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Analysts tell committee public-debt bill about $1.4 billion for FY26; differences in forecasts highlighted
Summary
Department of Legislative Services analyst presented a $1.4 billion fiscal 2026 public-debt appropriation and outlined differences between DLS and DBM estimates for new issuance and refunding; the State Treasurer urged the committee to generally concur with DLS recommendations and asked for flexibility on structuring sales.
Patrick Frank, analyst at the Department of Legislative Services, told the Budget and Taxation Committee the first hearing was on public debt and that the proposed fiscal 2026 appropriation for public-debt service is about $1,400,000,000. "The first hearing today will be for the public debt. The public debt is what pays the debt service on the state's general obligation bonds. As you can see on the front page here there is a about a $1,400,000,000 appropriation proposed for the public debt in fiscal 20 26," Frank said.
Why it matters: the public-debt fund (the annuity bond fund) pays the state's general obligation debt service, and the committee’s review affects the governor's budget and the General Assembly's appropriations. Rating agencies and trends in issuance can change borrowing costs and budget pressures in later years.
Frank summarized the composition of the FY26 debt-service payment, saying roughly 30% of the payment is interest and 70% is principal because Maryland issues mostly 15-year maturities. He said about 97.5% of the FY26 payments relate to bonds already issued and that roughly $40,000,000 of additional debt service is anticipated from a June 2025 sale. Frank traced a $27.5 million difference in estimates between DLS and the Department of Budget and Management to differing assumptions on total par for new issuance ($900,000,000 for DLS versus $1,350,000,000 in the DBM fall 2024 estimate) and to differing refunding amortization schedules (DLS spreads refunding savings over six years while DBM applied more in the first year).
Frank also reviewed the annuity bond forecast and sources of revenue that pay debt service. He said state property tax revenues are the largest single source (about $1,114,000,000, or roughly 78% of the fund's receipts for FY26) and flagged a $10,000,000 projected fund balance in the out-years. He noted it's unusual for debt service to decline roughly $60,000,000 from FY25 to FY26 and said that pattern reflects the maturity of large issuances from about 15 years earlier plus a slowdown in recent issuances.
Frank described Moody's assignment of a negative outlook on Maryland's GO bonds and the agency's adjustments to how it counts and normalizes liabilities (for example, Moody's treating lottery debt as state debt and normalizing maturities for comparability). He observed that Maryland's shorter 15-year maturities raise near-term debt service versus states with 30-year debt but lead to faster principal retirement.
Recommendations and debate: Frank recommended three steps in narrative: (1) address the state's structural deficit consistent with the Spending Affordability Committee goals, (2) return to multiple bond sales per year to reduce market timing and size risks, and (3) reevaluate issuance policies given rising authorized-but-unissued debt. On refundings, he described three approaches — level savings (recommended), upfront savings, and deferred amortization (less common) — noting level savings produces the greatest total and present-value savings and reduces risk if refunding volumes are lower than estimated.
State Treasurer's remarks: The State Treasurer asked the committee generally to "concur with the DLS recommendations for the proposed public debt budget for fiscal year '20 '20 '6," while requesting two departures: access to supplemental rainy-day funding if volatile market outcomes require backfill and flexibility to structure bond sales when issuance totals exceed a threshold. Treasurer's Office staff in the hearing included Rebecca Ruff, director of debt management, and Jonathan Martin, chief deputy treasurer.
Bottom line: The committee heard a presentation that FY26 public-debt service is about $1.4 billion, with several technical differences between DLS and DBM forecasts driven by issuance assumptions and refunding timing. Analysts urged renewed attention to issuance pacing, refunding strategy, and structural budget issues that influence credit ratings and long-term costs.
