Maryland's Debt Panel Recommends Increasing GO Issuance to $350 Million

WASHINGTON - Maryland's Capital Debt Affordability Committee has recommended that the state be authorized to issue up to $350 million of new general obligation bonds in fiscal 1993, roughly a 6% increase above the $330 million recommended for fiscal 1992.

Though the state has been pinched by the recession, members of the debt affordability panel believe their recommendation marks a prudent fiscal course.

"There weren't any differences on the committee," said Maryland's treasurer, Lucille Mauerer, who chairs the panel. "The recommendations reflect a unified position."

In addition to its recommendation for authorizing $350 million of new GO debt, the committee once again urged the General Assembly to approve a plan to issue bonds to finance an office-space program in Baltimore.

But the panel scaled back its recommendation from $200 million of bond issuance for the project to $100 million. The committee said in its recommendations, "Report of the Capital Debt Affordability Committee on Recommended Debt Authorizations for Fiscal Year 1993," that the new figure was based on an updated analysis of the issue by the Department of Budget and Fiscal Planning.

Under the plan, the state would issue bonds and use the proceeds to purchase office space, which would allow Maryland to shed some rent payments and build up equity.

Ms. Maurer said the plan is economically viable, though the General Assembly has not shown an inclination to accept it.

"Nothing has moved on it," Ms. Maurer said. "Although this makes a great deal of sense, especially when the real estate market is low, I expect the legislature won't be inclined to take it up" without assurances the bonds would not boost total state issuance above self-imposed affordability guidelines, she said.

In its assessment of affordability, the debt panel analyzes whether bond issuance would boost the state's outstanding debt above a target ratio of 3.2% of statewide personal income.

The committee concluded that its recommendations for the authorization of $350 million of GOs, coupled with its one-time request for $100 million to fund the office-space program, would not push the debt over the 3.2% ratio.

But when added to a proposed $870 million transportation program and a $125 million convention center bond program, the total bonds outstanding could exceed the 3.2% standard by 0.22%, the committee warned.

"As a result of this analysis, the committee concluded that although its recommendation of new authorizations for general obligation bonds is prudent, some restraint must be exercised in proposing and adopting new or expanded tax-supported debt programs in [the] near future," the panel's report says.

"This is all a part of debt management, to anticipate what is coming up," Ms. Maurer said. "If you look out a few years, you may want to be careful what you do now."

Maryland's bonds are rated triple-A by Standard & Poor's Corp., Moody's Investors Service, and Fitch Investors Service. Rating agency analysts attributed much of Maryland's bond quality to its process of managing debt affordability.

"They have a rigorous and comprehensive approach that is amongst the best in the country," said George W. Leung, vice president of state ratings and managing director at Moody's.

Analysts also said the recommendations of the debt panel appear on the mark, though they acknowledged that Maryland, like other states, continues to face economic uncertainties.

"There's nothing in the debt plans that causes us any real concerns," said Richard Larkin, a Standard & Poor's managing director. "Of course, we're tracking more closely how the state is handling its finances, but they seem to be staying on top of the situation."

Claire G. Cohen, executive managing director at Fitch, said, "I tend to feel that what we're looking at is a recession cycle. As the recession clears, Maryland will come back."

But she added that state officials may find "a different consumer environment" even after the recession is over, leading to a need to find new revenues. "But my general feeling is that Maryland is still a triple-A, soundly run state," she said.

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