Layoffs of tens of thousands of federal workers and cuts to federal funding will end up raising borrowing costs in Maryland, after a key ratings agency slashed the state’s credit on Wednesday.
The ratings firm Moody’s said it had downgraded several Maryland credit ratings, including general obligation bonds and consolidated transportation bonds, even after lawmakers cut spending and raised taxes to pare back a budget deficit.
Moody’s said those cuts helped, but they may not be sufficient to address deficits caused by the actions of the Trump administration.
“[T]he need for further corrective steps may arise directly from federal funding cuts or the economic consequences of federal layoffs and other policy shifts, to which Maryland has a very high degree of exposure,” Moody’s analysts wrote.
The agency downgraded both general obligation bonds and consolidated transportation bonds from Aaa, the highest possible rating, to Aa1. It represents the first time since 1973 that Maryland’s rating has been downgraded.
In a joint statement, Gov. Wes Moore (D), Lt. Gov. Aruna Miller (D), Treasurer Dereck Davis (D), Comptroller Brooke Lierman (D), House Speaker Adrienne Jones (D) and Senate President Bill Ferguson (D) laid the blame squarely at the feet of the federal administration.
“To put it bluntly, this is a Trump downgrade,” the state’s top Democrats said. “Thousands of federal workers are losing their jobs. Actual and proposed cuts to everything from health care to education will continue to exact an incalculable toll on Maryland and states across the country.”
The officials pointed to $2 billion in budget cuts. They said they had met with Moody’s analysts last week to lay out their case.
The effect of the downgrade will mean higher yields on any future bonds Maryland issues. Investors demand higher interest rates for the perceived risk of investing in bonds that carry a lower rating.
Moody’s actions suggest other states may be in line for a downgrade as well. Maryland has more federal workers, 225,000, than any state except Virginia, which has 235,000, accordant to the U.S. Census Bureau. The District of Columbia is home to 49,000 federal workers, or about 13% of its total workforce, far higher than any other state.
It’s not clear exactly how many federal workers have lost their jobs, taken buyouts or outright retired during the first months of the Trump administration, as the president seeks to drastically reduce the federal workforce. The New York Times estimates at least 58,000 jobs have been cut, another 76,000 have taken buyouts and the administration plans an additional 149,000 reductions. That would mean at least a 12% reduction in the workforce of 2.4 million.
Those job cuts would come on top of planned reductions in federal grants to state spending, in areas including health care, education and other departments. Combined, those cuts will force states to curtail their own programs and spending, leading to a potential economic recession.
Maryland is now one of 16 states that carry an Aa1 rating from Moody’s. Two other ratings agencies, S&P Global and Fitch, both maintain Maryland’s AAA rating. New Jersey and Illinois carry the lowest ratings from Moody’s, at A2 and A3, respectively.