Suburban governments across the Washington area could lose their sterling credit ratings if the federal government is downgraded, the Moody’s rating agency said Thursday.
That could make it more expensive for counties such as Montgomery, Fairfax and Prince George’s to borrow money for roads, schools, hospitals and other projects.
July 28 (Bloomberg) -- California Treasurer Bill Lockyer talks about the likely impact of a possible failure to raise the U.S. debt ceiling on the finances of individual states and California's decision to secure $5.4 billion in loans to cope with any credit-market disruption related to the debt ceiling. Lockyer speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
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Moody’s announcement that it is considering a downgrade of 177 municipal bond issuers nationwide that have top-notch credit was another sign that the showdown over the federal debt ceiling could have far-reaching effects on the economy.
The Washington area is particularly vulnerable because it has a high concentration of federal employees and government contractors.
The capital region faces a double-edged sword. If the federal government loses its AAA credit rating, local jurisdictions could suffer a domino effect. But if Congress and President Obama bolster the federal credit rating by cutting government spending, that, too, could damage the local economy and tax base.
Leaders across the region expressed anger at the predicament.
“What they are doing in Washington will kill us,” said Prince George’s County Executive Rushern L. Baker III (D).
“Why idiots in Washington can’t come to a compromise and fix this is appalling,” said Prince William County Board Chairman Corey A. Stewart (R). If politicians in Washington can’t solve the problem, “Prince William and other localities will pay the price for the federal government’s ineptitude,” Stewart said.
Alexandria Mayor William D. Euille (D) called on congressional leaders to stop acting “in such a childish manner.”
Any potential downgrade would be of primary concern for localities that are planning to finance public-works projects. Prince George’s is expecting to issue about $99 million in bonds by the end of August or in early September. Of that, the biggest chunk is for road work, about $28 million. The bonds also will finance a new public safety communications system, libraries and stormwater management projects, said Office of Management and Budget Director Thomas Himler.
Montgomery is planning to issue more than $550 million in bonds next week for projects such as schools and to refinance debt, and the jolt of uncertainty has left county officials frustrated with Washington – and Moody’s.
If the market turns treacherous, the county could decide to “pull our sale and wait a week and see what the federal government does,” said Timothy L. Firestine, Montgomery’s chief administrative officer.
Virginia, with its extraordinary ties to the federal government, had 15 municipal authorities on the list, the highest of any state. Maryland had eight. The District is beyond the scope of the Moody’s review because it does not have a top-notch credit rating.
The Virginia municipalities under review include Alexandria, Arlington County, Fairfax County, Fairfax City, the Fairfax County Water Authority, Herndon, Loudoun County, Prince William County and Vienna.
The Maryland list includes Baltimore County, Bowie, Harford County, Howard County, Montgomery County, Prince George’s County, Rockville and the Washington Suburban Sanitary District.
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