Maryland gets AAA from KBRA

The Kroll Bond Rating Agency rolled out a AAA rating with a stable outlook for Maryland's general obligation bonds, a dose of good news for a state that's absorbed several financial blows and looking for a brighter future.

Per the report, "The rating places particular emphasis on the proven effectiveness of the state's budget management framework which is evidenced by consistent maintenance of prudent reserves through the full economic cycle over the last two decades."

Maryland's general obligation bonds are secured by property tax which covers about 78.9% of the debt service.

KBRA also points out that Maryland ranks No. 1 in the nation for job dependence on the federal government, which the Trump administration has focused on downsizing.

According to the Bureau of Labor Statistics, Maryland has lost nearly 25,000 jobs since Trump took office a year ago, which is slightly higher than Virginia's loss of 23,500 and 24,000 in Washington D.C.

The report lays out reasoning for the job loss being surmountable and possibly reversible.

"KBRA believes this headwind is manageable over the near-term. Furthermore, the state's proximity to the seat of the federal government in Washington, D.C., in KBRA's view, will continue to confer economic stability and high value-added employment to the state over the longer-term."

All of the states are expecting to shoulder higher health care costs thanks to the One Big Beautiful Bill Act that shifts Medicaid and Supplemental Nutrition Assistance Program responsibility in 2027.

The future results of the midterm elections could affect the balance of power in Congress and sway federal policy, but the analysts aren't expecting major policy moves.

"I don't think that we would look at the outcome of the mid-term election in and of itself to draw any straight line to the trajectory of the credit, but obviously that's something to watch," said Peter Scherer," senior director for KBRA.

The effects on state budgets are already being telegraphed by a budget forecast released in September projecting that Maryland will suffer a $189 million revenue drop due to OBBBA.

September also produced a political squabble between Maryland's Democratic Governor Wes Moore and President Trump over who is going to pay for the rebuild of the Francis Scott Key Bridge, a tolled structure that was destroyed by a container ship in 2024.

The KBRA report is betting the dispute is already settled.

"Federal legislation passed in December 2024 known as the Baltimore BRIDGE Relief Act commits the federal government to cover the entire cost of rebuilding the bridge which is expected to cost $4.3 billion to $5.2 billion and be completed no earlier than late 2030."

Maryland suffered a denial of $15.8 million of FEMA funds to repair hurricane damage in the western end of the state last July.

Last May Moody's Ratings slapped the state with a downgrade to its issuer rating and General Obligation bonds to Aa1 from Aaa. The other rating agencies didn't follow suit as the state Treasurer called out the agency and its subscription pricing.

In June, Maryland held a successful bond sale of $1.56 billion sale of general obligation bonds that raises the question of over exaggerated financial peril.

"I don't know that we would frame it as exaggerating the financial condition so much as a different weighting of the same facts," said Linda Vanderperre, managing director in KBRA's public finance ratings group.

Maryland's problems began a year ago with the 2026 budget showing a huge hole. "A lot of coverage has focused on the $3 billion hole they had to fill for 2026," said Scherer.

"They were pretty decisive in addressing that. They paused some planned increases in education funding, and they increased certain taxes. These are real, probably pretty politically difficult actions to take."

"In our report we emphasize the ability of the state to address these shocks in a timely and financial responsible manner by leveraging proactive management practices, solid reserves and favorable financial performance track record."