The Maryland state government, whose financial resources will be severely tested as it attempts to pay off depositors of Old Court Savings & Loan by 1990, will maintain its coveted AAA bond rating this year, a major New York bond-rating house announced today.
The announcement by Standard & Poor's Corp. amounts to a clean bill of health for the state's current finances and was good news for the administration of Gov. Harry Hughes, which has tried for eight months to overcome a severe savings and loan crisis without jeopardizing the AAA bond rating.
The AAA designation is the highest bond rating given by Standard & Poor's and Moody's Investor Service, another rating house in New York. The rating, which the state has held since 1940, means that Maryland bonds are sound investments and has enabled the state to borrow money for construction projects at relatively low interest rates.
A spokeswoman for Moody's said today the firm will wait until mid-February -- when Maryland plans to sell $120 million worth of general obligation bonds -- to issue its rating.
Similarly, a spokesman for Standard & Poor's said it will conduct another review of state finances next month before formally deciding on its rating. But in a prepared statement, the firm said Maryland's AAA rating "will not be negatively affected" if Hughes' pay-back plan for depositors goes forward.
The governor has proposed spending $100 million from the state transportation trust fund and an additional $55 million in general government funds this year to begin reimbursing Old Court depositors whose money has been frozen since last spring. Over the next four years, the sale of Old Court assets should raise another $431 million, and those proceeds would be given to depositors in quarterly payments until December 1989, according to Hughes.
Old Court has been at the center of Maryland's savings and loan crisis since it began last May. Old Court deposits have been frozen since then and its assets are being sold to raise money to reimburse depositors.
Hughes also proposed in his 1986-87 budget to set aside $50 million in a special reserve fund to cover other costs associated with the savings and loan crisis.
"Maryland is providing up-front funding without adversely affecting its financial position and without utilizing long-term borrowing capacity," Standard & Poor's said in its statement.
Hughes issued a brief statement hailing the announcement in New York as a vote of confidence. "All Marylanders should be pleased," Hughes said.
By paying low interest on its bonds, the state government saves millions of dollars in extra interest that lower-rated states must pay. The difference between AA and AAA ratings equals roughly half a percentage point in interest, and in large bond issues that difference can mean substantial savings for the state government.
Maryland's $120 million bond sale, planned for Feb. 19, would provide capital to finance construction of such projects as hospitals and office buildings.
"This is good news for the taxpayers," said Marvin A. Bond, spokesman for the state comptroller's office.
However, the Hughes administration still has not won federal approval of the proposed sales of the crippled Community and First Maryland savings and loan associations in Montgomery County. The two thrifts, which remain under state control, represent a large financial liability to the Hughes administration and could affect the AAA rating in the future, experts said.