Howard County officials review bond-rating process, reserve targets after AAA reaffirmation

Howard County finance officials explained how the county retains a AAA bond rating and why rating agencies now emphasize larger unrestricted reserves during a discussion at the council's April monthly meeting.

The county’s long-standing AAA rating and recent accounting choices matter because higher ratings lower borrowing costs for county projects and can reduce debt service paid by taxpayers, officials said.

Finance staff walked the council through the agencies' review criteria, noting that the presentation to rating agencies covers financial metrics, budget process, debt and pension funding, and economic diversity. "Being a triple A county for 28 consecutive years is a huge accomplishment," said Rafael Hiller, a finance staff member who led the briefing. Angela Price, deputy director of finance, and other finance staff joined the presentation and answered council questions.

Hiller told the council rating agencies look at multiple items beyond basic financials: fund balance levels, pension funding, other post‑employment benefits (OPEB), debt policy and the county’s long‑term financial management. He said the county follows a charter requirement to hold a minimum fund balance equal to 7% of prior-year expenditures and maintains an internal policy reserve of roughly 3% as an additional buffer. But he warned that one rating agency, Moody’s, has shifted its AAA expectations upward and now looks for unconstrained reserves in the 30%–35% range in many jurisdictions. "Moody's... the triple a ratio is now 35% or higher," Hiller said when council members asked which agency had raised its threshold.

Council members pressed staff on what the change means in practice. Hiller and Angela Price explained that higher required reserves reduce the county’s flexibility: more cash on the balance sheet lowers the need to issue bonds but can constrain pay‑as‑you‑go projects and other near‑term spending. Price noted the county’s general fund balance rose from roughly $208 million in fiscal 2020 to about $475 million in fiscal 2024, driven largely by federal pandemic-era infusions and other one‑time receipts (federal CARES/ARPA and the CLRF were cited). That higher balance currently represents roughly 32% of general fund expenditures, she said, putting Howard County near Moody’s new threshold but below the 35% mark.

Officials also described how the county reports retiree health liabilities (OPEB). Hiller said Howard County carries the full OPEB liability on the county’s financial statements and funds a substantial portion of it each year, which affects the county’s reported funding ratio. He told the council that about two‑thirds (66%) of the county’s OPEB liability is attributable to the school system and that the county has contributed roughly $11 million annually in recent years toward OPEB funding.

Council members asked whether the county could simply use cash rather than borrow if reserves continue to grow. Hiller cautioned that outstanding long‑term bonds and prior financing decisions (including 20‑ and 30‑year issues) mean the county remains a borrower over a long horizon, and that the rating agencies evaluate the county’s historical issuance and fiscal practices, not only the current cash position. He also noted that public‑private partnership (P3) financing for the courthouse included private borrowing for roughly half of the project, and the private component carries a higher interest cost because the private partner lacks taxing authority.

Members asked about timeline and process for the rating review. Staff said the county typically begins internal planning in December, compiles materials and submits documents a week before the rating presentations, and that the agencies review the county’s financial reports and budget book year‑round. Price added that finance coordinates presentations with the county executive and the council chair so the agencies see collaboration across executive and legislative leaders.

Council members also asked about broader economic risks, including potential federal workforce shifts and national market volatility. Staff said rating agencies are monitoring such macro risks and that the county will continue to track impacts on revenue and federal grant flows.

The briefing closed with staff saying they will continue monitoring rating‑agency guidance, coordinate with the county’s financial advisor, and provide updated analysis to the council as conditions evolve.

Taken together, officials described a mix of strengths (consistent AAA history; diversified local economy; recurring OPEB payments) and new pressures (higher reserve expectations from at least one rating agency) that the county must explain to rating agencies and manage in its budgeting and long‑term planning.