March 1st is the self-imposed deadline for mandatory, across-the-board, Federal spending reductions. The White House Office of Management and Budget has detailed the spending cuts for each state. Reduced spending will mean furloughs for Federal contractors, less teachers in the class room and reduced unemployment checks. It should be noted that Medicaid, Social Security, and transportation programs will be left untouched by sequestration. Municipal sectors facing the biggest headwinds are K-12 school districts and states that have high concentrations of federal employment and healthcare grants. K-12 school districts in many states have been hit hard over that last few years by reduced state funding. We have thinned K-12 positions in our clients' accounts, but held onto the strongest districts’ securities and those with strong state bond guarantee programs, such as the Texas Permanent School Fund. In our opinion, strong K-12 credits will maintain their high grade and liquid status even with the Federal spending disruption. States such as Hawaii, Virginia and Maryland are in for a rough patch due to their high concentrations of the Federal workforce. Hawaii’s economy is especially vulnerable because of a relatively narrow economic base of tourism and defense related industries. Further, reduced healthcare grants may impact our healthcare credits at the margin. SNW's focus on the strongest regional healthcare providers will result in our clients' credits experiencing minimal impact. The take away from sequestration is that every region and every sector in the US will be affected to some degree. Weak credits will get weaker, while the stronger credits with good fundamentals, which we prefer, will weather the sequestration storm better and provide higher risk adjusted returns for our clients.