By Adam Pagnucco.
In his Friday message to constituents, County Executive Marc Elrich blasted the county council for refusing to borrow more money to fund the capital budget. Is he right?
First, let’s do a bit of math. The Capital Improvements Program (CIP), which is the county’s capital budget, is a six-year spending plan on infrastructure for county agencies. Its largest single revenue source comes from general obligation (GO) bonds, which are backed by the full faith and credit of county government and are rated AAA by all credit rating agencies. Over the last decade, the percentage of the capital budget financed by GO bonds has ranged from 29% to 44% and has been trending downwards.
Elrich’s recommended FY27-32 CIP includes a $634 million increase over the last CIP and is supported by a $675 million increase in GO bond issuances. On an 8-3 vote (with Council Members Will Jawando, Kristin Mink and Laurie-Anne Sayles dissenting), the county council instead decided to increase GO bond issuances by $60 million over the prior CIP. If the council chooses to assume all other changes in revenues (some are increasing and others are decreasing), their decision will result in a net $19 million increase for the CIP. Effectively, that’s a flat capital budget and will necessitate significant adjustments to Elrich’s recommendation. It’s hard to imagine how the council will accomplish this without restraining MCPS’s historically huge capital request.
Both sides have understandable arguments for their actions. The council is worried that increasing issuances of GO bonds will lead to rising debt service payments that will burden the operating budget. They have a point about that as I chronicled in a recent article on the history of this subject. Elrich responds that inflation has eroded the volume of construction that can be purchased with bond proceeds. He also has a point as we will explore below.
I have previously covered the council majority’s side of the discussion. Now let’s hear from Elrich. His comments on the issue made in his Friday message are reprinted below.
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County Council Bond Limit Vote
I am really disappointed by Tuesday’s decision by a majority of the County Council not to adopt my recommendation to raise the debt limit ceiling for capital expenditures (CIP) soon. I will continue to argue for restoring the County’s purchasing power that was lost following the 2009 recession.
Our school system is finally being honest about its needs, and this is the best way to support the improvements the community has been waiting for. We received a record-high request from the Board of Education totaling $2.8 billion, which is more than $1 billion above the last CIP.
The County’s ability to address its infrastructure needs has been severely hampered by the fact that General Obligation (GO) bond limits have not kept pace with inflation, as you can see from the chart above. Issuances have been capped at just $280 million annually for the past four years. To sustain the same purchasing power as the $300 million spent before the recession, it would need to issue more than $550 million annually today.
There is no way that school repairs and construction match the prices of 2009. We will probably do half the work for the same price. It happened because they were never honest about their needs and only asked for what could be done within the parameters of our GO bond limits. They focused on expansion, but now the far greater need is in repairs.
While the Council recently voted to raise the guideline to $300 million, it is insufficient to sustain even existing projects, such as road resurfacing and building system replacements, let alone new initiatives.
We have done this to ourselves through chronic underinvestment, forcing the County to use older infrastructure longer, which increases long-term maintenance costs. A higher debt limit is also fiscally viable due to years of restraint. The argument is aided by the fact that we continue to see revenue growth even as our economic growth lags.
I’ve recommended issuing $340 million in bonds in FY27 and increasing that amount by $10 million each year to $390 million in FY32. This would keep debt service at a modest 10.3% over the six years, well below the County’s average over the last decade.
This is the first time in 15 years that the County’s debt service-to-General Fund revenues ratio has fallen near the self-imposed 10% policy guideline. In other words, we have sufficient cushion to make this investment now.
The state has raised its revenue outlook, driven by personal income tax collections, since our December estimates were released. The same pattern will hold. If the council insists on the $300 million bond limit, County facilities will go another year without critical improvements totaling $390 million over the six years. I wish the County Council could see this as the opportunity that it is to increase the debt limit without compromising the County’s AAA credit rating.
Our regional competitiveness relies on a stellar education system. We have a crown jewel of a school system, but it is aging. It’s time to consider how much we stand to lose if we fail to make the necessary financial commitment to education in our County.