Maryland lost its treasured “triple triple-A” bond rating Wednesday, when a key bond-rating agency downgraded its assessment of the state’s creditworthiness to Aa1.
The move by Moody’s ends more than three decades in which Maryland held the highest bond rating from the three rating agencies: Moody’s, Standard & Poor’s and Fitch.
Moody’s had given Maryland an Aaa rating every year since 1973 — until Wednesday. The rating agency also downgraded half a dozen other state borrowing programs in its report.
In its reasoning for the downgrade, Moody’s said Maryland continues to have a “wealthy and diverse economy,” solid financial planning and that officials had recently addressed budget problems “through a combination of tax increases and restraints on expenditures.” But those were not enough to offset concerns about looming financial challenges, the report said.
“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,” Moody’s wrote in its report.
Prior to Wednesday’s announcement, Maryland was one of 14 states to have the highest rating from the three major agencies — Fitch, Moody’s and Standard & Poors.
In a forceful response to the downgrade, the state’s top five Democrats — Gov. Wes Moore, Senate President Bill Ferguson (Baltimore City), House Speaker Adrienne Jones (Baltimore County), Comptroller Brook Lierman and Treasurer Dereck Davis — laid the blame on the White House doorstep of Republican President Donald Trump.
“To put it bluntly, this is a Trump downgrade. Over the last one hundred days, the federal administration’s decisions have wreaked havoc on the entire region, including Maryland. Washington, D.C. received a credit downgrade,” their joint statement said.
“Thousands of federal workers are losing their jobs. Actual and proposed cuts to everything from health care to education will continue to exact an incalculable toll on Maryland and states across the country,” the statement said.
But Maryland Republicans said warnings about the state’s financial problems came well before Trump, and said the downgrade should be a signal that the state cannot tax its way out of problems anymore.
“This is Moody’s saying that Maryland’s propensity to raise taxes is not enough any more,” Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore) said Wednesday.
“People can move. They can work in other states,” he said. “They (Moody’s) are looking at the potential for economic growth in the state and it’s not enough.”
House Minority Leader Jason C. Buckel (R-Allegany) pushed back on the suggestion that it’s “a Trump downgrade.” He pointed to warnings from fiscal analysts in November and again in January of billions in structural budget gaps driven by higher spending on Medicaid, child care subsidies and, in later years, the Blueprint for Maryland’s Future education reforms.
Last year, Moody’s itself cited “escalating expenditures in education and healthcare, combined with elevated retirement benefit liabilities” when it reaffirmed the state’s Aaa bond rating, but downgraded the outlook from stable to negative. Wednesday’s downgrade “should come as no surprise to anyone” who follows the state budget, Buckel said.
To put it bluntly, this is a Trump downgrade. Over the last one hundred days, the federal administration’s decisions have wreaked havoc on the entire region, including Maryland.
– Maryland Democratic leaders’ joint statement
“This was well before President Trump’s reelection and before any federal retrenchment. Foisting the blame anywhere but at the feet of the excessive spending championed by Maryland’s Democratic party is, at best, disingenuous,” Buckel said in a statement.
Decades without a downgrade
Besides Moody’s, which gave Maryland an Aaa rating in 1973, Standard & Poor’s first rated Maryland Aaa in 1961 and Fitch has given it that ranking since 1993.
Maryland maintained its Aaa rating from Moody’s through five recessions — including the Great Recession — the 2013 federal budget sequestration, and the COVID-19 pandemic. But Trump’s approach in his first 100 days, focused on slashing federal spending and employment and moving to wipe out entire programs or agencies, has rattled that confidence.
A triple-A rating means the state pays the lowest rates when it sells bonds to fund public projects. The downgrade means the state — and taxpayers — could pay more in interest on the money the state borrows.
The next bond sale is scheduled for June 11.
It is not yet clear if the shift by one agency will increase the state’s interest rate or decrease or eliminate bond premiums — fees bond buyers pay the state in return for higher interest rates and a guarantee that the bonds will not be called for specific time periods. Premiums can be used to offset the higher rates the state pays, but that upfront cash has been used in the past for other purposes.
The downgrade is a blow to Democrats who for years have pointed to the state’s high credit ratings as a symbol of strong fiscal management. For others, it was seen as a sign the rating agencies were confident in a willingness among Maryland’s leaders — mostly Democrats — to raise taxes to pay its debts.
The rating downgrade was not wholly unexpected.
The warnings were there
When Moody’s last year reaffirmed the state’s AAA rating but lowered the state’s outlook from stable to negative, it cited concerns about looming structural deficits driven by programs like the Blueprint for Maryland’s Future.
The 2024 report noted the state’s high costs but relatively stable personal income tax base that was bolstered by federal employment and its proximity to the District of Columbia.
But Moody’s expressed concerns then about Maryland’s pension liabilities, and “above average debt burden.” The agency also worried about Maryland’s “vulnerability to swings in federal spending.”
Last year’s rating and negative outlook incorporated the “difficulties Maryland will face to achieve balanced financial operations in coming years without sacrificing service delivery goals or increasing the tax burden on individual and corporate taxpayers.”
Moody’s analysts warned then that a downgrade could come if there was further economic deterioration that resulted “in deficits, fund transfers and reserve draws.” Analysts also raised concerns about an “insufficient plan” to quickly replenish reserve funds or reach a structural budget balance.
Cuts to federal jobs or the federal government’s “role in the state’s economy” might also cause a downgrade, Moody’s wrote in its 2024 report.
This was well before President Trump’s reelection and before any federal retrenchment. Foisting the blame anywhere but at the feet of the excessive spending championed by Maryland’s Democratic party is, at best, disingenuous.
– Maryland House Minority Leader Jason Buckel (R-Allegany)
Administration officials earlier this year expressed concern about a potential downgrade, but thought that solving the state’s immediate financial concerns — more than $3 billion in structural deficits in fiscal 2026, and a nearly equal amount the following year — would satisfy the rating agency and protect Maryland’s credit rating.
External pressures come to bear
But as lawmakers and administration officials were negotiating cuts, cost shifts and $1.6 billion in taxes and fees, Moody’s issued another warning report. The March report listed Maryland as the state at highest risk for economic problems as the Trump administration slashed agency budgets and jobs.
The budget finalized by lawmakers reduced general fund spending — the portion paid directly by Maryland taxpayers — by $400 million, despite overall growth of about 1% when all funding sources are included.
That included more than $1 billion in combined one-time general fund actions and another $800 million in transfers from various accounts to the general fund budget, in addition to tax and fee increases.
The spending plan also eased the burden on the state by shifting some costs, including teacher pensions and costs for property tax assessments, to local governments.
The result was the elimination of the projected structural deficits for fiscal 2026 and 2027.
But those deficits return the following year and grow to more than $3 billion by 2030, according to projections included in a presentation to the bond rating agencies. All of those deficits are related to expected education spending that is part of the Blueprint plan.
Officials told the rating agencies that 70% of the costs could be controlled by the state.
Soon after the 2025 session ended, Moody’s issued a report downgrading the credit rating of the District of Columbia from AAA to Aa1. The firm cited impacts from federal workforce reductions as well as weakening demand for commercial real estate.
“I think a lot of us looked at that report and thought you could replace DC with Maryland because Maryland is going through all the same challenges,” said David Turner, a Moore spokesperson.
Presenting a united front
Last week, the state hosted all three bond rating agencies as part of its annual reviews ahead of the state’s June bond sale. Only Moody’s came to Maryland for face-to-face meetings; Fitch and Standard & Poor’s representatives met with state officials virtually.
Typically, those meetings include the state treasurer, comptroller, budget secretary, the director of the Bureau of Revenue Estimates and legislative analysts. But Moore, Ferguson, Jones took the rare step of meeting in person with Moody’s last Tuesday. The three also made brief comments as part of a united front in hopes of retaining the highest credit rating.
The three did not attend meetings with the other two firms. A spokesman for the governor acknowledged the concerns about a bond rating hit from Moody’s.
As a part of the presentation to the agencies, officials highlighted actions taken this year on the budget as well as the creation of a committee to track the effects of federal cuts on Maryland.
Layoff notices spiked in February and March, but “normalized in April,” according to a copy of the presentation obtained by Maryland Matters. Monthly federal employment showed no declines; unemployment claims showed no increase.
But state officials also acknowledged the chance of a delayed effect, as pending federal lawsuits over Trump actions are resolved. Another potential effect could come from employees who took buyouts and may apply for unemployment in the fall.
Officials told all three bond-rating agencies that the state was seeing stronger than projected income tax withholding. While initial projections for fiscal 2025 called for 5.5% growth, income tax collections were up 9’% through March, the presentation said.
The joint Democratic statement said leaders 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.” their statement said. “Maryland’s creditworthiness has only been strengthened by our collective work on this budget.”
Fitch and Standard & Poors are expected to release their own ratings in advance of the June bond sale. Officials have not expressed a heightened concern for a downgrade from either of the remaining agencies.
Maryland Matters is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501(c)(3) public charity. Maryland Matters maintains editorial independence. Contact Editor Steve Crane for questions: scrane@marylandmatters.org. Follow Maryland Matters on Facebook and Twitter.