In 2010, the Capital Debt Affordability Committee recommended that the state lower its debt limit from $1.14 billion to $925 million and that debt spending not exceed $955 million before 2017.
Last year, the committee reported that Maryland could come within $43 million of its debt limit in 2017, the same year the committee had recommended that the state begin increasing debt funding. The committee does have the authority to increase the debt allowance.
Last month, lo and behold, the Capital Debt Affordability Committee voted 4-1 to raise the state’s debt limit from $925 million to $1.075 billion in fiscal 2014. So much for the recommendation to limit debt spending to $955 million until 2017.
State Comptroller Peter V.R. Franchot cast the dissenting committee vote, telling The Gazette, “I believe it leads to unnecessary spending in the face of a downturn in the economy.” He went on to lament a culture of debt and spending in Maryland.
Make no mistake, a compelling argument also can be made to borrow more at this time. Interest rates are at historic lows and capital projects, such as school construction, are lagging. The construction work would generate needed jobs, albeit temporary ones.
Perhaps the driving circumstance leading to the recommendation was the fact that revenue projections, according to T. Eloise Foster, state secretary of Budget & Management, have increased between $120 million and $180 million, largely through income taxes.
As state Treasurer Nancy Kopp put it: “The need is there. We’re going to be spending the money long term, and the thought was that you ought to spend it when it’s most cost-effective to the taxpayers. You can do more with limited resources.”
Foster believes a $150 million increase in the debt limit is within acceptable guidelines and therefore wouldn’t jeopardize the state’s coveted AAA bond rating from the three national rating agencies.
Still, it wasn’t all that long ago that the agencies’ high marks were accompanied by a caveat — that Maryland’s financial standing could be at risk from potential federal budget cuts. And last year during talk of raising the state’s debt limit, economist Anirban Basu warned that Maryland must adjust its spending now rather than later if it wants to maintain its stellar bond ratings.
The affordability committee’s recommendations are simply that — recommendations. They serve as a guide for Gov. Martin O’Malley and the legislature as they craft next year’s state budget. The governor, though, has spoken often of the need for infrastructure investment.
As Neil L. Bergsman of the independent Maryland Budget & Tax Policy Institute noted, raising the debt limit also increases the possibility of a tax hike to cover debt service.
Given the still-shaky economy, uncertainty over the federal budget and the assortment of financial hardships faced by many Maryland families, the words of Franchot and other proponents of caution should be heeded.