BALTIMORE (WBFF) — Moody’s, a major credit rating firm, has downgraded Baltimore City’s bond rating, citing years of declining financial reserves across city government.
The rating agency lowered the city’s bond rating from aa2 to aa3 this month, a move that could increase the cost of borrowing for Baltimore.
In a statement, Moody’s said the downgrade “reflects the trend of declining fund balance and cash levels across all government operations, largely concentrated in the utility and internal service funds.”
The agency also said the city’s government-wide balance sheet has continued to decline since the COVID-19 pandemic, despite efforts and forecasts aimed at stabilizing reserves.
Economist Anirban Basu said the downgrade is concerning because it indicates the city’s financial position is deteriorating.
“It’s not great news,” Basu said.
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“This is a city now with over $4 billion in outstanding bonds, outstanding debt in that form,” said Basu. “And the decline in the bond rating from Aa2 to Aa3 simply means that when the city goes to float its next set of bonds, it’s going to pay more interest or higher interest rates on those bonds, which makes financing infrastructure and other city expenditures more expensive.”
The downgrade comes as Baltimore prepares to ask voters in November to approve another $280 million in borrowing for the upcoming fiscal year.
Basu said the city could face difficult decisions as officials work to balance spending priorities, including education and infrastructure.
“A lot of our fiscal concerns, including how much we want to spend on education, how much we need to spend in infrastructure, and the fact that other funds in the city at the city have also been downgraded, including the water, sewer, and internal service funds also have been downgrade recently,” Basu said.
Despite lowering the city’s rating, Moody’s changed Baltimore’s outlook from negative to stable, signaling that the agency sees a more stable path ahead.
In response to the report, Baltimore Mayor Brandon Scott’s office said temporary drawdowns in utility reserve funds drove the downgrade.
In response to the report, Baltimore Mayor Brandon Scott’s office told FOX45:
“To be clear, this report from Moody’s affirms the City’s overall fiscal strength, and notes that the financial performance of our General Fund improved across nearly all metrics.
“Our rating was changed from Aa2 to Aa3 due to temporary drawdowns in our utility reserve funds. We have put measures in place to build these funds back up in the coming years, and our Rainy Day Fund remains at the highest level in history.
“The Baltimore City Charter makes it clear that the utilities and the general fund are wholly separate, in part due to the City’s sole ownership and management of a utility system that spans the region. The City has put forward an amendment to the Charter that would establish a separate department to govern the water utility, and will continue to take steps to modernize and strengthen its internal systems, including slowing spending, increasing collections, and implementing recommendations from the Regional Water Governance Taskforce.
“While we recognize that this utility is a factor in Moody’s assessment of the City’s finances, its performance should not be conflated with the overall financial strength of the City.”
Baltimore City Councilman Mark Conway said the downgrade is something the city council needs to examine immediately.
“I’ve long argued that we have a key role to play in ensuring the city serves as a good steward of public dollars,” said Conway. “In this case, that means getting under the hood of the City’s finances, identifying exactly where cash and reserves are declining, what is driving those pressures, and what corrective action is needed. The Council needs to use its oversight and budget authority now to address these issues before they become even more costly for the taxpayer.”
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