QAC’s Bond Rating Upgraded

Queen Anne’s County’s financial credit report was upgraded when Fitch Ratings revised the county’s AA+ bond rating February 22.

“The revision of the Outlook to Stable from Negative reflects enhancements made during fiscal 2012, spending cuts and conservative budgeting, allowing the county to generate an operating surplus which significantly strengthening reserve levels,” said the Fitch firm’s report. “Fitch takes additional comfort from the county’s positive operating projections for fiscal 2013 as well as substantial revenue raising capacity.”

“When this Board of Commissioners took office they inherited a projected $18 million budget deficit and the potential of seeing the county’s AA+ bond ratings downgraded,” said Steve Arentz, president of the Queen Anne’s County Board of Commissioners. Although the county retained its AA+ bond rating, it was put on a “negative watch” by Fitch Ratings. Bond ratings determine the interest rate that the county pays when borrowing large sums of money to build schools and other public buildings.

“This Board of Commissioners made dramatic budget cuts, small tax increases and created a budget that was not only balanced, but has a surplus,” Arentz said.

Governments, like people, are evaluated on their ability to repay debt. The Fitch report notes that the county’s overall debt levels are moderately low. “Debt service expenditures represent an affordable 9.6% of general fund expenditures,” according to the report.

“In an effort to restore structural balance and improve reserve levels, during the fiscal year 2012 budget process the county implemented a property tax rate increase as well as an increase in the income tax rate,” details the Fitch report. “The expenditure budget included a continuation of the workforce furlough program, hiring freeze and suspension of various employee benefit programs. Additionally, during the year the county offered an early retirement incentive. Fiscal year-end 2012 results reflected a second consecutive year of positive variance in income tax revenue, the county’s second largest revenue source representing 31% of the general fund, supporting a $5.3 million operating surplus. The unrestricted fund balance increased to $11.9 million or a healthy 10.9% of general fund spending, compared to the modest budgeted drawdown of $566,779.”

In detailing the reasons for the “Stable” rating, Fitch Ratings noted, “Fitch views the county’s low comparative property tax rate as an important measure of financial flexibility given its dominance as a source of general fund revenues.”

Given the fairly limited economy, roughly 85% of the labor force commutes outside the county, with most workers crossing the Bay Bridge to jobs in the deep and diverse Baltimore-Washington market. The county’s unemployment rate has declined year-over-year, recorded at 5.6% as of December 2012, and has consistently ranked below those of the region, state, and nation. Wealth levels are above average when compared to state and national levels.