Oct 7 Moody's Investors Service said on Monday
the credit outlook for
local governments in Maryland and Virginia close to Washington,
D.C., is negative due to the federal furlough of some employees
during the current budget shutdown.
Moody's said a prolonged shutdown will have a negative
impact on income tax revenues of counties in Maryland, while
local governments in Virginia will feel the pinch of declining
In addition, local governments in both states face the risk
of reduced aid from their respective states and the possibility
of the region's economy slowing, the rating agency said in a
The U.S. Congress has been deadlocked over passing a budget
for the country, as Republicans balk at spending on the
national healthcare law commonly known as Obamacare. The federal
government shut down operations last week and sent 800,000
workers home without pay.
No one knows how long the shutdown will last, but recently
the House of Representatives approved a measure to pay all
furloughed employees retroactively once the government reopens
and the Defense Department is recalling hundreds of thousands of
In general, rating agencies have said that a short-term
shutdown does not pose great risks to states and cities.
Last week, another credit agency, Fitch Ratings, said the
suspension of federal operations had no negative credit
implications for the District of Columbia.
Maryland and Virginia are home to many civilian, defense and
contract workers, who help bolster the states' income and sales
According to Moody's, federal workers make up 12.6 percent
of the Washington, D.C., area's total employment, versus 2.1
Maryland might lower state aid to counties and cities, but
local governments have little dependence on direct federal
transfers, Moody's said.
Counties in the state, though, rely heavily on income tax
revenue, which could dip as workers go unpaid. The counties
close to the nation's capitol - Montgomery, Frederick, Charles,
Prince George's, and Calvert - derive more than a quarter of
their general fund revenues from income taxes, according to
Local governments in Virginia will probably feel slightly
negative effects from the shutdown, with revenues from sales
taxes most affected. Still, sales taxes make up only a small
portion of Virginia local governments' revenues, Moody's said.
Virginia also might reduce state aid to local governments to
relieve economic and financial strains caused by the shutdown,
but, like Maryland, Virginia's cities also receive only a small
amount of revenues directly from the federal government.
Large tax bases, high wealth levels and solid reserves
should help the DC metro area withstand an extended government
shutdown, the agency said.
"Despite the risks, most D.C. metro area local governments
have strong credit fundamentals that will help them withstand a
prolonged government shutdown," Moody's said.