Maryland is selling about $693 million in top-rated debt as automatic federal spending cuts begin, posing a threat to a state economy reliant on U.S. government agencies for contracts and jobs.
The tax-exempt competitive deal will be offered in two parts as soon as March 6, with the largest, at $500 million, slated to fund capital projects. The second piece will refund general-obligation bonds, and tax-supported debt will rise 4.7 percent to $11.1 billion after the sale, bond documents say.
Under a process called sequestration that began March 1, $85 billion in federal spending cuts will be made for the fiscal year that ends Sept. 30. In Maryland, 11 percent of personal income came from U.S. government civilian and military employment, compared with 3.9 percent nationwide in 2011, according to bond documents.
Federal procurement drives 9 percent of Maryland’s gross domestic product, according to a report by Moody’s Investors Service. U.S. agencies account for about 5.9 percent of jobs in the state, which has a labor force of about 3 million people, according to bond documents.
“Federal fiscal consolidation could negatively affect near-term growth prospects,” Standard & Poor’s said in a Feb. 27 report.
Meanwhile, top-rated municipal bonds have performed worse than lower-quality debt in the past three months. AAA securities lost about 0.6 percent in the period, compared with a gain of about 0.1 percent for a BAA index, the lowest investment-grade group, according to Barclays Plc data.
Susanne Brogan, Maryland’s deputy treasurer for public policy, didn’t respond to a call for comment.
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