Earlier this month, Maryland received the sobering fiscal news that for the first time in over 50 years, Moody’s Investors Service downgraded the state’s bond rating. The change, from Aaa to Aa1, removes Maryland from the elite group of states holding top-tier credit across all three major agencies. While Fitch Ratings and Standard & Poor’s (S&P) have since reaffirmed Maryland’s AAA rating—with Fitch assigning an AAA rating in the days after Moody’s downgrade and S&P doing the same this past Tuesday—Moody’s decision introduces real risks that could ripple across the state’s financial planning, legislative agenda and future capital projects.
A Downgrade with Real-World Consequences
Despite S&P cushioning the blow this week, Moody’s downgrade is more than symbolic. When a state loses its top bond rating, it faces higher borrowing costs, meaning taxpayers may ultimately pay more for roads, schools and infrastructure financed through bond issuances. Economists and local officials are already warning of potential downstream effects, particularly for counties and municipalities that rely on state funds or jointly financed projects. Several jurisdictions have noted their concern that higher debt service costs at the state level could result in reduced state aid or cost-shifting for shared programs like education and transportation.
While Maryland’s Rainy Day Fund remains comparatively strong and the most recent budget cycle left a modest surplus, the downgrade raises concerns about whether the state has done enough to correct course or whether additional fiscal restraint or revenue action may be required.
How Maryland Got Here
Moody’s pointed to a combination of fiscal and structural weaknesses that set Maryland apart from other top-rated states. Maryland’s economy, while relatively wealthy and stable, is deeply tied to federal employment and contracting. That close relationship has long been a double-edged sword. When federal policy is steady, Maryland thrives. But when the District of Columbia retrenches, as it has in recent years, the ripple effects hit Maryland hard—and quickly.
In its assessment, Moody’s cited Maryland’s “economic and financial underperformance” relative to its AAA-rated peers. The state has struggled to control long-term liabilities, including retiree benefits and the escalating cost of the Blueprint for Maryland’s Future education initiative. Meanwhile, volatile revenue streams and rising expenses created a projected $3.3 billion budget gap for the coming fiscal year. Lawmakers closed that gap through a mix of spending reductions, targeted fund transfers and tax increases, but the structural imbalance remains a concern.
Political Blame Game
The downgrade has ignited sharp political debate in Annapolis and beyond. Gov. Wes Moore and Democratic legislative leaders placed much of the blame on the Trump administration, citing widespread federal job cuts, declining federal investment and unpredictable federal budgeting, all of which disproportionately impact Maryland’s economy. The governor referred to the downgrade as a “Trump downgrade,” highlighting the region’s heightened exposure to federal layoffs and cuts in health care and education funding.
Democrats have also noted that Moody’s flagged Maryland’s dependence on federal employment as a risk years ago, and that recent actions by DOGE in Washington have only worsened that vulnerability. The rating agency, for example, simultaneously downgraded Washington, D.C.’s bond rating, further reinforcing the idea that the region’s reliance on the federal government has become a financial liability in the current political climate.
Republicans, however, have forcefully rejected this framing. GOP legislative leaders argue that the downgrade is the direct result of years of fiscal mismanagement, overreliance on temporary budget fixes, and unsustainable spending particularly on new education and social programs. They view the downgrade as a failure of state-level governance, not a federal one, and have called for a return to more conservative budgeting practices.
Not All Ratings Agencies Agree
Since the Moody’s announcement, two of the three major credit rating agencies, Fitch Ratings and S&P, have reaffirmed Maryland’s AAA bond rating, reinforcing investor confidence just weeks before the state’s planned $1.7 billion bond sale.
The ratings from Fitch and S&P significantly blunt the impact of Moody’s downgrade, sending a clear signal to markets that Maryland remains on solid fiscal footing despite structural budget challenges and federal headwinds. Both agencies maintained a “stable” outlook, acknowledging Maryland’s strong fiscal management and capacity to proactively address economic risks.
The reaffirmed AAA ratings are expected to preserve the state’s low borrowing costs, mitigating the risk of increased debt service that typically follows a downgrade. They also offer political cover for state leadership, who have framed Moody’s decision as an outlier driven more by federal uncertainty than state mismanagement. These decisions bolster confidence in Maryland’s recent budget adjustments, including a mix of spending cuts and revenue increases that closed a $3.3 billion shortfall and preserved reserves.
While both agencies noted long-term liabilities and education funding pressures, particularly around the implementation of the Blueprint for Maryland’s Future, they credited the state’s track record of fiscal discipline, its substantial reserves and its ability to respond to economic volatility.
What Comes Next
The Moody’s downgrade underscores the need for policymakers to take a hard look at Maryland’s fiscal future. While the most recent budget managed to close the immediate gap, long-term structural pressures, especially education mandates, rising health care costs and retiree obligations, remain unresolved. The state will need to demonstrate fiscal discipline in upcoming years and may be forced to reevaluate spending commitments or explore broader tax reform.
For stakeholders with interests in capital projects, grant-funded initiatives or state–local partnerships, this development should be closely watched. The June bond sale will offer the first real test.
Please reach out to Greg Sileo, policy advisor, at gsileo@bhfs.com with any questions or lobbying needs in Annapolis.
This document is intended to provide you with general information regarding Maryland's bond rating. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.