Franchot sounds alarm as state gets close to approaching its debt limit

By Megan Poinski
Megan@MarylandReporter.com

As the world is still reeling from the partisan gridlock in Washington over raising the federal debt ceiling, Comptroller Peter Franchot sounded the alarm on Wednesday over a project that may force Maryland to have to raise its own debt limit.

The project, a 20-year lease for the Maryland Economic Development Corporation to sell bonds to construct and equip a new state Public Health Laboratory in the Johns Hopkins University Science + Technology Park, will cost the state $15.3 million a year. Franchot, a member of the Board of Public Works, pointed out before voting for the contract that adding this project to the state’s debt will likely require the state to increase its debt limit.

An artist's rendering of the planned new Public Health Lab in Baltimore.

Franchot said the project is important, and he and Gov. Martin O’Malley voted to approve the lease on Wednesday. Treasurer Nancy Kopp, the board’s third member, was in transit from a conference on Wednesday and not at the meeting.

The state of Maryland has a self-imposed debt service limit of 8% of revenues. Franchot said that according to his calculations, this project could mean that the state needs to raise that debt limit in 2016. And if the project leads the state to have to increase its debt limit, given the current political climate, Franchot pronounced it “outrageous.”

“This is something we should avoid at all costs until we get into recovery,” Franchot said.

Bernadette Benik, the state’s chief deputy treasurer, said that approval of the project does not necessarily mean an impending state debt issue. The Capital Debt Affordability Committee meets every year to crunch revenues and debt payoff amounts, and makes recommendations on how much new debt the state can take on each year. The committee has its first meeting of the year on Friday, and will work toward coming out with new recommendations.

Based on what has been looked at so far, which is everything except for the revenue estimates for the coming year, Benik said that that the debt payments will get close to the 8% cap, but not quite there in the years that Franchot was concerned about. New credits for energy savings, as well as more accurate numbers for future projects like slot machines at the Arundel Mills casino, are reducing what counts toward the state’s total debt.

Franchot said he is concerned about several things changing, or the Government Accounting Standards Board changing the way that states need to classify their capital debt. Benik said that if that happens, “it is up to the CDAC to look at” increasing the state’s debt limit.

Franchot responded that there are many worthy projects, but the state can’t make decisions that would lead to an eventual increase of the debt ceiling based on that alone. Maryland’s leaders must exercise fiscal prudence.

“It we were in better times, we could at least talk about it. But these are not better times,” Franchot said.

O’Malley said that Franchot’s concerns were well stated, and trusted that Maryland would move forward taking a “balanced approach” to debt spending.

The new public health lab will be five stories tall, and 234,000 square feet. It will contain different kinds of laboratories, as well as administrative space, and will be used to help lab scientists identify disease outbreaks and bioterrorism attacks. The state’s laboratory tests food, water and environmental hazards, as well as tracks diseases.

In the new building, lab space will be divided into different kinds of research divisions, including newborn screening, environmental chemistry, molecular biology, virology-immunology, environmental microbiology, and public health microbiology. Construction is slated to begin this fall.