By Michael Dresser, The Baltimore Sun
8:12 PM EST, November 17, 2011
The General Assembly's chief budget analyst warned lawmakers Thursday that too much borrowing to achieve Gov. Martin O'Malley's goal of creating jobs through public works spending could put the state's sterling bond rating in jeopardy.
Warren G. Deschenaux, chief of the nonpartisan Office of Policy Analysis, told the Joint Committee on Spending Affordability it would be a mistake to raise the state's current limit on the amount of debt it can take on. Such a move, he said, could make it difficult to maintain Maryland's prized AAA rating.
Were the bond rating agencies to lower that rating, it would only compound budget problems by forcing the state to pay higher interest rates, he said. Deschenaux added that a downgrade would also damage Maryland's credibility in the capital markets.
"Don't raise the debt-affordability criteria," he said. "After that, I really don't care what [you] do."
That leaves lawmakers, if they take Deschenaux's advice, with the unpalatable choice of doing little to stimulate employment or else raising taxes or fees. Because transportation is seen as one of the most promising avenues for spending that will create jobs, raising the state's gas tax is one of the leading contenders for raising revenue.
Deschenaux left lawmakers with a modest out for funding projects without raising revenue. He said it would be possible to move up $700 million of the state's borrowing ability over the next five years and use it during the next two. But that would in effect be robbing debt capacity from the budget years 2015-2017 to front-load job creation in 2013 and 2014.
House Speaker Michael E. Busch observed that such a move would be a gamble.
"It's something of a hope that the economy's going to improve," he said.
Analysts left little hope that the economy would perk up enough to relieve lawmakers of painful budget choices. "We are not going to naturally grow our way out of the current remaining budget gap," Deschenaux told the committee.
O'Malley has announced his intention to spur employment in Maryland by investing in roads, bridges, transit systems, schools, water treatment plants and other infrastructure. He has said he would consider revenue increases, but has also left the door open to other means of paying for projects, including increased borrowing.
Deschenaux said his office estimates that about seven jobs can be created with each $1 million of state spending on capital projects, which typically include the cost of materials as well as labor.
But analysts said the state is creeping steadily closer to its limit capping debt service at 8 percent of revenues. Maryland is now on a course to bump up against that limit as early as fiscal year 2017.
Deschenaux also warned of a growing chasm — expected to reach $450 million by 2010 — between the state's debt service obligations and its proceeds from its dedicated funding source for making those payments, the state property tax.
In the past, the state has been able to hold the property tax level by closing the gap with general funds appropriated by the legislature. But with the general fund budget facing about a $1 billion shortfall, analysts from the Department of Legislative Services warned that the money to prevent a property tax increase may be difficult to find.
Former state Sen. Robert R. Neall, who serves as one of the public members of the spending affordability panel, said the message he took away from the briefing was: "The property tax is going to have to be increased up to what the debt service is."
The state property tax is currently 11 cents per $100 of assessed valuation — a small percentage of the total property tax, most of which goes to local governments. Deschenaux estimated that unless the legislature finds general funds to close the gap, the property tax would likely have to go up to 16 cents per $100 in steps over the next five years.
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