 

In assigning its ‘AAA’ long-term rating and stable outlook, Standard & Poor’s said: “The 

rating reflects what we view as the state’s: Broad and diverse economy, which has 

experienced recent tepid recovery due to sequestration and federal fiscal policy 

uncertainty; we expect growth to accelerate due to resolution of certain federal budget 

and fiscal issues; High wealth and income levels; Long history of proactive financial and 

budget management, including implementation of frequent and timely budget 

adjustments to align revenues and expenditures; Well-developed financial and debt 

management policies including long-term financial planning that should be helpful in 

addressing future budget challenges; and Moderate debt burden, which we expect to 

continue due to a clearly defined debt affordability process that limits annual issuance, 

coupled with a constitutional 15-year debt maturity schedule.” 

 

Standard and Poor’s further stated: “The stable outlook on Maryland reflects our view of 

the state’s proactive budget management in recent years and the economic recovery underway, although recent revenue growth has been hampered by events at the federal 

level.” 

 

All three rating agencies praised Maryland’s history of strong, sound financial 

management. Standard & Poor’s assigned a rating of “strong” to Maryland’s management 

practices, noting that “…Maryland has made continuing efforts to institutionalize sound 

financial management practices. …the state’s use of a five-year financial plan, which is 

updated annually with the adopted budget, provides the basis for future fiscal decisions 

and recognizes future fiscal year gaps. Monthly monitoring and reporting of key 

revenues allows the state to make midyear financial adjustments, if necessary, to maintain 

balance. Maryland has consistently maintained its statutory RSF (Revenue Stabilization 

Fund) at or above its legal minimum of 5% of revenues.” 

 

Each rating agency recognized Maryland’s ability to manage despite serious federal 

budget cuts. S&P noted “While federal fiscal policy remains a challenge to the state’s 

budget and long-term financial plan, we believe that Maryland continues to actively 

monitor developments and has options to mitigate this risk based on its well-developed 

budget policies and financial reserves.” Fitch indicated “Sound fiscal management 

practices and the consistent maintenance of fiscal flexibility, (including budgetary 

reserves) provide the state with significant ability to respond to near-term economic or 

fiscal conditions, such as federal budget reductions, in a manner consistent with the 

‘AAA’ rating.” 

 

Each of the rating agencies recognized significant pension funding challenges as well as 

reforms enacted over the past three years. Moody’s indicated “[l]ow retirement system 

funded levels” represent a credit challenge for the state and “[f]ailure to adhere to plans 

to address low pension funded ratios” could make the rating go down. Fitch Ratings 

noted “Despite pensions being a comparative credit weakness, the state has taken multiple 

steps to reduce their burden and improve sustainability over time.” While acknowledging 

that “[b]ased on the reforms…, the state’s actuary projects that the system will be 80% 

funded by 2024 and full funding will be achieved by 2039”, S&P indicated “[t]he state’s 

below-average pension funded ratios continue to represent downside risk to the rating.” 

 

This offering will include the direct retail sale of approximately $100 million of bonds 

with first priority to Maryland citizens. This is the first retail offering since August of 

2012. “Marylanders get first preference in buying highly desirable, conservative quality 

bonds while investing in their State – a win-win situation,” Treasurer Kopp said. 

The retail bond sale begins July 18th and will end on July 21st. For more information, 

potential buyers should check www.buymarylandbonds.com. 

The bond sale will conclude with two competitive bids for the remaining bonds which are 

expected to be sold to institutions. The sale will include $400 million of tax-exempt 

bonds and approximately $400 million of tax-exempt refunding bonds. 

 

As has always been the case with the issuance of Maryland’s tax-exempt General 

Obligation Bonds, the State uses the proceeds to finance necessary capital projects, such 

as schools, community colleges, university projects and hospitals. 

 

The Maryland Board of Public Works, composed of Governor Martin O’Malley, 

Comptroller Peter Franchot and Treasurer Kopp, will preside over the competitive bond 

sale on Wednesday, July 23, 2014 in the Assembly Room in the Goldstein Treasury 

Building in Annapolis. 

 

The Maryland State Treasurer’s Office expects to conduct another bond sale in February 

or March 2015.