State will have little money for capital projects next year

By Andy Rosen
Andy@MarylandReporter.com

The General Assembly and Gov. Martin O’Malley stretched their dollars very thin when they made this year’s budget, legislative analysts told a spending committee on Tuesday, putting a severe strain on Maryland’s ability to use its borrowed money for new projects next year.

According to a report to the joint Spending Affordability Committee, which is considering how much Maryland can afford to spend in fiscal 2011, the state might have less than $100 million in free money for new capital projects when it makes its budget. In part, that’s because Maryland’s spending plan this year used borrowed money to cover expenses that would have otherwise been paid for with ongoing tax revenue or other dedicated state money in Maryland’s operating budget.

Some of those expenses include Program Open Space -- the state’s land preservation program -- funding for the Intercounty Connector highway project in Montgomery and Prince George’s counties, and the replacement of Medevac helicopters.

A portion of that money was transferred to balance the General Fund as the state tried to close a shortfall last year, but Maryland is now facing another deficit of about $2 billion, and it won’t have the same flexibility next year.

The state has committed to spend more than $300 million in borrowed money for operating projects it committed to last year, according to the analysis.

“There’s not going to be a lot of room for original thinking on the capital budget,” said Warren Deschenaux, the department’s chief policy analyst. “It’s truly a zero-sum situation.”

On top of those projects that were intended to relieve pressure on the operating budget, the state already has $570 million in capital projects that it committed to for next year, plus $64 million in commitments for projects that were partially or completely deferred last year. The total brings the state perilously close to the projected $990 million in new bond authorizations for the coming year.

And it’s not getting any easier for the state to pay off its debt. The legislative report says the state is going to have to start using General Funds to pay debt service by fiscal 2012, leaving one more budget year before the bill hits. The 2012 amount would be a relatively modest $16 million, before jumping to $143 million fiscal 2013.

Bonds are usually paid off using property tax receipts, premiums from bond sales and other revenues.

Former state Sen. Robert Neall, who serves as an adviser to the spending committee, said the list of operating budget projects that were paid for with borrowed money left him “despondent.” He said the state should be using cash to pay off debt.

“It has to be the other way around,” he said. “At some point, we’re getting to the breaking point on this.”

The Spending Affordability Committee is set to meet again on Dec. 17, when it will decide on how much growth – if any – it should recommend to O’Malley for the fiscal 2011 budget.