For the first time in decades, Maryland is about to hit its credit limit.
And with a seemingly insatiable demand for more building projects, state leaders could increasingly find themselves saying no to the community groups, churches and individuals around the state who annually seek money for schools, hospitals, museums, ball fields, theaters and more.
Maryland is likely to spend a record $400 million this year on school construction, but with thousands of students across the state going to class every day in trailers, parents are demanding even more funding.
Meanwhile, the Senate and the House of Delegates will hear requests from Port Discovery in Baltimore, the Westchester Community Center in Carroll County, a skate park in Baltimore County, the Children's Theatre of Annapolis and scores more. Each chamber will get more than $100 million in requests for $10 million in funds for such small capital projects.
Some leaders in Annapolis are wondering whether the purse strings are being held too tightly, and they have suggested easing the limits that the state has set on how much bond debt can be issued.
"We should look at it," said Sen. Edward J. Kasemeyer, a Howard County Democrat, who until this year was chairman of the capital budget subcommittee. "Are we constraining ourselves too much?"
Gov. Martin O'Malley said repeatedly during last year's campaign that he would seek to take advantage of the low interest rates Maryland's AAA bond rating affords the state so he could issue more debt to pay for schools, roads and other projects. However, he was able to meet his school construction promises this year without doing so.
The legislature's analyst on capital debt suggested much the same thing, proposing a change in how Maryland interprets its credit limits that would effectively add hundreds of millions to the debt capacity, which is about $10 billion.
But changing the debt caps is bound to run into skepticism. There is a strong institutional aversion in Annapolis to anything that could hurt the state in the eyes of the credit rating agencies.
"We are quite conservative when it comes to borrowing, and that has paid off in terms of our bond rating and in terms of the interest rates we pay," said Treasurer Nancy K. Kopp, a Democrat, who added that reviewing debt limits is a valuable exercise but a complicated one that should be approached cautiously.
To some parents with children in aging or overcrowded schools, though, the need for the state to start contributing more for school construction is urgent.
A state commission headed by Kopp estimated two years ago that the state had a $2 billion backlog in school construction and maintenance, a figure that has likely grown because of increased construction costs.
Take Mount Hebron High School in Ellicott City, a 40-year-old former junior high school that has been added to and renovated so many times that it has four separate electrical systems and 13 air-conditioning systems. Mold is growing on ceiling tiles, parents say, and there's a crack in the exterior wall of an English classroom that sends a constant draft of cold air onto the students.
What's worse, several times in the past few years, most recently in January, sewage pipes have leaked into the ceilings, causing fetid muck to drip into two science classrooms on the second floor.
The Howard County school system estimates that it would cost about $50 million to patch together the mechanical systems, and that a new school would cost $80 million or more. But the county has only $22.5 million in the budget for the school.
These are "not minor problems," said Cindy Ardinger, the PTSA vice president at the school, who has daughters in the sophomore and senior classes and another in middle school. "It might be in the best interests of Howard County to make this investment now versus trying to Band-Aid the problem that's just going to keep hemorrhaging, but it requires more money."
Though Mount Hebron is a drastic example, local officials around the state say there are dozens of other projects they need to complete but almost certainly won't have the money for.
In Baltimore County, for example, Catonsville High School needs to expand its cafeteria, Chesapeake High School requires a new air conditioning system, and Chapel Hill Elementary School needs new windows. None of those projects is likely to get funding this year.
Despite the needs, Maryland has a limited ability to issue more bonds - the chief way governments pay for major capital projects. According to the Department of Legislative Services, Maryland is at 94 percent of its self-imposed debt capacity, up from 77 percent in 2000.
The limit is based on a ratio of the amount of outstanding debt to the total personal income Marylanders generate, which is estimated at just over $300 billion. Maryland set its limit at 3.2 percent, and analysts expect the state to be at about 3 percent for the next few years.
Getting closer to the line is risky because it is based on personal income estimates, which can change, said Patrick S. Frank, the General Assembly's chief analyst of public debt. "As you get closer to the limit, you can be held hostage to what determines your limit, and in this case, that's personal income," Frank said in a briefing for lawmakers. "When you change your personal income estimate, you change your capacity. You could get to a situation where all of a sudden, one day, we're over the limit."
Analysts at major credit rating firms said they don't require the 3.2 percent level or any other specific figure. But they do look askance at states that exceed their limits.
"Certainly Maryland has very clearly articulated guidelines," said Robin Prunty, an analyst with Standard & Poor's, a bond rating agency. "They were probably one of the early states that established debt affordability parameters, and I think we view it as important that they adhere to their own self-prescribed affordability guidelines."
Maryland does use another measure, a comparison of the amount the state must pay annually in debt service to the amount it takes in from taxes and other sources of revenue.
The debt-to-income measure presently produces a smaller number, so it has been the limiting factor. But if Maryland de-emphasized that measure and looked to the debt service-to-revenue ratio, it would have room to issue as much as $1 billion more in debt.
Maryland aims to keep debt service to no more than 8 percent of revenue, and based on the state's plans for bond issues, analysts don't expect it to go any higher than 6.48 percent in the next five years.
Frank wrote an analysis this year recommending that the state switch its focus to the measure of debt service payments and thus give itself more flexibility. Most other AAA states have done that, he wrote.
Del. Murray D. Levy, a Charles County Democrat who serves on the House Appropriations Committee, said there is a strong case for issuing more debt now. Interest rates, though somewhat higher than they were a few years ago, remain at historic lows, and the costs of construction are constantly increasing, he said. That means the state might be able to get more for its money if it issued debt now rather than waiting, he said.
And although Maryland is close to its own credit limit, the credit agencies give the state good reviews for its debt management. A Moody's report shows Maryland is 20th in the nation in its debt load compared with personal income, and analysts for both Moody's and Standard & Poor's said the state has a wide variety of strong fiscal management practices.
Meanwhile, the state is grappling with shortfalls in its operating budget - the money used to pay for continuing, annual expenditures. The state estimates that revenues will fall $1.3 billion below spending in the fiscal year that starts in July 2008.
O'Malley and many fiscal leaders in the General Assembly say they want to spend the summer and fall working on a solution to that problem, and that any change in the debt limits would likely be discussed in that context.
"Before we do anything, we should do a serious examination of what other states do and particularly what the rating agencies feel about it and make the decisions based on the financial realities, not the fact that the [limits] are getting too tight," Levy said. "But when you look at all of the issues - transportation, schools, universities, hospitals, community colleges - everybody is screaming for more capital projects."
That's what happened yesterday when hundreds of people went to Annapolis to plead with legislators for more money for small capital projects.
About two dozen members of the Junior League of Baltimore, all wearing matching red-and-white T-shirts and holding giant posters of themselves volunteering with schoolchildren, marched into the House Appropriations Committee room yesterday morning to ask for $500,000 to upgrade their thrift store in Govans. They came just after groups asking for money for a small-business incubator in the city, a community redevelopment effort north of Patterson Park, a health care center for Hispanic immigrants, the expansion of a prenatal and neonatal care center and a fatherhood and job-training service.
"As a formerly homeless, HIV-positive youth, I was able to obtain housing, employment and transportation assistance as well as a support system," LaShawna Holloway said in support of Restoration Gardens, a youth housing facility in Baltimore that asked for $250,000. "I'm here to ask you to support our bill. ... These programs actually work."
In about a half-hour, the committee was asked for a total of $6.6 million in funding. The House has $10 million to give out, and the committee was scheduled to hear the three-minute pleas from 9 a.m. to 6 p.m. yesterday and most of the day tomorrow. In the Senate, the Budget and Taxation Committee was doing the same thing.
Del. Adrienne A.W. Jones, a Baltimore County Democrat who is chairwoman of the House subcommittee on capital projects, said the debt limits are something the legislature should look at because there's no way the state can keep up with all of the needs.
"I'm going to make a few people happy and a whole lot of people upset," she said.