O’Malley, Md. lawmakers use debt to lube state’s path through recession

Stacked into the budget that Maryland’s House of Delegates will debate Wednesday is a grim look at the state’s fiscal future:

To cover mounting debt, Maryland will have to raise property taxes after next year or begin eating into operating funds for schools, social services and public safety.

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By 2014 — Gov. Martin O’Malley’s last full year in office — the state will have to curtail spending even further to begin repaying money used to close budget shortfalls during his first term. And by 2017, the state is projected to break through one of its debt ceilings.

Maryland’s debt costs are trending toward 30-year highs, even without factoring in billions in unfunded retiree health-care and pension costs. Maryland is far from alone. Almost every state has ramped up borrowing and gone deeper in debt to try to spur job growth while balancing expenses during the recession.

But in Maryland, O’Malley (D) has sought to use bonds and other borrowing to continue to fund initiatives that have been gutted by this point in the downturn by politicians in most states.

Once again in this year’s budget, and backed by lawmakers, O’Malley has spread out over several years the cost of tens of millions of dollars in open-space land purchases and has sought to issue bonds for efforts to clean up the Chesapeake Bay.

The governor and his budget team have cast the borrowing as a bridge to get the state to better economic times without throwing aside wholesale O’Malley’s environmental agenda and other state initiatives he sees as important.

But the state’s fiscal trajectory has also begun to splinter Maryland Democrats, with more conservative ones arguing that the state has gone too far in leveraging its future.

“We’re basically spending every cent we have and maxing out the state’s credit cards to the nth degree,” said state Comptroller Peter Franchot, a Montgomery County Democrat. “If something goes wrong in the economy again, we could be very vulnerable. We have no reserve capacity.”

But compared with the way worries about debt have paralyzed budget discussions in a split Congress in Washington and in many state capitals, O’Malley and the legislature’s Democratic leadership remain largely on the same page and comfortable with pushing Maryland’s debt load to the max long after their current terms end.

“When you govern, you are making choices, and these choices often times span multiple years, multiple administrations and, in some cases, multiple generations,” said O’Malley chief of staff Matthew Gallagher. “You can’t live year to year. Your capital budget and your use of debt, you have to use in a strategic way to get big, significant projects done.”

“You don’t,” Gallagher added, “pay for college with one check, and you don’t buy your house with one check.”

Del. John L. Bohanan Jr. (D-St. Mary’s), House chairman of a joint committee that sets the state’s spending limit each year, echoed that rationale. He also stressed that his committee for the first time in nearly a decade shrunk the amount of new bond debt the legislature would approve this year to less than $1 billion to try to keep Maryland just inside its debt cap in 2017.