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Legislative analysts flag bond‑sale timing, recommend level refunding savings and two sales per year
Summary
Department of Legislative Services and the Treasurer briefed the Appropriations Committee on fiscal 2026 debt service, recommending level refunding savings, cautious bond sale sizing and returning to two annual sales to reduce risk; DLS and the Treasurer differ on exact issuance assumptions.
DLS analyst Mr. Frank told the Appropriations Committee the fiscal 2026 debt service estimate includes $1.399 billion in debt service on previously issued general obligation bonds and assumes a new bond sale in June 2025. The analyst said DLS is using a $900 million estimate for new issuance and a 5% interest rate assumption; DBM used a $1.35 billion estimate, which explains much of the difference between the two forecasts.
Frank said the unusual projected decline in debt service for 2026 is driven by the scheduled retirement of large 15‑year issuances from 2010 and by lower issuance levels in recent years. He recommended taking “level savings” from refundings — spreading refunding savings over the remaining life of called bonds — rather than taking all savings up front. DLS estimated a savings pattern that reduces the fiscal 2026 allowance by roughly $5 million per year in recurring savings from refunding if level savings is used and recommended a $2.9 million technical reduction to the allowance and returning to two bond sales per year.
The Treasurer’s office praised the DLS analysis and urged flexibility in structuring sales. The Treasurer reported that a recent June sale exceeded $1 billion in issuance, priced with an all‑in true interest cost of about 3.37% and produced roughly $150 million in premium. The Treasurer asked the committee to consider access to the rainy‑day fund as a backstop if final sale outcomes differ from expectations, citing current market volatility and a Moody’s negative outlook on the state.
DLS also flagged credit concerns: Maryland’s debt‑related ratios look high relative to other AAA states, Moody’s has assigned a negative outlook, and Moody’s, Fitch and S&P use differing conventions — for example treating lottery debt or some public‑private partnership liabilities as state debt — that can lead to different reported liabilities. The analyst recommended a joint study to revisit issuance and reporting practices among DBM, the Treasurer, DLS and the Controller’s office.
On operational matters, DLS urged monitoring of bond sale timing because large sales scheduled months ahead carry timing risk; the analyst said two sales per year could reduce concentration risk and avoid selling at poor market moments.
