Debt limit increase approved

Wednesday, Sept. 10, 2008

The move to significantly raise the state’s debt ceiling by the Capital Debt Affordability Committee came one day before new revenue estimates revealed tax collections falling well shy of expectations and amid warnings of a possible $1 billion budget shortfall when the General Assembly convenes in January.

‘‘We really do have to see what happens with the economy,” said Treasurer Nancy K. Kopp, who opposed the recommendation to increase the capital bond authorization from $930 million last year to $1.11 billion for fiscal 2010. ‘‘These are very uncertain times, as uncertain as they were in 1992 and 1993. While we all have goals and intents, we have to deal with the actuality of what’s possible.”

Historically, the committee has approved 3 percent increases, which would have meant $960 million for fiscal 2010. But state budget Secretary T. Eloise Foster, a committee member, proposed the far larger increase to allow the state to borrow more to pay for schools, roads and other projects while construction costs and interest rates are low and business is sagging.

‘‘This is a time in our economy in Maryland that public infrastructure investment can make a big difference,” echoed Transportation Secretary John D. Porcari, who argued that contractors are faced with finding more work or laying off employees. ‘‘This will be a shot in the arm at the right time.”

The committee’s members are Porcari, Kopp, Franchot, Foster and Paul B. Meritt, a gubernatorial appointee who represents the public.

Meritt voted with Foster and Porcari to up the debt ceiling. Foster argued that the higher amount would enable the state to spend more if the economic picture brightens.

Comptroller Peter V.R. Franchot argued that now is a time for the state to be tightening its belt, not looking to spend more. ‘‘I think this counter-cyclical argument has limits as Keynesian as it is,” he said, referring to the economic theory that the state can help stimulate economic growth in down cycles.

One leading fiscal expert in Annapolis chided the committee for raising the debt limit at a time when government should be more fiscally prudent.

‘‘I think we need to be more disciplined in our finances, not less disciplined,” said Del. Murray D. Levy (D-Charles). ‘‘At some point, we’re going to have to rein in these programs and sooner is better than later.”

The higher borrowing capacity will enable Gov. Martin O’Malley (D) to propose spending $325 million for school construction in the fiscal 2010 budget that he will submit in January, which is about the same amount in this year’s budget.

Without the increase, Foster warned that the state would have had to defer $800 million in planned capital projects over the next two years.

As approved, the state’s debt ceiling would revert to $990 million for fiscal 2011, which would reflect an approximate 3 percent increase from the expected $960 million mark in the coming fiscal year.

Franchot was the only dissenting voice in an earlier vote that altered the criteria by which the state determines how much it borrows. It had been set for about 30 years at 3.2 percent of overall personal income, but because the state now includes GARVEE bonds and other types of debt in its calculations, other members said it was prudent to increase the number to 4 percent of overall personal income.

Franchot resisted the recommendation to change the long-held figure in light of the uncertain fiscal outlook and concern that it could jeopardize the state’s coveted AAA bond rating. ‘‘We ... have a responsibility to put the brakes on and be responsive to what the economic events of the day are.”

Earlier in the day, Franchot bashed the slots plan that voters will decide at the ballot box in November and called for a blue-ribbon panel to examine state spending practices. Lawmakers crafted a plan during last year’s special session that would place 15,000 slot machines at five locations in Maryland, if voters approve. Proponents say it will generate up to $700 million for the state and is a critical component to balancing the budget that will reduce the need for steep cuts.