Howard County Executive Ken Ulman, the president of the Maryland Association of Counties, today called on local government officials throughout the state to review finances and prepare contingency plans in light of the ongoing debate over the federal debt limit. Such a comprehensive review is underway in Howard, he said.
Ulman’s warning comes a day after Moody’s Investors Service said it would re-evaluate thousands of AAA-rated state municipal bonds, even those not tied to U.S. Treasury rates, as the risk of a federal downgrade continues. Standard & Poor’s issued a similar warning on Friday. Howard County government has received a AAA bond rating from all three national bond rating agencies for the past 14 years. “As a deal eludes President Obama and Congress, the impact of the debt crisis on local governments is coming into focus, and it could be bad,” said Ulman. “The responsible thing for counties to do is review their books and prepare for the worst,” Ulman said.
Downgrades in municipal bond ratings would increase the cost of borrowing for local governments, reducing the amount of money available for direct services. Ulman noted that Maryland is home to a large number of federal employees, and any cessation of government program activity could result in significant impacts to both payrolls and income tax revenues to local jurisdictions. Income taxes represent the second largest source of tax revenues to local governments, after real property taxes.
“This stalemate poses real risks to residents of Howard County and Maryland who are employed by the federal government or who rely on Social Security and other benefits for survival,” Ulman said.
Ulman directed the Maryland Association of Counties to convene a conference call of all Maryland county finance officials to discuss the situation and possible strategies on Monday July 18.