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Maryland struggling to avoid bond rating downgrade

ANNAPOLIS — Despite the state’s efforts to remain fiscally sound, Maryland is struggling to avoid the downgrading of its cherished top triple A bond rating due to possible federal budget cuts, State Treasurer Nancy K. Kopp has told the House Appropriations Committee.

“It’s very frustrating because everything you do, everything we do, they agree is top notch,” Kopp said Friday. “But we cannot control the United States Congress.”

In December, Moody’s reassessed Maryland’s rating and maintained its negative outlook — as well as the negative outlooks given to Virginia and New Mexico. According to Moody’s, Maryland has “high concentrations of federal government employment and federal procurement,” and is exposed to the consequences of downsizing and spending cuts.

Kopp told the Appropriations Committee that Moody’s may automatically downgrade Maryland’s bond rating if it decides to downgrade the federal government. She said that the state is trying its hardest to ensure that does not happen.

The top bond rating saves the state millions of dollars in interest, and is also seen as a symbol of the state financial discipline.

State officials are working to get Moody’s analysts to consider Maryland as its own entity, and if necessary, give the state a higher rating than the federal government. Maryland’s economy is doing well, its work force is diversified, and its education is system is top-notch, state officials point out.

Kopp said that Moody’s analysts are paying close attention to several of the actions Maryland has taken toward more solid future sustainability. Analysts were impressed with pension reforms passed by the General Assembly in 2011. They also were given a detailed tour of the Base Realignment and Closing sites — known as BRAC — and the jobs it has brought to the state.

“It’s hard going because they seem to think they have an automatic tool,” Kopp said.

When Standard & Poor’s downgraded U.S. Treasury notes in the midst of partisan turmoil last summer about raising the federal debt ceiling, Maryland’s bond rating received a negative outlook. Maryland’s economy is closely tied to that of the federal government, with hundreds of government agencies and thousands of federal employees and contractors within the state.

One comment

  1. John D Kromkowski

    How is it even possible that Maryland Bond ratings could get down graded! Our State Constitution REQUIRES that all debt is financed by the statewide property tax, such that every year the BPW (gov, treas., comptr.) must set a rate sufficient to pay Gen Obl. Bonds. Hence it is constitutional impossible to for the Maryland to default. Are our government officials making the rating agencies aware of the unique situation in Maryland?!

    Of course, we could make the situation even better if the statewide property tax (which is really two taxes one on the land value and on on the improvement value, Cf. Art. 15 of Dec. of Rights) only fell on the land value, because a tax purely on land value has no economic deadweight loss. In fact, studies of jurisdictions which have lower rates on improvement value and higher rate on land value, show that a land value tax instead of a real estate tax promotes growth Florenz Plassmann and T. Nicolaus Tideman. “A Markov Chain Monte Carlo Analysis of the Impact of Two-Rate Property Taxes on Construction.” Journal of Urban Economics, March 2000, 47:2, 216-247.