WASHINGTON -- The Maryland Capital Debt Affordability Committee, in response to sluggish economic conditions, is recommending that the state lower the amount of general obligation debt it plans to issue in fiscal 1994 by $20 million, to $350 million.
The committee said in its annual report that the new level "reflects a substantially diminished capacity associated with the lingering recesssionary condition of the Maryland economy."
The committee also notes that although it has substantially lowered its personal income projections, "there remains some risk that even lower levels of personal income may occur."
The panel is concerned with personal income because in assessing the affordability of new debt issues, it tries to ensure that the ratio of outstanding debt to statewide personal income does not exceed 3.2%.
If authorized and issued, the $350 million of GO bonds would be used to support the state's fiscal 1994 capital program. In last year's debt affordability report, the committee forecast a recommendation of $370 million of GO bonds for the 1994 capital program.
The committee's suggestions mark a departure from the steadily increasing authorizations in previous years.
The panel recommended $315 million for fiscal 1990 and $330 million for fiscal 1991. For fiscal 1992, it recommended $330 million, plus a one-time authorization of $200 million of additional GO bonds to finance an office space program in Baltimore. The committee suggested $350 million for fiscal 1993.
For future authorizations, the committee projects them to grow by 3%, instead of the 6% forecast last year.
The committee said the lower growth rate "reflects a recognition of an inflation rate that has been nearer to 2% than 5%, as has been incorporated in the committee's plans since 1988"
Rating agency analysts unanimously praised the debt affordability committee's recommendations. The state's bonds are rated triple-A by Standard & Poor's Corp., Moody's Investors Service, and Fitch Investors Service.
"It's smart move," said Richard Larkin, a managing director of Standard & Poor's. "Things are tough, and this is an action that is a hallmark of a triple-A state -- as is having a debt affordability analysis in the first place."
George W. Leung, a Moody's managing director, said that "in view of the continuing weakness in the state's revenues," the committee's recommendations "certainly represent a prudent course of action."
Leung also said the committee's revised projection of 3% growth in future GO bond authorizations made sense. "There is some greater effective borrowing power from lower inflation and better construction bids," he said.
Claire G. Cohen, executive vice president of Fitch, said, "In general, considering that Maryland has been hurt more by thee recession than expected, and given that the outlook for everyone is not so good, this is a prudent time to be thinking about debt issuance."
Cohen added that declining revenues have a direct impact on how much debt an entity can safely issue. "In this kind of environment, the concept of re-examining how much debt you ought to be issuing is a good one," she said.
The debt affordability committee includes the state treasurer, the state comptroller, the budget and fiscal planning secretary, the transportation secretary, and a public member. The committee was established in 1978 by the state General Assembly, which was concerned about the dramatic increase in outstanding debt during the mid-1970s.