By Len Lazarick
A state debt committee voted to increase Maryland’s borrowing by $150 million next year to almost $1.1 billion, and the decision left Comptroller Peter Franchot steaming.
“One week we are taking in less money, and the next week we are spending more,” Franchot said in an interview, referring to a write down of estimated revenues Dec. 9. “We are doubling down with a vote on a failed economic model” – that higher taxes, more spending and more debt can reduce unemployment.
Increasing the amount of bonds issued is in line with last Thursday’s recommendations of the legislature’s Spending Affordability Committee to increase capital debt to spend on infrastructure projects such as school construction in order to boost jobs in the construction industry.
“We need job creation now,” said State Treasurer Nancy Kopp, who chairs the Capital Debt Affordability Committee which makes recommendations to the governor and legislature. “The cost of money is very low now, and the cost of construction is low now.”
“I think we can get a bigger bang for the buck now,” Kopp said. These construction and renovation projects are going to be done at some point, she said.
The increase in bond debt is still “within the constraint of spending affordability guidelines,” Kopp said. General obligation bonds are supposed to stay under 4% of the personal income in the state, and the payments on the debt should be under 8% of general fund revenues.
As of June 30, the state had issued about $7 billion in general obligation bonds backed by the full faith and credit of the state. This does not include billions more in bonds backed by the transportation revenues, tolls, university fees and other revenues.
The debt affordability committee had lowered its recommendation in September to $925 million to recognize the continuing economic slowdown.
The motion to increase the debt was made by O’Malley Budget and Management Secretary Eloise Foster, and supported by Kopp, Transportation Secretary Beverley Swaim-Staley and Paul Merritt, a vice president of PNC Bank who has long served as the public member of the committee. Only Franchot voted against the move.
The committee also proposed that debt limits be reduced by $150 million five years from now to make up for the increase next year. Franchot said such a reduction was unlikely to occur, calling it “a perfect act of illusion.”
According to people present at the meeting, Merritt argued that the increased debt for needed capital projects would be a good investment for the future, not just for jobs growth.
Franchot has been a consistent voice for restraining new state debt during his five years as comptroller.
“We’re going to be raising property taxes to pay for this new spending,” Franchot predicted, a concern also raised by Republican legislators at the Spending Affordability Committee. The debt service on bonds is paid for by the state property tax, but that can be supplemented by other state revenues.