County's Debt Takes Another Hit

A leading ratings agency cut the rating on the bulk of Montgomery County's debt on Thursday, citing the county's depleted fund reserves after "several years of sizable operating deficits."

$417 million in county bonds were downgraded from Moody's Investors Service's top rating of 'Aaa' to 'Aa1,' the next tier down on the ratings scale. The new rating will make it slightly more expensive for the county to issue additional debt.

Moody's had that its debt rating could be downgraded if negative fiscal trends continued.

The bad news for the county's creditworthiness was offset somewhat by Moody's accompanying announcement that the county's outlook was upgraded from "negative," as it was assessed last December, to "stable."

The county's bonds remain "investment grade" debt at the "Aa1" rating. Moody's includes the Aa1 designation in its "Prime-1" category, which, according to the firm, means the debt's issuer has "a superior ability to repay short-term debt obligations."

"We believe management's plans are likely to stabilize the county's financial position in the near term, albeit at a narrow level, and could augment reserves going forward," Moody's said.

County officials cited the improved outlook as evidence of their having brought sounder fiscal management to the county since taking office in January.

“Moody’s has obviously studied our actions from the day we took office,and those actions have led to the change in outlook from negative to stable," said Josh Shapiro, chairman of the county's Board of Supervisors, in a statement released to the media.

“It is clear that the downgrade is a reflection of what took place in this county’s government before January of 2012," Shapiro said.

The Moody's announcement follows in May of $18 million in bonds issued by the Montgomery County Redevelopment Authority.

Moody's echoed Fitch in its generally positive assessment of the prospects for the county's long-term financial health, citing the county's "large, diverse, and stable tax base adjacent to Philadelphia" as well as income levels that are "well above state and national medians."

That said, Moody's believes that "the county's new management team will be challenged, in the near term, to replenish financial reserves in an environment characterized by slow economic and employment growth."

Shapiro offered a more bullish take on the report.

“We are on the road to recovery,” Shapiro said. “Moody’s obviously likes the route we have taken so far, and we are committed to finishing the journey that will put Montgomery County’s finances back on solid ground.”