Spending Committee Raises State Debt Cap Above Recommendation

The Spending Affordability Committee has authorized a limit of $1,075 million in for new state capital debt in fiscal year 2019. This amount is $80 million more than the Capital Debt Affordability Committee recommendation, however, it is still within traditional benchmarks.

In September, the Capital Debt Affordability Committee (CDAC) voted recommended setting the State’s bond authorization at $995 million for the coming fiscal year. As described in the Capital Debt Affordability Report,

After reviewing several options, the Committee voted to maintain the authorization at $995 million in future fiscal years. The vote was 4-1 with the Treasurer voting against the proposed amounts and advocating for maintaining the 3% growth level instituted by the Committee in 1992 and would remain within the CDAC affordability benchmarks.

CDAC benchmarks for new debt are to maintain debt affordability ratios within 4% debt outstanding to personal income and 8% debt service to revenues.

Now, the Spending Affordability has gone beyond that recommendation in its report. In setting the debt cap at $1,075 million, the Spending Affordability Committee is raising the debt level to an amount within traditional benchmarks, but straying from the planning assumptions adopted by the CDAC in 2016. The CDAC 2016 assumptions recommended a limit for new debt authorization amounts to $995 million annually in future fiscal years based on the Governor’s capital program.

Screenshot 2017-12-19 20.57.29
From the September 29th meeting of the Capital Debt Affordability Committee.

The 2017 Spending Affordability report states,

The committee recommends the authorization of $1,075 million in new GO bonds for
the 2018 session. In addition, for planning purposes, out-year annual authorizations should be limited to 1% growth, so that capital spending does not increase at a greater rate than State property tax revenues, which is the primary revenue source supporting debt service. The proposed limit keeps the State well within CDAC’s debt affordability criteria.

The Spending Affordability Committee’s cap parallels last year’s process. In 2016, the CDAC made a recommendation of $995 million in new debt for fiscal year 2018. The CDAC report stated,

After significant discussion, the Committee recommended $995 million as the maximum amount of general obligation bonds to be authorized for fiscal year 2018. The Committee vote was 4-1, with the Treasurer voting against the proposed amount and noting that since interest rates remain low by historical standards while the State’s infrastructure needs continue to exceed available funding, additional investment in the State’s capital program should be considered.

Later that year, however, the Spending Affordability Committee Report authorized $1,065 million for FY 2018 plus 1% annual growth, and the 2017 General Assembly’s net general obligation debt authorized for the fiscal year 2018 capital program (effective June 1, 2017) totaled $1,065 million. The SAC report stated,

The committee recommends the authorization of $1,065 million in new GO bonds for the 2017 session. In addition, for planning purposes, out-year annual authorizations should be limited to 1% growth, so that capital spending does not increase at a greater rate than State property tax revenues, which is the primary revenue source supporting debt service. The proposed limit keeps the State well within CDAC’s debt affordability criteria.

For more see, Capital Debt Affordability Committee Recommends Bond Authorization of $995 Million For FY 18 and the reports linked above.