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Rating Agency Warns Maryland County

By Faye Mergel
Published: Sunday, October 4th, 2009

Prince George’s County is still considered an excellent borrower, but that may not be for long according to a New York credit rating agency. The firm says that the county, which barely kept its present bond rating, may easily lose it as economic fluctuations continue.

Prince George’s is currently holding an AA+ rating but may lose it in the near future as their fiscal practices remain unstable. According to Fitch Ratings, a credit rating agency based in New York, the county’s financial flexibility has decreased and local administration finds it difficult to obtain a structurally balanced budget.

Finance analysts say that inflexible fiscal policies make it hard for a government unit to cope with economic fluctuations which leads to further instability. Specialists add that the negative outlook by Fitch means that Prince George’s rating could be downgraded in the near future and can only keep it if they are able to maintain a stable outlook.

Analysts noted that the county has been spending too much while raising income tax to maximum. Experts say that continued spending will increase that country’s chances of a downgrade, the first time since 2002. For nearly seven years now, Prince George’s rating continue to go up until they reached Fitch’s AA+ rating in 2008. It was also in that same year when the county celebrated its short-lived AAA rating from Standard & Poor’s.

Finance experts say that cities, companies, and even countries can save hundreds of dollars if they manage to keep their bond ratings high. It is just like a consumer credit report that measures a borrower’s ability to repay his debts, according to experts. They add that higher ratings will allow a county to get significantly lower interest rates.

More bad news comes as county executive Jack B. Johnson announced that 125 county employees must be laid off next month due to a $22.7 million cut in state aid, the first time that a massive employee furlough happened since 1992.

Analysts point out to Prince George’s continued borrowing and lack of income source as further detriments to stability. Residents during Maryland’s General Assembly prevented Johnson’s plan to increase homestead tax credit and transit tax. Finance experts say that county administrators should exercise more prudence to keep their budget stable.

If more sources of income do not come, Prince George’s may have to use its reserve fund despite the negative effects it could have on their rating, says a government spokesman. The county has a reserve of $182 million which is 7 percent of their total budget.

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