Prince George's County's TRIM taxcutting law has done more than just limit property taxes in the county. It has trimed the county's bond rating by one of two major bond rating services and has raised questions by the other concerning the status of the county's current bondholders.
Because TRIM limits the county's taxing authority, Standard & Poor's recently reduced the county's bond rating from AA minus.
The rating, while not lower in category, reflects Standard & Poor's changed evaluation of the county's "ability to meet its debt obligations," said Richard Larkin of the New York bond rating company.
Besides limiting taxes, TRIM also presents a complicated legal question concerning the status of the county's current bondholders, according to Frieda Ackerman of Moody's Investor Service Inc., which is now reevaluating its AA rating for the county.
When the county's current outstanding gross indetedness ofd $245 million was issued to bondholders, the county promised the bondholders would be repaid through its unlimited taxing authority. However, because TRIM now limits that authority, Ackerman said the status of its outstanding bonds is in limbo.
"The legal pledge has been changed," Ackerman said. "We're not sure of what effect it will have" on the bondholders. TRIM "may be unconstitutional . . . It's nuclear what their standing is."
Last January county officials told Moody's that it would attempt to have TRIM modified in the legislature, Ackerman said. But that attempt failed. Another alternative is for county voters to modify TRIM.
William Brown, the county's finance director, said the county cannot issue any bonds until the conflict is resolved.
Brown added that the reduced rating by Standard & Poor's would have "no impact on existing bonding indebtedness." The rating was not reduced below the current category because the bond house "feels very strongly about the county's management."
Standard & Poor's ratings start at AAA, the highest, and decrease to AA, meaning very strong, A, strong, and BBB which means barely adequate, Larkin said. In the future, the county's AA minus rating "might cost the county more to borrow" through bond financing, or "it may have no effect if the market disagrees with us."
Larkin and Ackerman said Prince George's bond rating situation is similar to that enountered by California jurisdictions after the Proposition 13 taxcutting measure was instituted. Standard & Poor's suspended some bond ratings there because the proposition's impact could not be determined. "It was a statewide problem, and we wanted to see what the state's response was," Larkin said.
California, however, had a state surplus and was able to help local jurisdictions, unlike Maryland in which the state "is not willing to get involved," Larkin said.
TRIM holds Property tax revenues to the 1979 level of $140.7 million, Ackerman said.
In January, when Moody's expected a modification of TRIM by the Maryland legislature, it evaluated the county as having, "continued healthy growth in assessed valuation and other taxable resources, rapid amortization rates and sound finances. . . despite uncertainties surrounding a property tax limitation measure and mass transit finances."
Moody's, however, also said the county had a higher than average debt burden for a jurisdiction its size. Moody's has not yet revised its evaluation of the county.
The county has had the second highest rating from Moody's as well as Standard & Poor's snce 1974. It has never had the highest rating from either firm.