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Panel recommends holding new state debt to $995M

ANNAPOLIS — State government would borrow less than $1 billion under a proposal recommended Wednesday by a state fiscal committee.

The five-member Capital Debt Affordability Committee voted 4-1 to approve a recommendation to hold the amount of new state debt that would be issued in the coming fiscal year 2018 state budget to the levels of the current year — a plan favored by Gov. Larry Hogan.

State Treasurer Nancy Kopp was the lone vote against the limits on state borrowing, saying she feared it would squeeze out needed infrastructure investments. (File photo)

State Treasurer Nancy Kopp was the lone vote against the limits on state borrowing, saying she feared it would squeeze out needed infrastructure investments. (File photo)

State Budget Secretary David Brinkley said the vote sends “a strong message to the public and the General Assembly regarding the state’s commitment to reduce spending.”

The recommendation goes to the legislative Spending Affordability Committee, which will make recommendations before the end of the year.

State Treasurer Nancy K. Kopp, who chairs the committee and was the lone vote against the proposal, said she was concerned about growing infrastructure needs and a growing portion of available state debt that is going to the Department of Transportation for its projects.

“Things are going to be crowded out,” Kopp said. “Some times it is wise to make more investments in infrastructure.”

The committee, which only approves a recommendation for the coming budget year, is at least anticipating level funding through fiscal year 2026, though analysts questioned the strategy, saying that purchasing power for $995 million in the final year of the projections will be less than in current dollars.

The flat spending would also help slow the rate at which the state bumps up against its 8 percent borrowing limit. Currently, it is projected that the state will inch closer to the limit before exceeding it by one-hundredths of a percent in fiscal year 2023 and then returning below the limit the next year.

Also of concern to some officials is the amount of money from the general fund needed to pay off the debt. Typically, the 15-year bonds are paid for with the state’s property tax collections. Currently, that rate is 11.2 cents per $100 of assessed value on real property and 28 cents per $100 on public utilities — the same rate as it’s been for 11 years.

When there are gaps between the collection and the amount owed, the state has to make up that shortfall with general fund dollars that would otherwise go to operating costs and new programs.

Projections released in April for fiscal 2018 show that gap could increase to $356 million. By fiscal 2021, that amount grows to $521 million — nearly twice the projection for the current budget year.

Brinkley, in urging the flat borrowing, said it was needed because of recently announced reductions in projected revenue for next year and the increased amount of money that will be needed to pay off debt, which he said “is continuing to grow at unsustainable rates.”

In a related move, the committee voted to continue to not count projects built under Public Private Partnerships, more commonly known in Annapolis parlance as P3s, against the debt limit calculations.

The decision affects the Purple Line light rail project in Prince George’s and Montgomery counties and the delayed State Center project. The committee also voted to remove a $35 million charge related to the garage for the proposed State Center redevelopment from the debt calculations because the state Department of Transportation has taken the project off its books until the entire project move forward.

“We don’t see progress on the garage portion of State Center,” said Maryland Transportation Secretary Pete K. Rahn.

The issue of how the state will handle P3 projects is less than settled and could become more of an issue if such arrangements become more common.

Earlier this year, Standard and Poor’s announced it would begin counting the cost of the Purple Line against the state’s debt rations. Such calculations, at least in theory, could affect the state’s coveted triple-A bond rating, which allows Maryland to borrow money at low interest rates.

Kopp said she remains convinced that the projects “can be structured in a way that they are not tax-supported debt.”

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