- The Washington Times - Wednesday, July 27, 2011

Maryland officials sold $512 million in municipal bonds Wednesday to help pay off state debt and finance infrastructure projects, but doubts remain over how the ongoing federal debt debate will affect the state’s future investments.

The bond sale will allow the state to borrow money, which it will use to service debts and pay for schools, hospitals and other projects. About $285 million of the funds will go toward schools, colleges and universities, said state Treasurer Nancy K. Kopp.

“Maryland taxpayers benefit not only from saving millions of dollars because of the state’s low interest rates, but also from the investment in our communities and infrastructure,” she said.

The state Board of Public Works approved the sale a week later than scheduled, delaying the decision due to uncertainty about Congress’ debt-ceiling negotiations and the possibility of a federal default.

A national default could damage the nation’s credit rating and its ill effects could trickle down to states including Maryland, which relies heavily on federal spending and jobs.

Despite being one of just eight states with a maximum triple-A bond rating, Maryland was one of five placed on a credit watch this month by Moody’s Investors Service - one of the three major bond-rating agencies - due to its strong D.C. ties.

The agency will review and could downgrade Maryland’s triple-A rating, which allows it to attract more lenders while paying much lower interest rates on its debts than other states.

State officials have warned that if Moody’s lowers Maryland’s rating, the state would have to borrow at higher interest rates - with added costs likely falling on taxpayers - and potentially delay many projects and improvements.

While Mrs. Kopp appeared optimistic Wednesday, Warren G. Deschenaux - policy analysis director for the state’s Department of Legislative Services - warned Tuesday that even a federal agreement by Aug. 2 to raise the debt ceiling and cut the deficit could put Maryland in a bad position, endangering some of the $9.1 billion in federal funds it is slated to receive this year.

Nearly 60 percent of the funds are for medical assistance and food stamps.

Mr. Deschenaux added that if federal officials do not raise the debt limit or come up with a limited agreement, the state would be in much greater danger of losing its top rating or suffering other ill effects.

He said the federal situation is out of the state’s control, but that Maryland officials can limit any impact by controlling their own spending and holding onto to the state’s rainy-day fund and an expected $283 million in extra revenue from last fiscal year.

“We can’t change what the federal government does, and we can’t change our situation overnight,” he said. “Our one manipulable variable is our budget and how we manage it.”