State officials estimate that the Marylanders could lose $2.5 billion in income if President Obama and the Congress fail to reach a spending and revenue agreement before automatic cuts to defense and other programs take effect in January.

The budget process known as "sequestration" could cost the state $150 million in federal grants to state and local government in this year alone, the Department of Budget and Management said in a report.

The cuts could still be averted if the lame-duck Congress and the administration can negotiate an accord after the Nov. 6 election, but no talks are expected before then.  The sequestration cuts was negotiated by Obama and House Republicans as a way to resolve last year's standoff on the federal debt ceiling.

According to the budget department, the grant cuts Maryland is facing are modest compared with the $9.3 billion in federal funding the state is expected to receive by June 30, 2013. The department said about two-thirds of the federal money the state receives is exempt from sequestration because they go toward such programs as Medicaid, food stamps and highways. But the 8.2 percent reductions that could be imposed on other programs could affect everything from education to low-income energy assistance to unemployment insurance.

The report said Maryland's economy is especially vulnerable to sequestration because 5.6 percent of its workers are directly employed by the U.S. government, compared with 2.2 percent nationally -- with many more jobs indirectly affected by federal spending.

If sequestration is fully implemented, the state's wage and salary base could be cut by about $2.5 billion, according to the Board of Revenue Estimates. Such a reduction could translate into a loss of 100,000 jobs and throw Maryland's economy into recession, the Center of Regional Analysis at George Mason University concluded.

The department said the wage reduction projected by the estimates board could cost the state about $200 million annually -- and more if the university's prediction were to come true.