Budget Seccretary Eloise Foster, State Treasurer Nancy Kopp, Comptroller Peter Franchot at a Board of Revenue Estimates meeting
The Capital Debt Affordability Committee Monday recommended that the state could afford to float an additional $150 million bonds in fiscal 2014, bringing the total to $1.075 billion – but not the extra $750 million over five years the O’Malley administration had requested.
State Treasurer Nancy Kopp, who chairs the debt committee, made clear they were only authorized to recommend “what could be prudently affordable” for a single budget year, not any long-term expansion of borrowing power. Kopp said that level of debt was “ affordable” but “not necessarily desirable.”
“That, I think, is the decision of the legislature and the governor to make,” Kopp said.
“This committee is not responsible for what the specific amount should be,” she said.
Comptroller Peter Franchot, who held up the recommendation at a meeting last week, as expected strongly opposed increasing the debt limit based on slightly increased revenues in a very shaky economy. As he had predicted to MarylandReporter.com Friday, he was outvoted 4-1 on the recommendation, continuing his long-running but losing battle against what he sees as overspending in the face of a sluggish economic growth.
The new debt was approved by the other four committee members: Kopp, Foster, Acting Transportation Secretary Darrell Mobley, and public member Paul Merritt, a banker.
Franchot had asked for more specifics about the spending, which he complained were totally missing last week. O’Malley Budget Secretary Eloise Foster provided some in a three-page memo, citing several university buildings already authorized that would be funded.
Foster said that the extra debt would “allow the governor to expand current or invest in new initiatives that are ‘shovel ready,’” and support the creation of more than 7,500 jobs. Foster said the spending was justified by an uptick in revenue estimates of $181 million approved last month by Board of Revenue Estimates, on which she, Kopp and Franchot also serve.
–Len Lazarick
The committee is not charged with recommending debt levels based on “affordability.” See Md. State Finance and Procurement Code Ann. section 8-104 to 112. Instead, the committee is charged with recommending “prudent” debt “amounts” based on the eight enumerated factors at section 8-112, Duties of Committee, sub-paragraph (c). One of the most important of those eight factors that weren’t evaluated is how the bond ratings agencies may view
the debt increase in context of the state’s (1) above-average pre-existing debt, (2) underfunded post-retirement health and pensions, and (3) reliance on Federal jobs in an era of retrenchment. In July, 2012, Moody’s put the state’s credit rating on “negative outlook” citing these reasons.
Worse, the committee utilized questionable supporting information in deciding “affordability.” The Office of Budget and Management used (OBM) new revenue projections redone since an earlier iteration a few months earlier (at the time the committee initially recommended $925M of 2014 debt issuance.) The re-done numbers superficially support “affordability.” However the committee’s reliance on data collected over such a short time interval is not an objective means to justify a material debt increase for 2014. Indeed, The Washington Post editorialized about Maryland’s “illusory budget surpluses” in its September 12, 2012 edition. The point is, nobody on the committee seems to have taken the other side of the “affordability” debate, so there was none.
And when challenged for detail about where where the bond money would be spent, OBM simply cited a $400M wish list of high-tech construction projects at four universities, apparently because O’Malley favors them. These projects may be desirable. However, earmarking more money for institutions that can’t seem to control their costs (universities on the whole are directly responsible for the student-loan bubble) may not be the optimal use of the bond proceeds. Perhaps the debt proceeds would be better spent on refinancing the state’s callable bonds that are costing the state 5% over the next decade or longer.
Ms. Kopp’s committee has shirked its responsibility due to its clear failure to follow the law, its perfunctory assessment of affordability, and its refusal to debate any alternatives to spending new bond proceeds.
Peter Franchot has more sense then any of these lefty loons.
Do you think Franchot will run for governor next time? He would seem to be an improvement over father marty and might even stand up to busch and miller.
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{page:Section1The committee is not charged with recommending debt levels based on "affordability." See Md. State Finance and Procurement Code Ann.
§
8 -104 to 112. Instead, the committee is charged with recommending “prudent” debt “amounts” based on eight enumerated factors at §
8 -112, Duties of Commission, sub-paragraph (c).
The evidence clearly shows the committee has deviated from the law because its decision was not derived from considering those eight factors.
Worse, the committee utilized superficial supporting documents in deciding “affordability.” The Office of Budget and Management (OBM) cites favorable increases in revenue since a few months earlier, when the committed initially recommended $925M for 2014 debt issuance. Using such short-term data is not a prudent means to justify a material increase of debt issuance in 2014.
And instead of vigorous debate over where the bond proceeds would be spent OPM simply cited a $400M wish list of high-tech construction projects at four universities. These projects may be desirable. However, earmarking more money for institutions that are the direct cause of the student-loan bubble may not be the optimal use of this money, in preference to refinancing 5% debt already on the state’s books.
Obviously the committee is banking on Obama & Dems totally taking over Washington. They ignore the glaring fact of MD’s heavy reliance on federal & gov contracting jobs while gutting jobs in private industry. Cuts in federal spending will happen whether it’s initiated by a new administration or by our creditors & tax revenues will drop, then who will pick up the tab for O’Malley’s largess? Maybe the newly created class of $100-aires since the millionaires tax didn’t raise the projected $$? Or will the Dems continue to add regressive taxes & move down the food chain to pay the bills? Where is the MSM in this state, asleep as usual?
Thanks Len for bringing this to the attention of MD reporter readers. I can only hope that more taxpayers wake up & remember it’s our money that these people in power are spending!
Abby,
You asked : ” Where is the MSM in this state, asleep as usual? ”
Not really… There’s plenty of Orioles & Ravens coverage to the point that the ” newscast ” is more of a “sports news” broadcast, the NFL referees, “happy puppy” stories, and of course the latest reports on assaults, robberies,stabbings & shootings, etc.
Just not the really important news that is found at Maryland Reporter…
They should be called the ” Trivial News Media ” !
I did hear a brief report on the radio abt this. But it was presented in a positive light. All I can say it what a bunch of shortsighted, spend-a-holics! Just think what they’ll do with gambling $$.
“Foster said that the extra debt would “allow the governor to expand
current or invest in new initiatives that are ‘shovel ready,’” and
support the creation of more than 7,500 jobs.”
Just what Maryland taxpayers need in the face of the fiscal cliff, potential OCare taxations, et al. when we have a serial spendaholic unaccountable executive bent on “investing” our moneys in his PET costly & “new” initiatives.