Staff from the Maryland State Treasurer’s Office shared credit rating agency concerns with the Maryland Capital Debt Affordability Committee ahead of vote on final debt recommendations this Friday. Warnings stem from weak economic growth, projected structural deficits, and low reserves relative to peer states.
During the second meeting of the Maryland Capital Debt Affordability Committee (CDAC) members were briefed on current general fund revenue estimates, the taxable property base, capital needs, the state credit ratings, and an economic development related debt issuance.
Concerning general fund revenues, the Bureau of Revenue Estimates (BRE) agency leadership reiterated the major points from their announcement a couple weeks ago. They highlighted that Maryland’s latest revenue forecast adds almost $320M to expected fiscal 2027 revenues, but underlying general fund revenues are still projected to decline 0.9 percent as the State faces slow growth, federal employment losses, elevated inflation, and other economic risks. MACo’s Legislative Director, Kevin Kinnally, previously posted a full recap of those findings on Conduit Street.
Another major portion of the meeting focused on the ratio of capital debt authorization and actual issuance. Treasury staff noted that there is a growing concern about the growing gap between authorized debt and the amount issued. To avoid that disparity growing significantly over the next five years, staff proposed some solutions to mitigate this outcome, showing an affordable plan that would allow the state to issue more of the currently authorized debt and remain within the statutory caps the state uses to dictate affordability. It was noted however, that this would have an impact on general fund revenue and need to be taken into account as lawmakers and state leadership address the billion dollar deficits that are projected over the next five years.
As part of the capital program presentation, Alex Donahue, Executive Director of the Interagency Commission on School Construction, shared the extent to which maintenance and construction needs in schools is outpacing available resources. Department of Budget and Management staff shared that this is an issue across all capital project types but confirmed that school construction is the most significant.
This is notably not the first or second year these concerns are being shared with state leadership. From the discussion, however, more research will be done to learn if any of the unissued debt is eligible for school construction costs and what current barriers exist in the school construction planning process that would make accessing funds from existing authorizations a challenge. Again, though, this would rely on the General Assembly and Governor’s office ability to release some of the out year pressure on the general fund.
The final significant portion of the meeting focused on the state credit rating. Staff shared that while the current year bond sales were successful, with strong ratings by three agencies, S&P has put Maryland on a negative outlook. This comes after Moody’s downgraded the state credit rating last year.
From the CDAC presentation, regarding credit ratings:
All the rating agencies have noted the fact that budget deficits are not uncommon for Maryland, but that the current forecasted deficit does represent a larger than typical share of our general fund revenues. And so that remains a primary concern. Particularly, S&P has expressed to us that they have an expectation of seeing a sustainable plan that brings multi-year structural balance back to the state in order to avoid future lowering of our credit rating.
Staff also relayed that the agencies recognize that Maryland’s state debt and other long-term liabilities are more than double the median for other US states based on recent data. This coupled with the state’s sluggish growth has lead to, now two, agencies downgrading the state credit rating and putting state leaders on watch for further actions. A final note was that, although the state reserve account is high, it is lower than peer states.
From S&P:
It is our understanding that, ahead of the January 2027 fiscal 2028 budget introduction, the state intends to establish a consensus budget framework that will meaningfully address these gaps through structural adjustments that better align revenues with spending, which will be critical, in our view, to maintain the state rating.
The next and final meeting of the CDAC will be this Friday, October 9, at 11am. This session will include a final vote on debt recommendations to state leadership.
Access agenda and link to final meeting on the CDAC website.
