A key fiscal panel is recommending Gov. Wes Moore and the General Assembly stick to a plan that calls for up to $1.75 billion in new borrowing in the coming fiscal year.. (File photo by Danielle E. Gaines/Maryland Matters)
A key fiscal panel is recommending the state continue with a plan to borrow up to $1.75 billion for capital projects in the coming fiscal year, despite the potential for fiscal headwinds from the federal government shutdown and layoffs of federal workers.
The recommendation Thursday by the Capital Debt Affordability Committee sticks to a borrowing plan originally set two years ago.
“Maintaining the current level of debt at the $1.75 billion will enable the state to continue to make progress on priority capital needs, including school construction, economic development, housing affordability and replacement of state-owned facilities,” said Acting Budget Secretary Marc Nicole. “Recommending any less than $1.75 billion will hamper our progress on these critical investments.”
Approval from the panel took less than 10 minutes.
The unanimous recommendation by the committee is not binding on the governor nor the legislature. But the recommendation is not expected to encounter problems as it is a continuation of a proposal to increase capital spending approved by the panel two years ago.
“Maintaining the level at $1.75 billion should not raise significant concerns for the two bond rating agencies that are continuing to rate us AAA, as we are matching our prior year plans,” Nicole said.
Earlier this year, Moody’s downgraded the state from AAA to Aa1. It was the first time since 1973 that Moody’s had not awarded the state its highest credit rating. The change ended the more than three decades of Maryland earning the highest bond rating from all three major bond-rating agencies.
The panel voted in 2023 to recommend a 45% increase in borrowing after Gov. Larry Hogan (R) held down borrowing over his two terms in office.
There are limits to how much the state can borrow.
The total amount of outstanding state debt should not exceed 4% of personal income in the state. Also, all tax-rated debt should not exceed 8% of tax revenues.
Rebecca Ruff, director of debt management for the Maryland State Treasurer, said the recommendation is below both guidelines.
State property taxes repay general obligation bond borrowing. State law calls for the rates to be set in an amount sufficient to repay the annual debt service.
The current rates — 11.2 cents per $100 of assessed value on commercial and residential property and 28 cents per $100 of assessed value on utilities — have not changed since 2007. The state has seen an increase in property tax revenue with rising assessments.
Even so, the tax rates do not cover the full amount of borrowing. Hundreds of millions in cash are taken from the operating budget every year to close the gap.
By 2035, the state could need a general fund subsidy of as much as $650 million to cover bond repayment, according to an estimate released earlier this month.