Cellular Telephone Tax Casts Pall over County Bond Rating: Analysts See Threat of Levy Spurring Support for Tax Cap

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Montgomery County's new tax on cellular telephones could jeopardize its coveted AAA bond rating, says one major rating agency, while a second says it wants to talk to the county about the tax.

The new tax is troubling on several levels, said Monique Jn-Marie, associate director of public finance for Fitch Investors Service, one of the three major municipal-bond-rating services in the United States.

Potentially most damaging, she said, dissatisfaction over the tax could fuel the campaign to impose a tax cap in Montgomery County. Ballot initiatives to limit the local income tax have appeared in the last three elections and have been only narrowly defeated.

Potomac lawyer Robin Ficker, who sponsored the last three tax-cap proposals, said last week he is trying again for such a measure on the ballot this November.

"There is lingering anti-tax sentiment hanging around," Ms. Jn-Marie said. "We realize that could restrict the county's operations, and we're keeping tabs on that as a credit risk."

John Incorvaia, vice president of bond-rating agency Moody's Investors Service, said his company would need to see more detail on the tax before commenting, although he said he will raise the issue with the county.

A bond rating indicates a local government's creditworthiness in the eyes of private lenders. The higher the rating, the lower the interest rate a county or city must pay on a loan.

AAA is the highest possible rating. Montgomery County has a AAA rating from all three major ratings services.

In May, the Montgomery County Council voted to extend the county's 92.5-cent-per-month tax on regular telephones to cellular phones, a move expected to bring in about $2 million per year. County Executive Douglas M. Duncan, a Democrat, vetoed the tax, but was overridden 7-2 by the council Tuesday.

Mr. Duncan and other county officials have argued that the tax is a mistake, scaring businesses away from Montgomery County and damaging the cellular telephone industry. …