The Department of Legislative Services – the professional staff agency to the General Assembly – suggests that the Maryland Department of Transportation’s estimates for revenues are too optimistic.

The discrepancy is shown in the report made to the Spending Affordability Committee on November 18.

DLS believes that revenues are overstated modestly — approximately $221 million over the 6-year forecast connected to the state’s Consolidated Transportation Plan. An even larger differential appears in bond proceeds and premiums – totaling an additional $930 million difference. The DLS forecast relates to the Department practice of assuring a certain bond covenant — a ratio between actual revenues and the costs of debt service.

DLS also noted that the Department has recognized an allowance for local distributions of Highway User Revenues – consistent with the pledge made by Governor Hogan throughout his campaign and term. “Should they choose to do this through legislation, that will even worsen these numbers,” the DLS analyst said.

DLS offers a summary observation on the funding discrepancy and its effects:

• The Department of Legislative Services (DLS) fiscal 2017-2022 TTF forecast indicates that the State capital program in the MDOT draft forecast is still oversubscribed by $1.6 billion caused by the following:

• Additional spending for departmental operations accounts for $588 million of the reduction. The DLS forecast inflates out-year operational spending by the five-year average annual rate of increase through fiscal 2016. The budget committees instructed MDOT to use the five-year rate of change in its out-year operating projections but it chose not to do so;

• Lower motor fuel tax revenues account for a further $233 million of the reduction to the capital program. The largest difference between DLS and MDOT in this area is the estimate of the number of gallons that will be sold during the forecast period; and

• Bond issuances in the DLS forecast are $930 million less than in the MDOT forecast. The reduction is necessary to maintain the net income to debt service coverage ratio of 2.5 that MDOT has adopted as its administrative policy (bond covenants require a minimum of 2.0 coverage.) If legislation is enacted increasing the amount of Highway User Revenues going to local governments, additional reductions to planned bond issuances will need to be made in order to maintain the minimum debt service coverage ratio.