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Md. treasurer wants state to examine impact of Purple Line costs

Maryland Treasurer Nancy Kopp. (file)

Maryland Treasurer Nancy Kopp. (file)

ANNAPOLIS — Maryland’s treasurer Wednesday called on the legislature and the governor to examine how large-public private partnership projects could affect state finances and its coveted bond rating.

Treasurer Nancy K. Kopp made her comments during a Board of Public Works meeting during which the state auctioned off about $1 billion in bonds. The auction came about a week after the three major bond rating agencies re-affirmed Maryland’s triple-A credit rating.

“It’s still a very rare rating,” Kopp said, attributing the continued bond rating, which allows the state to borrow money at a lower interest rate than other states, to a strong, educated workforce and the fiscal management of the state.

It’s an analysis that the three major bond rating agencies — Moody’s, Fitch and Standard & Poor’s — agreed with last week in their individual reports.

Kopp said the ratings came “after a long discussion over the so-called P3 public-private partnership, the Purple Line, and how (payments) will be treated.” Under the P3 model, governments partner with private-sector companies to finance and operate what previously were solely government-operated infrastructure systems — in this case, a light-rail line.

Standard & Poor’s, in its report, announced that it would begin counting some of the Purple Line costs against the state’s debt ratios.

The Purple Line will connect New Carrollton in Prince George’s County to Bethesda in Montgomery County.

“To the extent project revenue is not sufficient to cover the majority of future availability payments, we believe most of Maryland’s debt measures will remain moderate, but net tax-supported debt compared to population and personal General Obligation income could rise to what we consider moderately high levels,” analysts wrote in the Standard & Poor’s report.

The announcement, while consistent with a memo from the rating agency last year, contradicts Kopp’s comments to a Senate committee earlier this year when she said the costs of the project would not count against the debt ratio because payments would come from fares rather than tax dollars.

Neither Moody’s nor Fitch raised concerns about the costs associated with Purple Line in their reports released at the end of May.

“I think the debt affordability committee and the legislature and governor are going to have to look at the categories of debt that the P3s are not,” Kopp said Wednesday. “The P3s are not all paid for by state taxes. Nonetheless they’re on the books, and this is something for us to look at in the future.”

The effect of the rating agency’s comments on the Purple Line are unclear. Questions remain about whether the costs of the project, based on the Standard & Poor’s report, could potentially exceed the state’s self-imposed debt limit of 8 percent of personal income.

Gov. Larry Hogan and some legislators raised similar concerns a year ago about debt limits related to the now-mothballed State Center redevelopment project.

Hogan has expressed a desire to continue to hold borrowing to $995 million annually to allow the state to pay down debt incurred under former Gov. Martin O’Malley during the recent recession.

Hogan, who with Kopp and Comptroller Peter Franchot make up the Board of Public Works, Wednesday praised the recent bond ratings. While not commenting on Kopp’s remarks, Hogan said he would “continue to be vigilant when it comes to state debt affordability and when it comes to protecting taxpayers from unsustainable spending increases.”

Franchot is on vacation and was not at Wednesday’s meeting.

The Board of Public Works earlier this year approved the construction of the $5.6 billion Purple Line project by Purple Line Transit Partners, a team led by Texas-based Fluor Corporation.

Under the agreement, the project will be eligible for about $900 million in federal funds. Purple Line Transit Partners will be paid $3.3 billion over 36 years to build, operate and maintain the line for the state. The balance of the money for the project will come from the state as well as from local government contributions.

The project is only the second P3 of its kind. The other is the the 36-mile Denver Eagle project in Colorado that was also built and managed by Fluor.

Standard & Poor’s, in its report, said it would begin to incorporate about $900 million in so-called milestone payments owed to the project team in the agency’s calculation of the state’s tax-supported debt ratio. Those payments are made incrementally as the project consortium reaches specific construction goals. That amount would be added at the financial close of the project, the agency said.

The agency said it would begin incorporating another $2.2 billion in so-called availability payments owed to Purple Line Transit Partners once construction of the line is completed. The state estimates that the line should be operational by 2022.