DLS: Maryland FY26 capital budget $3.07 billion, bond-premium use and veterans home pause draw attention

The governor's proposed fiscal 2026 capital budget totals $3,067,000,000, about $292 million less than the enacted fiscal 2025 capital budget, Department of Legislative Services analyst Matthew Klein told the Capital Budget Subcommittee.

Klein said the decline reflects several timing and source changes: the winding down of federal broadband funding (about $172 million in FY25), fluctuations in Built to Learn (lottery-backed) bond issuances, and reduced federal backing for the proposed state veterans home, which the state has placed "essentially on hold." He added that the administration proposes using roughly $145 million in bond premium proceeds from recent and planned bond sales to support FY26 capital spending rather than to offset debt service.

Why it matters: The budget mix affects debt service, capital project timing and the state's near-term operating transfers. As Klein noted, the state is within the statutory debt-affordability threshold even after recent increases in general obligation authorizations, but debt service is projected to rise in later years because of higher authorization levels programmed in the five-year capital improvement plan.

Klein's presentation highlighted the following key points:

- Proposed FY26 total: $3,067,000,000; roughly $292 million below FY25 but about $246 million above what last year's five-year CIP had planned for FY26 because of added general fund contributions and inclusion of bond premiums.

- Federal funds: A significant drop in federal funds — notably about $172 million tied to the broadband initiative that phased out in FY25 — reduces the federal share of the capital program.

- Built to Learn and lottery bonds: The timing and issuance stream for Built to Learn bonds (lottery-backed) are a primary driver of year-to-year fluctuations for school construction and related special-fund projects. Klein noted rating agencies, particularly Moody's, are watching the state's expanded use of lottery-backed debt even though the state does not treat those bonds as tax-supported debt.

- Bond premiums: The FY26 budget proposes using about $140 million from bond-premium proceeds from June 2024 and June 2025 sales, plus a small $5 million deficiency, to reach about $145 million to support the capital program rather than using those premiums exclusively to offset debt service.

- General funds and transfers: The governor's proposal includes roughly $40.9 million of new FY26 general funds, largely tied to the governor's strategic economic initiatives, and proposes transfers to the operating budget of about $196 million (roughly $114 million from the Dedicated Purpose Account and $82 million by replacing prior general-fund-provided capital projects with GO bonds).

- School construction: The proposal meets the statutory $450 million school construction requirement using $444 million of general obligation bonds and roughly $9 million from the fiscal responsibility fund. The Built to Learn issuance stream causes the most year-to-year variation.

- Facility renewal and backlog: The Department of General Services backlog was estimated at roughly $268 million; the governor's budget increases facility renewal funding but Klein cautioned that higher project costs can limit the number of projects addressed.

- Notable contingencies and emergencies: Klein called out a significant emergency repair at Clifton T. Perkins (boiler failure), estimating approximately $44 million in GO bond funds and an additional $24 million in operating costs for temporary units and emergency contracts.

Klein also summarized how the state has used fund swaps and one-time general fund additions in prior years. "Much of that money, particularly what was in the DPA, has been released," he said, adding that some projects authorized with surplus-era funds can take many years to reach completion.

The briefing closed with Klein noting federal uncertainty for some projects and an appendix of materials the subcommittee may wish to review for agency-level detail.

Klein's remarks and subsequent subcommittee questions signaled areas staff and members said they would watch in the coming weeks: the use of bond premiums versus debt-service offsets, timing implications from Built to Learn issuances, the paused veterans home and the state's capacity to use existing fund balances for operating transfers.

Lower-priority material and next steps: The presentation included additional appendices (DLS analysis of rating agency commentary, listing of local project funding and legislative preauthorizations). Members asked for more granular follow-up on outcomes from the surplus-era fund increases and on the state's plan for the veterans home design-phase costs.