Maryland panel recommends less borrowing despite revenue windfall

A state advisory panel recommends that Maryland issue about $200 million less in bonds for the coming budget year than in the current budget year.

The 4-1 vote brought an end Monday to a debate over borrowing by the Capital Debt Advisory Committee. Treasurer Nancy Kopp and others favored increased borrowing citing billions in surpluses.  State Budget Secretary David Brinkley proposed a cut of about 20% to the expected borrowing for the coming year.

“There’s a lot of reasons for that, but principally we do have an awful lot of cash,” said Brinkley, adding that he would prefer to use cash instead of bonds sometimes called PAYGO (pay-as-you-go).

There is a $2.5 billion surplus in the current budget year. Over the next two years, additional expected surpluses could bring that total close to a total of $5 billion.

“We have a lot of things going on right now, and we certainly have a lot of cash,” Brinkley said. “I think the general fund PAYGO with the size of the surplus can and should and will be pretty substantial in the (fiscal year 2023) budget that goes in.”

Kopp and others floated the idea of borrowing more money. The expanded capacity to borrow hinges on low interest rates and those surpluses driven by federal aid during the pandemic.

“The takeaway from these numbers really should be that almost any (borrowing) you could come up with for a recommendation for authorization in fiscal 23 is going to be affordable,” said Christian Lund, director of the treasury’s debt management division.

The panel, whose recommendations are not binding, was offered three scenarios.

The first maintained Republican Gov. Larry Hogan’s plan to borrow $1.115 billion in fiscal 2023. The amount represents a $10 million increase over the current year. Hogan capped bonds to contain growing debt payments because of borrowing during the Great Recession.

A second scenario called for the panel to return to its traditional recommendation of 3% increases over the previous year. Under that plan the panel would recommend slightly less than $1.5 billion.

A final scenario would recommend borrowing of $2.5 billion for the current and following year. The amount would more than double the planned increases in Hogan’s plan.

All three proposals are compliant with a law limiting outstanding debt to 8% of revenues.

“I would go with at least scenario No. 2 and perhaps even more,” Kopp said. “Nonetheless, I know how to count votes.”

Three of the five voting members, including the secretaries of the state budget and transportation departments, are controlled by Hogan. Those members were joined by Comptroller Peter Franchot in voting for Brinkley’s $900 million proposal.

The state’s top tax collector urged caution until it is known whether the federal aid has truly reset and raised the state’s revenue base. “From an economic standpoint, I think we need to recognize we’re not exactly clear as to what the future holds,” Franchot said.

“It’s unclear that we’re out of the woods,” he said.

The governor said earlier this month that he would oppose any attempt to increase borrowing.

“Already some politicians see this as a chance to go on a big spending spree with pet projects and big payouts to special interests and new mandated increases in spending,” Hogan told reporters on Oct. 7. “That is not going to happen on my watch.”

The panel’s recommendations displeased lawmakers who hold non-voting positions on the panel. Del. Ben Barnes, D-Anne Arundel and Prince George’s counties and chair of the House Appropriations Capital Budget Subcommittee, called the $900 million recommendation “a draconian cut.”

“Government works best when the executive branch and the legislative branch work in tandem on these things,” Barnes said.

A shift to using cash instead of bonds would affect the legislature’s ability to add to the capital budget, he said.

“What this is going to do is tie (the legislature’s) hands,” he said.