Keep a Lid on Debt, Committee Advises

The Capital Debt Affordability Committee continues its commitment to a flat capital program with a recommendation to the Governor and General Assembly to cap new debt at $995 million for the fiscal year 2020.

The final meeting of the Capital Debt Affordability Committee (CDAC) included discussion of revenues, infrastructure costs, and debt service amounts and a vote to recommend no more than 995 million in new debt for the 2020 fiscal year.

The Treasurer also shared at this meeting that next year, the CDAC will also be looking at the GASB lease standard and private-public partnerships with regard to the State’s debt program.

Here are some of the items that were discussed before the vote on the Committee’s debt recommendation for fiscal year 2020:

  • The cost of construction is growing at a rate faster than 2% and infrastructure costs continue to increase
  • Personal incomes are predicted to increase in Maryland over the next 10 years
  • Debt service is the fastest growing element of the State’s budget, with annual debt service greater than the State’s school construction budget
  • A recession is anticipated and revenues may drop

The Committee ultimately recommended a limit to new debt of $995 million for the fiscal 2020 year. The motion was made by Budget Secretary Brinkley, who spoke about the size of the State’s annual debt service. Treasurer Kopp voted against the motion, following comments regarding the school construction needs across the State.

The recommendation is the same as last year’s and follows the Governor’s capital program. However, it diverges from the traditional approach employed by CDAC of limiting debt growth to 3% (2% to account for inflation and 1% for increased demand for capital funding).

As portrayed in the charts below, both options (and a third middle-road not pictured here), would leave additional debt capacity for the State, based on the benchmark that tax-supported debt outstanding should be no more than 4.0% of total personal income. This is in part because of the projections for increasing personal income in Maryland.

 

 

Stay tuned to Conduit Street for coverage of this year’s General Assembly’s Spending Affordability Committee. The first meeting of that Committee is scheduled for November 15, 3 P.M. in the Joint Hearing Room.

For more meeting background, see September 26, 2018 Meeting Materials of the Capital Debt Affordability Committee.

 

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