WASHINGTON — Maryland Treasurer Nancy Kopp has been a force on her state’s political scene for decades, but the veteran politician doesn’t mince words when it comes to the negative outlook a major rating agency has put on the Old Line State's triple-A credit rating.
“We have a diverse economy,” said Kopp. “People think of us as basically a [federal] government state, I think.”
Moody's Investors Service placed Maryland on negative outlook, while still awarding its general obligation bonds a triple-A rating, because of the state’s high reliance on federal jobs at a time when there is budget pressure to downsize government spending.
The District of Columbia carries the same negative outlook, as does Virginia.The outlook particularly affects Maryland, which issues more general obligation bonds than many states, according to Kopp.
In February, Moody’s affirmed its Aaa rating on more than $1 billion of Maryland GO bonds, but pointed to the state’s “reliance on federal jobs in an era of retrenchment.”
It expressed concern that Maryland’s rating “could be affected by a downgrade of the U.S. government’s rating.”
Kopp does not deny that the state she has served as treasurer for 10 years benefits from thousands of high-paying public-sector jobs, but takes issue with the idea that Maryland’s creditworthiness is the U.S. government’s creditworthiness writ small.
“The fact is, while Virginia and Maryland do both have a higher-than-average proportion of government employees or government contractors in our revenue base, at least in Maryland — it’s very diversified,” she said.
She noted that Maryland is home to sizable numbers of personnel working for the military, the National Institutes of Health, the National Security Agency and other disparate federal entities. “They are federal, but they are very diverse,” Kopp said. “And therefore, are going to be impacted differently by personnel cuts, budget cuts, etc.”
Marcia Van Wagner, a Moody’s analyst responsible for evaluating Maryland’s debt, said the risk evaluation isn’t as “granular” as it would have to be to determine the importance of Kopp’s point.
To determine how reliant the state is on federal jobs, Van Wagner said, she and other analysts examine federal employment as a percentage of total employment. According to the most recent Moody’s analytics report on Maryland, the state’s percentage of workers employed by the state and local governments is 19.8%. That’s 3% above the national average.
Maryland also faces the looming spectre of sequestration — deep, across-the-board, mandated cuts to military spending triggered by Congress’ failure to reach a debt ceiling agreement. If Congress fails to amend current law by 2013, an additional $550 billion will be sequestered from the Pentagon’s budget.
But the heavy federal presence isn’t all bad, even in tough times, Van Wagner said. In terms of unemployment, Maryland weathered the recession better than the average state, remaining below the national unemployment average throughout the last few turbulent years. That is in part because of the low volatility in the public sector workforce, she said.
“I would characterize them more as stable,” she said. “The federal employment serves as a stabilizing force.”
Kopp’s responsibilities as treasurer are varied. She chairs the Capital Debt Affordability Committee and the Commission on State Debt, and sits on the Board of Revenue Estimates. She is Maryland’s chief representative in dealing with rating agencies and investment banks. She also serves as chair of the Board of Trustees of the Maryland State Retirement and Pension Systems and the College Savings Plans. She is a member of the Maryland Supplemental Retirement Board, the Health and Higher Education Financing Authority and the Small Business Development Financing Authority, among other entities.
She also has the added perspective of having served in the Maryland House of Delegates for 27 years. It’s in the state capitol at Annapolis that both Kopp and Van Wagner see a major concern: the state budget. Maryland’s “doomsday” budget, a series of cuts totaling some $500 million, was part of a broad financial package under consideration by the legislature.
The budget passed, but not the revenue-generating measures associated with it. An education law also passed that strengthened the state’s ability to withhold money from localities that fail to fund schools at at least the previous year’s level, so that it can give the money directly to the local school boards.
Combined with the spending plan to cut state aid payments to Maryland’s 23 counties and the city of Baltimore by $262 million in fiscal 2013, it could result in a credit downgrade for Maryland municipalities, a Moody’s analysis concluded last month.
“It’s like sequestration at the local level,” Van Wagner said. “Everything right now is really up in the air.”
The Maryland constitution gives the legislature 30 days in special session, if Gov. Martin O’Malley desires, to complete their work. What, if anything state lawmakers will do, Kopp said, is “the question of the moment” for her state. Will they approve a revenue bill, or let “draconian” cuts go through?
“One or the other, we’ll have a balanced budget,” Kopp said. “I have great faith that common sense is going to prevail.”