Moody’s threatens state’s credit rating
A national rating agency threatened Tuesday to take a second look at Maryland’s gold-plated credit status because of the protracted debate in Washington over raising the nation’s $14.3 trillion debt ceiling.
Moody’s Investors Service said it would review “for possible downgrade” the credit ratings of five states: Maryland, New Mexico, South Carolina, Tennessee and Virginia. The announcement comes days before Maryland is expected to begin selling $718 million in bonds.
Moody’s and Standard & Poor’s have both threatened to downgrade the nation’s credit rating in recent weeks – a move that, if carried out, would have a dramatic impact on interest rates. But so far the threats appear to be aimed more at the political process than the bond market.
Under the subject line “a very real threat,” Gov. Martin O’Malley’s political campaign sent an e-mail arguing that over the past few weeks the country has “seen divisiveness and political gamesmanship like we've never seen before.” The Democratic governor blamed conservative Republicans, suggesting their real mission is to defeat President Barack Obama in the 2012 election “even if it means killing the jobs recovery and risking our country's financial stability.”
With an Aug. 2 deadline fast approaching, lawmakers in both parties are wrestling over how to increase the debt limit without facing political fallout. House Republicans are poised to approve a measure that would raise the limit in tandem with significant budget cuts and a constitutional amendment that would require a balanced budget.
Obama has threatened to veto that measure, which would cut spending to levels not seen since 1966.
Senate leaders, meanwhile, are working on a separate proposal that would allow the White House to raise the debt ceiling through next year without the express permission of Congress.
That measure, once viewed as a backup plan, is gaining momentum as one of the last remaining options.
"The problem we have now is we're in the 11th hour and we don't have a lot more time left," Obama said at the White House Tuesday.
The president praised a more comprehensive plan put forward by a by a bipartisan group of senators that would cut $3.7 trillion over 10 years. But the measure includes $1 trillion in new revenues, which House Republicans have strongly opposed. It also is not clear whether there is enough time to advance such a significant package through Congress in such a short time.
The Moody’s announcement was directed at states with close ties to the federal government, either because of their high concentration of federal employees or contractors. The rating agency said it would announce any change to the state’s credit rating within seven to ten days of downgrading the nation’s rating.
The announcement "underscores the urgency of our ongoing debt negotiations at the federal level," Maryland Rep. Steny Hoyer, the second-highest ranking Democrat in the House, said in a statement. "We must continue working to ensure a meaningful outcome that protects our communities and families, while bringing down the deficit and ensuring America pays its bills.”
Sue Walitsky, a spokeswoman for Sen. Benjamin L. Cardin, said the threat was "yet another reason why Senator Cardin believes that default is not an option because it’s too great a risk to our nation.
"He has said repeatedly that our deficits are not sustainable, but the responsible course of action is to increase the debt ceiling and develop a credible, balanced plan that will enable us to manage our deficits," she said.
Maryland State Treasurer Nancy K. Kopp, who will oversee the state’s bond sales, said that at this point she intends to go through with the borrowing, which will begin Friday. But, she said state officials are watching closely for any change in interest rates.
The money will be used for school construction and also refinancing older debt.
“We are a strong state…but there is no doubt that on a macro-economic level we are impacted by serious problems in the federal government,” Kopp told The Sun. “I think, in the end, they will come to the conclusion that we will stand on our own legs.”