State senators briefed on implications of federal action
The Maryland Senate's Budget and Taxation Committee received a bleak update this morning about how the state's top bond rating is tied to what their counterparts in Washington might do -- or not do -- in the coming days as they debate raising the federal debt ceiling.
Last week, Moody's Investors Service included Maryland among five states it views as most vulnerable to changes in the U.S. government's bond rating, which would be affected by failure to increase the debt ceiling. But as noted at this morning's briefing, Maryland is likely to be impacted not only by that catastrophic possibility, but also by any deal struck to raise the ceiling.
Warren G. Deschenaux, director of the Department of Legislative Services, kept his message simple: "The bottom line is states are likely to lose under almost any scenario."
That's because any federal debt deal probably would include cuts to state Medicaid funds and/or discretionary funds, Deschenaux predicted. He said federal highway funds were likely to be clipped.
Senators asked what, if anything, the state can do to insulate itself from what happens federally. Deschenaux urged them to keep the state budget balanced and to maintain -- and increase, if possible -- their rainy day fund.
If the state does lose its coveted AAA rating, Deschenaux said, it's not terribly difficult to earn it back after addressing the problem that prompted the downgrade. Another small plus: the next bond sale isn't scheduled until February. By then, Maryland will know what's in store in terms of federal cuts and can adjust its budget accordingly.
"I hope the rest of your day goes better," Deschenaux said as he concluded his presentation.