As Maryland counties face increasing demands for infrastructure, including school construction, the Capital Debt Affordability Committee (CDAC) plays a pivotal role in evaluating the State’s debt capacity.
During its recent meeting, the CDAC discussed Maryland’s fiscal outlook, debt capacity, and the urgent need for school construction funding. These discussions will shape the Committee’s recommendations for the governor and General Assembly as Maryland navigates balancing debt management with critical infrastructure investments.
Maryland’s Debt Capacity and Fiscal Outlook
The CDAC provides the governor and General Assembly with an annual estimate of the maximum new general obligation debt amount for the upcoming fiscal year. The Committee also recommends additional funding for school construction and offers an estimate for new academic facilities bonds to be authorized.
The 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 the CDAC’s estimates are technically advisory only, the governor must consider the Committee’s findings in determining the total authorizations of new State debt.
As previously reported on Conduit Street, Maryland’s fiscal 2024 closeout highlights a revenue picture that may look stronger than it is, primarily due to the timing of several extraordinary revenue events.
The Department of Legislative Services (DLS) anticipates that the State’s structural deficit will grow from $483 million in fiscal 2025 to $3.7 billion by fiscal 2029, meaning ongoing spending will far exceed projected revenues.
Debt Capacity Projections for Fiscal 2025
Maryland expects its debt capacity to reach $5.5 billion in fiscal 2025 and potentially grow to $6.4 billion by fiscal 2034. The CDAC applies affordability benchmarks to keep debt manageable while Maryland invests in critical infrastructure projects:
- Debt Outstanding: Maryland aims to keep tax-supported debt below 4 percent of total personal income, ensuring the State does not overburden itself with debt.
- Debt Service to Revenues: The debt service ratio—the portion of state revenues used to pay down debt—must remain below 8 percent. For fiscal 2025, the ratio is 6.34 percent and will gradually increase to 6.8 percent by fiscal 2034.
School Construction: Urgent Needs and Long-Term Planning
County governments partner with the State to fund school construction projects across Maryland. K-12 school renovation and construction projects make up a substantial portion of any county’s capital budget, and counties face pressure to fund upgrades for aging school facilities, accommodate growing student populations, and meet new classroom requirements.
Maryland Statewide Facilities Assessment (SFA)
According to Alex Donahue, executive director of the Interagency Commission on School Construction (IAC), Maryland faces significant challenges in maintaining and upgrading its public school facilities.
The Maryland Statewide Facilities Assessment (SFA) evaluates over 1,350 public school facilities, measuring the remaining useful lifespan and current replacement value of each building. The assessment identifies two key funding goals:
- Maintaining Current School Conditions: To maintain the current average condition of school buildings (with a Facility Condition Index of 53 percent), State and local funding must total $1.84 billion annually over the next 20 years. However, with existing funding levels, there is an annual gap of $97 million.
- Optimizing Educational Effectiveness: To improve educational outcomes and achieve a more sustainable Facility Condition Index of 35 percent, State and local funding must be at least $2.33 billion annually, resulting in a more significant annual funding gap of $590 million.
Legislative and Statutory Targets for School Construction
The Built to Learn Act significantly influences school construction funding, allowing Maryland to issue bonds to support critical infrastructure projects.
For fiscal 2026, the State has set a legislative target of $450 million, allocated across several key areas:
- $40 million for the Enrollment Growth and Relocatable Classrooms Program
- $90 million for the Healthy School Facility Fund
- $6.1 million for the Aging Schools Program
- $313.9 million for flexible capital improvement programs (CIP)
Despite these funding commitments, the gap between the funding requested by schools and the funding approved continues to pose a challenge. For example, in fiscal 2025, requests for school construction funding totaled nearly $977 million, but only $359 million was approved.
Addressing Enrollment Growth, Pre-K Classrooms, and Decarbonization
By 2033, Maryland’s public school system will grow by 1.5 percent, adding 12,400 new students. Enrollment growth in fourteen counties will exceed the statewide average, increasing pressure on county governments to expand school capacity.
In addition, the Blueprint for Maryland’s Future increases demand for additional pre-k classrooms. A preliminary IAC analysis estimates the need for around 300 classrooms, each costing approximately $1 million, though actual costs may vary based on project-specific factors.
However, the number of additional classrooms needed depends on several factors, including private provider capacities, family choices regarding pre-K enrollment, and how each local education agency (LEA) chooses to accommodate the expanded pre-K population. Some LEAs may repurpose existing space, create pre-K centers, or add classrooms, but the exact need for new classrooms will not be known for several years.
Based on the current average State share across LEAs—62 percent—the State cost could be around $186 million, but its portion of costs will vary by project and location. Furthermore, the timeline for completing new classroom spaces is uncertain, with estimates suggesting it could take five to ten years as LEAs gradually assess their needs and move forward with construction based on demand.
Additionally, Maryland aims to decarbonize school buildings by 2045. Although specific cost estimates remain undetermined, the State will invest substantially in capital projects to electrify and transform school facilities into net-zero energy buildings. These upgrades will target schools in poor condition as part of broader capital improvement efforts.
Next Meeting: Formal Recommendations
The Capital Debt Affordability Committee will meet on October 17, 2024, to finalize its recommendations. Last year, the Committee approved $1.75 billion as the maximum amount of general obligation bonds for fiscal 2025, with level funding recommended through fiscal 2029.
Stay tuned to Conduit Street for more information.
