The State’s Capital Debt Affordability Committee (CDAC) chaired by State Treasurer Nancy Kopp, approved a recommendation during its meeting on September 30 to set the State’s bond authorization at a baseline of $995 million for FY 2017 – FY 2021. The recommendation, as brought forth by the Secretary of the Department Budget and Management (DBM), David Brinkley on behalf of the Administration, will reduce the amount of debt the State can authorize below the FY 2016 legislative authorization and sets the debt limit at a level lower than the other proposals reviewed by the Committee. The vote to approve the recommendation was 4-1, with Treasurer Kopp voting against.
A memorandum provided to the Committee by Secretary Brinkley summarizes the Administration’s recommendation:
The debt limit must be lowered to remain comfortably within debt ratios and to reduce the burden on the general fund. A $995 million debt level will significantly reduce the amount of general funds needed for debt service over time.
- DBM estimates that this debt level would reduce the amount of general funds needed for debt service by $447 million over the next ten years. Given the 15-year life span of State GO bonds, it take many years for savings from smaller capital budgets to be realized however; by 2025 the state will be saving approximately $150 million a year in annual debt service.
The materials and draft recommendations distributed at the meeting include trend analysis as well as multi – year projections for affordability, income and revenues for the four other proposals reviewed by the Committee. Three of the proposals assumed a $75 million increase in debt service for planning purposes, a 3% annual growth rate, or both. The fourth proposal was derived from a DBM presentation given at the prior CDAC meeting on September 16. The materials also include DBM’s memorandum outlining its recommendation.
CDAC, created pursuant to Section 8-104, et seq., of the State Finance and Procurement Article, is required to submit to the Governor and the General Assembly each year an estimate of the maximum amount of new general obligation debt that prudently may be authorized for the next fiscal year. The September 30th recommendation will be forwarded on to the Governor and General Assembly for their consideration.