CDAC Reviews Size and Condition of Tax Supported Debt

At its July 19 meeting, the Capital Debt Affordability Committee (CDAC) reviewed the size and condition of the State’s tax supported debt.  Maryland continues to enjoy favorable bond terms due to its continued AAA rating by all three major bond rating agencies – Moody’s, Standard and  Poor’s, and Fitch.  Only seven other states also have a AAA rating:  Delaware, Virginia, North Carolina, Georgia, Missouri, Utah, and Iowa.  Moody’s has recently expressed concern about Maryland’s debt level being too high, but Fitch has classified Maryland’s debt level as moderate, while Standard and Poor’s has classified our debt level as low.

From FY 2006 through FY 2010, Maryland has issued $5.0 billion General Obligation Bonds, including $3.6 billion in tax-exempt bonds, $508 million in Build America Bonds, $65 million in taxable bonds, $20 million in Qualified Zone Academy Bonds (QZABs), $864 million in Refunding Bonds, and $50 million in Qualified School Construction bonds.    The total General Obligation Debt Outstanding as of June 30, 2010 is $6.52 billion.  Additional authorized but unissued debt is $2.39 billion.

In order to stay within its debt affordability criteria, CDAC noted that in future years the amount of general obligation bonds issued will need to be reduced or else some form of general fund support or tax increase will be needed to sustain the current levels.  CDAC noted its staff presentation that “[t]here are multiple authorization levels and patterns that would result in adherence to the affordability benchmarks.”  Comptroller Peter Franchot expressed concern about the State’s increasing debt.

For FY 2010, the Maryland Department of Transportation has $1.65 billion outstanding for Consolidated Transportation Bonds (the legislative debt ceiling is $2.6 billion).  The Maryland Transportation Authority currently has issued $750 million in Grant Anticipation Revenue Vehicles (GARVEE) Bonds, with $651.8 million debt outstanding as of June 30, 2010.

The Maryland Stadium Authority has $261.9 million in outstanding debt for FY 2010.  The Authority is trying to remove itself from several variable debt deals, including with AIG Financial.  The rating houses typically view variable rate debt as a negative.

CDAC also received an update on the status of the Bay Restoration Revenue Bonds.  Proceeds from the bonds help pay for nitrogen-removal upgrades at 67 targeted wastewater treatment plants.  Revenue from the Chesapeake Bay Restoration Fee, which is charged to households on public sewer or that have a septic system, support the debt service of the bonds.  There is an estimated funding shortfall of $550 million and the Maryland Department of the Environment is considering increasing the fee as one option to cover the shortfall.

July 22 Conduit Street post on options to address Bay Restoration Fund revenue shortfall

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