Kopp Keeps Maryland on Track

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WASHINGTON — As Maryland’s treasurer, Nancy K. Kopp has steered the state through the recession from her position on a financial oversight board, ­wielding the knife for spending cuts with a greater authority than other state treasurers.

Kopp, 66, who has been ­Maryland’s treasurer since 2002 and is only the second woman to hold that post, last week received a National Association of State Treasurers’ award for distinguished service. She spoke with The Bond Buyer at NAST’s ­annual conference in ­Williamsburg, Va.

As treasurer, Kopp serves on Maryland’s Board of Public Works, an authority established in 1864 that approves all general obligation bond expenditures and also has the power to cut some state spending. The board ­consists of the treasurer, the comptroller, and the governor.

During fiscal 2010, this triumvirate slashed the budget by about $1 billion to keep pace with lower revenue estimates, according to Moody’s Investors Service. The cuts included some full-time state employee positions.

Maryland avoided the legislative chaos that plagued many states last year. Though the state has suffered from the recession’s recurring themes — lower tax revenue and higher unemployment — the Board of Public Works structure has provided the state with fiscal flexibility.

“Maryland’s historic reliance on the Board of Public Works, with legislative participation, is one reasonable alternative way to reconcile legislative representation and priorities, and on the other hand, the need to get things done,” Kopp said.

Rating agencies, which rate the state triple-A, have cited the board as a credit strength.

“It is pretty unique for a [state] board to have significant power like that,” said Douglas Offerman, the lead credit analyst on Maryland for Fitch Ratings.

“It is certainly more difficult in many states to take timely action,” he said. “We view [Maryland’s] debt management as very strong and that is tied back to the treasurer.”

States that concentrate some budget-cutting power in the governor’s office or in an oversight board tend to have higher ratings.

A study conducted in 2008 by the National Association of State Budget Officers found 38 states have some ability to reduce a budget without legislative approval.

The eight states that are rated triple-A by the three major rating agencies allow either the governor or a control board to make some unilateral cuts after a budget is approved.

Though a state’s governmental structure is just one factor in a rating, analysts pointed to the concentrated oversight structure, like Maryland’s, as a credit strength.

“Generally speaking, states where there is this ability to go in and react more immediately to financial needs, I think that is helpful for states,” said Maria Coritsidis, the lead analyst on Maryland for Moody’s.

In states where the legislative branch has significant budget powers, a consensus to determine cuts in services has been hard to achieve during the financial crisis.

California, the lowest-rated state, requires both legislative chambers to approve a budget with a two-thirds vote. The government does not have the ability to reduce spending without legislative approval, according to the NASBO study. Its rating tumbled in 2009 as lawmakers debated the budget long past its deadline.

Arizona’s credit was downgraded to Aa3 by Moody’s in July, becoming the latest state to receive a downgrade. The state also does not have authority to reduce a budget without legislative approval, according to the study.

Kopp has a unique perspective on this issue because she has served as a state legislator. For 27 years, she represented Bethesda in the House of Delegates before becoming treasurer.

“The fact is, it is really tough to get a consensus to cut the budget,” she said. While saying she has “mixed views” about the Board of Public Works, she added that “it certainly is a device for settling problems and for making decisions” after the budget has been approved.

Kopp is in her second four-year term as treasurer, which in Maryland is elected by the General Assembly. Treasurers in about 12 states are elected by a legislature. Other treasurers run in a general election or are appointed by the governor.

Kopp’s political career has been tied to Maryland’s financial viability. In the legislature, she chaired the Committee on Spending Affordability as well as ­separate subcommittees for pensions, audits, and economic development. Earlier this ­summer, she was elected president of the National Association of State Auditors, Comptrollers, and Treasurers, an umbrella organization affiliated with the Council of State Governments but independent from NAST.

In Kopp’s case, public finance appears to run in the family. Her brother, Richard Kornblith, is a partner in the tax and public finance departments at the law firm Fulbright & Jaworski in Los Angeles.

Kopp also has managed the issue of federal subsidy offsets for the Build America Bond program. Maryland is the only state known to have had its BAB subsidy payment offset because of money it owed the federal government. In May, the Internal Revenue Service told the state that it had to withhold about $6,000 of its BAB subsidy payment because the state owed money on employment taxes.

The cost was miniscule and “resolved immediately,” Kopp said. Still, the offset “is a concern to people,” she said.

Kopp, who chairs the NAST legislative committee, oversaw the crafting of a resolution approved by treasurers that asks the IRS to inform states within 45 days if an offset is imminent.

“To a prospective investor, the thought that [an offset] could happen is going to make an impact” on the BAB market, she said.

Maryland, like many issuers, has taken advantage of the BAB program to achieve historic savings. Its October issuance, which included $58.2 million of BABs, achieved a 2.93% true interest cost, the lowest interest rate for the state in the past  20 years.

For Maryland, however, BABs have had a “relatively limited benefit” because the state caps its bond maturities at 15 years to hasten repayment. BABs have achieved the greatest savings for issuers on long-term maturities.

Some states are considering changing their constitutions to issue more BABs and capture the savings rate. But Kopp said Maryland will be sticking with its 15-year maturity cap. The state has other issuers that are not subject to the 15-year cap and have priced BABs at longer maturities, she said.

Looking ahead to fiscal 2012, Kopp said she expects it “is going to be really tough” for budget writers.

“We’d always assumed that 2012 would be the most difficult,” she said, adding that there is little support in Maryland for tax hikes.

This means Kopp and the Board of Public Works may be cutting spending again if revenue estimates decline. Still, Kopp remains confident that Maryland will be able to borrow cheaply.

Investors have “taken the triple-A rating as an indication of good management, as a place that you want to invest in as a state — that it is a good, safe, prudentially ­managed state,” she said.

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