Debt Affordability Committee Begins Work, With New Context

The Capital Debt Affordability Committee holds the first of three annual meetings in the process of recommending a level of capital debt for the State. This time, the Committee is operating alongside a standing recommendation by the Administration to maintain current authorization levels.

The Capital Debt Affordability Committee 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 Committee is also charged with making a recommendation regarding additional funding for school construction.

MACo observes the work of the Committee, especially as it relates to transportation and education capital spending by the State.

As described at the meeting, last year the Governor’s Administration set a policy of a $995 million limit on debt for future years, rather than letting the debt recommendation fluctuate with the previously used affordability ratios. For planning purposes only, the Committee in October 2015 voted 4-1 to hold authorizations to $995 million annually through FY 2021, the presentation from the State Treasurer’s Department described.

From the meeting materials,

The Capital Debt Affordability Committee (CDAC) modified its authorization policies in 2015. Previously, the policy was to increase authorization each year while limiting GO bond debt service to 8% of State revenues and debt outstanding to 4% of revenues. The Department of Budget and Management recommended that debt be limited to $995.0 million beginning in fiscal 2017.

The chart below shows a prediction of the previously used two ratios of debt service to revenues and  debt outstanding to personal income with the Committee’s current capital debt authorizations level of $995 million per year.

screenshot-2016-09-09-09-27-55

The State’s Department of Legislative Services staff also provided an overview of the budget at the meeting. Patrick Henry described how the Governor did not fund the $80 million in FY 2017 initiatives that the General Assembly dedicated from the Rainy Day Fund. This $80 million included about $40 million in capital projects, he said. While the Governor has said that he will provide authorizations for some of these projects, there are a few options with regard to the source of funding that the Administration will use to fund them.

For more information see the September 7 2016 CDAC Meeting Materials.