- The Washington Times - Monday, August 15, 2011

ANNAPOLIS — Maryland officials are closely watching the state’s debt ceiling to avoid a situation similar to the federal government’s bitter, drawn-out debate over whether to raise its debt-service limit.

State officials last week said the state is drawing nearer to a self-imposed cap that limits its annual debt service to no more than 8 percent of total revenues and could approach the limit by 2017.

Officials said Maryland should remain mindful of the limit in future budgeting if it hopes to avoid the same circumstances that forced Congress last month to raise the national debt limit.

“The plan at this point is to keep it flat after years of growth,” said Patrick Frank, public debt manager for the Department of Legislative Services.

Many residents — and even some legislators — were relatively unaware of the state’s debt limit until the federal crisis, said state Comptroller Peter V.R. Franchot, a Democrat.

Congress agreed July 31, after months of talks, to raise the national debt ceiling and cut spending to avoid a first-ever federal default.

Their agreement has since been followed by wild stock market swings and did not stop Standard & Poor’s — one of the three leading credit agencies — from downgrading the country’s credit rating for the first time from AAA to AA+.

Maryland is one of 13 states, including Virginia, that carries AAA bond ratings from S&P. Fourteen other states are rated AA+ — the next tier below. California carries the country’s worst rating at A-, which is five rungs below AAA.

The District and Illinois are just a notch above California, at A+.

Despite the ongoing federal troubles, Maryland officials have painted a rosier picture for their state, which has thus far maintained AAA ratings with all three agencies but has been given a negative outlook by Moody’s Investors Services.

The state will pay about 6.9 percent of its revenues toward debt service this year, and DLS analysts predict that number could increase to 7.8 percent by 2017 before leveling off.

However, they acknowledged that a different, worse scenario could unfold if the country’s economy continues to sputter or potentially enters the second portion of a double-dip recession.

“It’s quite apparent that this is the local impact of the federal government on our economy,” said state Treasurer Nancy K. Kopp. “It’s not the [state’s] financial management that we’re looking at — it’s the bottom-line economic impact.”

While officials hope to avoid raising the state’s debt ceiling in coming years, they appear somewhat unsure what such an increase would mean for the state.

Gov. Martin O’Malley, a Democrat, pointed out Wednesday, at a Board of Public Works meeting, that the state has raised the ceiling several times in recent years and that measured increases won’t necessarily mean disaster.

He spoke in response to Mr. Franchot, who spoke in urgent tones of how the state must avoid a scenario to what played out on the federal level.

“It’s something that we should avoid at all costs, at least until we’re in a recovery,” he said. “If we were in better times, we could at least talk about it. But we’re not in better times.”