Montgomery County government has maintained the highest credit rating for decades, a point of pride for elected officials. In a press release celebrating its 50th year of Moody’s Aaa ratings, County Executive Marc Erlich stated:
 

Wall Street’s watchdogs have once again found our local economy and County management practices as amongst a handful of the very best in the country. Out of more than 3,000 counties in this nation, Montgomery County is one of approximately 50 with a Triple-A bond rating from all three credit agencies. This mark of financial stability for more than three decades is a testament to consistent excellent financial stewardship, smart choices, and strategic investments. This bond rating saves our taxpayers millions of dollars in lower interest rates and demonstrates to the financial community that purchasing Montgomery County bonds is a wise investment. These funds are needed to continue to strengthen our County’s economy, create jobs and expand opportunities for our residents.
 

County Council President Gabe Albornoz attributed Montgomery County’s strong ratings to policies that enabled its government to maintain a robust level of reserves, even through the COVID-19 pandemic. Those policies include a “fund balance reserve target of 10 percent.”
 

But there’s a cost to keeping a high level of reserves. Those balances ultimately come from taxpayers and  sustaining them when spending is at a high level means governments often must raise tax rates or at least avoid lowering them.
 

If Montgomery County holds larger reserves than needed to retain its top credit ratings (Aaa from Moody’s and AAA from S&P and Fitch), it is imposing an unnecessary cost on taxpayers. The County could get the same prestige and low interest rates without holding onto money taxpayers could otherwise use. That begs the question of whether, and if so, how much, Montgomery County could lower its reserves without being downgraded.
 

Since credit ratings are not determined using a mechanistic, fully transparent procedure, we cannot answer this question precisely, but we can get some insight from rating agency publications and the finances of comparable counties.
 

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