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Md. officials wary of potential changes in how project debt accounted for

Nancy Kopp. (The Daily Record / Bryan P. Sears)

Maryland Treasurer Nancy Kopp. (The Daily Record / Bryan P. Sears)

ANNAPOLIS — State fiscal leaders are keeping an eye on potential reporting requirements that could affect the use of public-private partnerships for large government projects.

The changes — possibly several years off — could require state and local governments to count public-private partnerships for projects for roads and even school construction as debt. Some worry that chance could ultimately lower the capacity to borrow through more traditional government obligation bonds or even affect the state’s coveted Triple-A bond rating.

“We may find ourselves borrowing less money and engaging in less projects,” said Sen Douglas Peters, D-Prince George’s.

Peters expressed concern for how changes in how the state accounts for such projects could potentially affect borrowing for school construction at the state level, including a proposed $2 billion plan that will be debated in the coming General Assembly session.

“All of a sudden our debt capacity shrinks if its decided that these count,” said Peters.

Under a P3, as the public-private partnerships are commonly known, a consortium of contractors building a project, such as a light rail line or toll road, manages it at their expense over a period of decades with a commitment that the state will use tolls or fares to make payments. At the end of the life of the agreement, the state takes control of the asset.

The Purple Line light rail system is an early example of such a project. The consortium known as  Purple Line Transit Partners will be paid $3.3 billion over 36 years to build, operate and maintain the line for the state. At the time the project was started, it was just the second such project in the country behind the 36-mile Denver Eagle project in Colorado.

But as states look for innovative ways to deal with infrastructure problems and budgetary constraints, the public-private partnership is coming into its own.

Gov. Larry Hogan has proposed potentially the largest P3 in the country that includes widening parts of the Capital Beltway, Interstate 270 and the Baltimore-Washington Parkway.

In Prince George’s County, a nearly $9 billion backlog in school construction and maintenance issues is raising the possibility that the county could be the first in the nation to create a public-private partnership program to build and maintain public school facilities. The model is similar to one used in Canada.

Concern about the issue is not new.

In 2016, Treasurer Nancy Kopp, who chairs the state’s Capital Debt Affordability Committee, raised concerns about the funding of the Purple Line transportation system.

“We don’t know what (the Governmental Accounting Standards Board) is going to decide on the P3 yet, that’s the short of it,” said Kopp at the time.

Rating agencies three years ago raised questions about the Purple Line project and expressed concerns about how payments would be made if ridership fell below anticipated projections.

Kopp, speaking on Thursday, said a lot of questions need to be answered before it can be known how any changes might affect the state. Rating agencies, she said, might also look differently on projects that are backed by nontax revenues such as tolls and fares as opposed to general fund spending.

Kopp said the accounting standards board’s general goal is to “make everything clear and transparent to the public” when it comes to how public money is spent.

“They don’t want to have an impact on policy and how we fund things,” said Kopp. “But it (P3) is a new area, and they’re just getting into it, and one of the reasons they’ve been a little slow getting into it is because it’s complex and changing.”

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