Maryland State Treasurer Nancy Kopp spoke with WAMU about the possible effects of a federal government default July 28.
Maryland and Virginia are among five states to be placed on a credit watch by one of the three major bond ratings agencies. Moody's Investor Services says it might lower Maryland's bond ratings if the federal government rating is downgraded first.
Maryland recently sold $500 million in bonds, which was a big victory for the state, Kopp says. "I must admit candidly, it the midst of everything going on Washington, it made me a little nervous, but in fact, we did better than almost any other time," Kopp says.
However, Moody's ratings put Maryland, Virginia, and three other AAA-rated states on what's known as the review list, due to the federal government's inability to deal with the debt ceiling issue and the long-term debt issue.
According to Kopp, Maryland and Virginia have been rated AAA for half a century or more, and a major part of the local economy is attributed to number of federal jobs in the area. She says that's what distinguishes Maryland and Virginia from other states.
Maryland has always been aware of the pros and cons of having a large federal presence, however, she adds. That Washington hasn't been able to come to a decision about the debt ceiling is surprising.
"This has not happened before. This is what rating agencies say is new: one, it throws a cloud on the confidence people have in public debt -- state and federal," she says. "And second: if they start dealing with it the way some folks in Congress want to and just slash the budget, what impact does that have?"
She points out that Maryland and Virginia are actually better off than some other states.
"In terms of direct federal aide, it's actually a smaller part of our budget than it is of many states. But still it's about 25 percent of our budget," she says. "Most of that, for Medicaid, for health, and for roads, transportation and public transportation. If that's where the cuts are, that means layoffs, jobs gone, and that means a reduced effort in our infrastructure."
Looking down the road, a downgrade of Maryland's credit rating could affect public confidence and the public's view in the state's ability to manage the public's funds, according to Kopp.