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Maryland Politics
Posted at 11:48 AM ET, 07/27/2011

Maryland bond sale a bit of good news on debt

With the showdown over the federal debt ceiling playing out less than an hour away in Washington, a bit of good news on the stability of government debt emanated from Maryland’s Statehouse on Wednesday.

The state sold $418 million in bonds at a near record-low interest rate of 3.07 percent, even as Moodys Investors Services last week put the AAA-bond rated state and four others on a credit watch because of their close ties and reliance on federal spending.

Maryland’s bond sale was the first by any state amid the urgent negotiations over raising the federal limit on borrowing and came as financial markets have grown increasingly jittery over a default.

“I think, I don’t want to say astounding, but I think this is an amazing ratification of confidence in the state of Maryland and in the value of our bonds,” said state Treasurer Nancy K. Kopp. “People recognize a very good investment.”

With cameras rolling, Maryland Gov. Martin O’Malley (D) sought to use the development to draw another distinction with Republicans he said were paralyzing the work of government in Washington.

The Democratic Governors Association chair implored House Speaker John Boehner not to endorse the “suicide pact” that he said the Tea Party appears intent on in not supporting a compromise on debt and being willing to drive the nation’s credit rating into the ground. O’Malley said Maryland was moving forward while Republicans in Congress were not. He said they should endorse a debt solution that would let the country get back to creating jobs.

The $418 million in bonds Maryland sold Wednesday are part of nearly $1 billion in new debt the state’s Democratic-controlled legislature authorized O’Malley’s administration to sell this year to fund ongoing school construction, public safety, open space purchases and other projects.

The warning last week by Moody’s had threatened to affect the interest rates that large institutional investors would offer in the bond sale. Technically, the bonds had a AAA rating, but state fiscal experts said the outcome was unclear because at no time in recent memory has the state conducted a bond sale while under a credit watch.

One casualty of the federal debt-ceiling debate: Maryland on Wednesday indefinitely postponed plans to refinance roughly $200 million in old debt, a tactic it has used repeatedly in recent years to reduce costs as interest rates fell. Kopp said the markets were too unstable to continue with the plan.

Like many other states, Maryland’s debt costs are trending toward 30-year highs, even without factoring in billions in unfunded retiree health-care and pension costs. But in Maryland, O’Malley and the state’s Democratic-controlled legislature have sought to use bonds and other borrowing to continue to fund programs that politicians in other states have gutted during the economic downturn.

The governor and his budget team have cast the borrowing as a bridge to get the state to better economic times without throwing aside wholesale O’Malley’s environmental agenda and other initiatives he sees as important.

By  |  11:48 AM ET, 07/27/2011

 
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