Overflowing state coffers and low interest rates are tempting some state fiscal leaders to borrow more money for roads and buildings.
Billions of dollars in additional and unexpected revenue driven by federal pandemic aid are waiting to be spent. Some, including Treasurer Nancy Kopp, said that money could help the state build more schools and roads without violating state debt limits.
“Even without (the surplus) there’s still some headway within the guidelines,” said Treasurer Nancy Kopp, who chairs the state’s Capital Debt Affordability Committee. “This just increases it and brings on eventually a policy decision about investment infrastructure versus investment in ongoing spending.”
Each year the panel makes recommendations about spending to a joint legislative committee.
Lines in the debate over fiscal responsibility are already being drawn months before the debt committee makes a recommendation on limits or Gov. Larry Hogan submits his budget to the legislature.
The massive infusion of unexpected cash and potential for additional federal dollars has some, like Budget Secretary David Brinkley, urging restraint.
“We do see it as an opportunity, perhaps, to not issue as much (in bonds) though, yes, there’s an interest rate incentive to do some of that,” said Brinkley, who warned of economic volatility.
“In that context we’re trying to keep our powder dry so we can keep projects moving,” said Brinkley. “They’re very important and the environment is very attractive but we also, just as quickly as it changed from last year to today, we don’t know what it’s going to look like next year or in 24 months down the pike.”
Maryland caps the amount of outstanding debt to 8% of revenues. The state is currently under that threshold. A sudden infusion of revenue driven by federal pandemic aid will mean the state has even greater capacity to borrow under that limit.
Despite an economic shutdown last year and 14% job loss in 2020, the state is collecting more taxes than expected.
On Thursday, the state closed the books on fiscal year 2021 with more than $2 billion in additional revenue.
Revised forecasts issued by the Board of Revenue Estimates on Friday would add roughly $3 billion to that over the next two fiscal years.
“I do fully believe that this is the new normal in the state’s revenue structure at this higher level,” said Andrew Schaufele, director of the Bureau of Revenue Estimates.
“On the revenue side, I can say with a lot of confidence that we do have a higher (tax) base going forward,” he said.
This is on top of hundreds of millions in aid to the state to pay for specific infrastructure projects, including expanding access to high-speed internet.
Each year there is more demand for state dollars for projects than can be filled. The spending plan through fiscal 2026 calls for more than $4.5 billion in borrowing, with the vast majority going to schools and higher education. It’s an amount already below the limit of nearly $5.7 billion.
Agency requests for that same period total almost $10 billion.
Christian Lund, director of the treasury’s debt management division, said low interest rates coupled with an expected growth of inflation could be advantageous for a state looking to borrow against its triple-A bond rating
“There’s really never been a better time to invest,” said Lund.
Paul Merritt, a banker and member of the panel, urged the committee to consider a recommendation to speed up the rate at which it sells bonds to investors.
“I think we ought to consider selling what our financial adviser thinks the market will absorb so that you are advanced selling,” said Merritt. “You may have the advantage of borrowing at a lot lower rates than if you wait and do it at six-month intervals.”