Capital Debt Affordability Committee Recommends 45% Increase in Bond Authorization for FY 25

The State’s Capital Debt Affordability Committee (CDAC) approved a recommendation to set the State’s bond authorization $500 million above previous recommendations for fiscal year 2025, which would constitute a 45% increase in state borrowing.

The Capital Debt Affordability Committee (CDAC) met three times in October to discuss the State’s fiscal health and consider the limit on new state capital debt for the next fiscal year. On October 16, the Committee adopted a set of borrowing recommendations for FY 2025 at higher rates than previously anticipated.

CDAC consists of seven members: six serve ex officio, and the Governor appoints one. The State Treasurer serves as the Committee Chair. Other members include the Comptroller and the Secretaries of the Department of Budget and Management (DBM) and Department of Transportation (MDOT) and one public member appointed by the Governor. The Committee also has a few non-voting members, the Chairs of the Capital Budget Subcommittees of the Senate Budget and Taxation Committee and the House Appropriations Committee.

On a continuing basis, CDAC reviews the size and condition of Maryland tax-supported debt and the other debt of State units, including the University of Maryland System, Morgan State University, St. Mary’s College of Maryland, and Baltimore City Community College. While CDAC’s estimates are technically advisory only, the Governor is required to give due consideration to the Committee’s findings in determining the total authorizations of new State debt.

Every year, CDAC must 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. Although the committee’s estimates are advisory only, the Governor is required to give due consideration to the committee’s findings in determining the total authorizations of new State debt and in preparing a preliminary allocation for the next fiscal year.

As part of its annual responsibilities, CDAC needed to vote on its recommendation for a General Obligation Bond authorization for FY 2025. CDAC only votes on the upcoming fiscal year’s authorization (FY 2025). Assumed authorizations for FY 2026 – 2029 are for planning purposes only and are subject to change.

CDAC’s recommendations

After a lively discussion and several staff presentations, CDAC unanimously approved a recommendation of a $500 million increase over anticipated bond levels, equating to a 45 percent increase in State borrowing. 

Doing so would raise state borrowing to $1.75 billion in each of the next five budget years, for a total of nearly $8.8 billion in borrowing over the next five fiscal years — an increase of 30% over the same period as envisioned by the legislature in December 2023 at last year’s bond recommendation deliberations.

The move comes as fiscal leaders have expressed uncertainty about Maryland’s economic outlook, which has many guessing there will be less state funding available (and therefore a potential reduction) of cash once intended for state and local capital projects. The Board of Revenue estimates decreased state revenue estimates in March and September, which means the State has less cash on hand to pay for capital projects as they come up — also known as “PAYGO”(pay-as-you-go) funding.

“Knowing that we cannot rely on PAYGO funds at this point, the alternative to increasing [general obligation] debt would be to significantly reduce the capital program which we view as neither smart nor feasible,” said DBM Secretary Helene Grady. State agencies have requested more than $15 billion in projects for the coming five-year period. “This figure does not even include the requests flowing in from local governments and other organizations, much of which we are not likely to have the capacity to fund given the cash projections,” she said.

From Maryland Matters:

A key state fiscal panel approved a sharp increase in state borrowing for the next year as fiscal leaders look for ways to offset a projected structural deficit while improving schools and aging buildings and infrastructure.

State Budget Secretary Helene Grady said the additional borrowing would help offset projected structural deficits and limit drastic changes to the current capital spending plan.

The following economic conditions were presented to CDAC on October 6 for consideration:

  • The forecast reflects modest growth rates but does not include a recession
  • Maryland’s economic recovery has generally been slower than the rest of the U.S.
  • The new business cycle may look different due to long-term trends and new COVID-19 impacts that are not fully understood
  • Employment growth was high in 2021 and 2022 as individuals who lost their job in 2020 were able to regain employment
  • Going forward, job growth slows as both total population growth and the share of those who are employed (labor force participation) are lower than before the pandemic

School construction and capital projects

The Interagency Commission on School Construction (IAC) expressed a similar tone during its presentation to CDAC on October 6, stressing significant needs for school capital improvement projects throughout the state, with limited state funding to meet those needs.

*Note that these predictions are incomplete: Since 2018, the IAC statutorily may not require local education agencies (LEAs) to annually submit a summary of expected/projected future capital improvement project needs; and This excludes FY 2024 requests for major construction projects or projects that can be completed in a single fiscal year, such as systemics or some limited renovation projects.

For counties, this means that there might be less state aid for school construction and capital improvement projects to go around, and, ultimately, a tightening of which projects are chosen for state aid, a decrease in per-project funding, and/or an increase in the local share to complete projects.

Longterm implications

The recommendation to borrow a significantly larger amount than previously recommended is particularly interesting at this time, given the ongoing unusually high-interest rates. However, Rebecca Ruff, director of debt management for the Maryland State Treasurer, said the increases remain within state guidelines, which limit borrowing to 4 percent of personal income. Debt service payments should not exceed 8 percent of the State’s total tax collections. Outstanding debt as a percentage of personal income would hover below 3 percent should the State move forward with CDAC’s increased borrowing recommendations. Debt service as a percentage of total revenue would be slightly more than 6 percent.

The increased borrowing would come at a price, however:

The borrowed money comes with a cost down the road. Debt payments from the state’s general fund would remain at or below $500 million through fiscal 2028.

In fiscal 2029, those payments increase to $550 million and grow annually to nearly $800 million by fiscal 2033.


Maryland has a long history of actively refinancing its outstanding bonds when interest rate conditions make it advantageous to do so. This tactic has helped with the State’s overall management of debt affordability. It is not fully clear whether federal law changes on taxability of advance refunding issuances would impede future use of this method – if the replacement bonds are considered taxable by the IRS, that would certainly translate to higher resulting interest costs to the State as issuer, and may obviate any benefits from the refinancing effort.

CDAC’s recommendations now head to the Governor and the General Assembly’s Spending Affordability Committee, which will consider them before drafting a proposed state budget and the start of the 2024 legislative session  in January.

Access 2023 CDAC meeting materials.