{"id":9542,"date":"2018-02-21T07:00:52","date_gmt":"2018-02-21T12:00:52","guid":{"rendered":"https:\/\/www.theseventhstate.com\/?p=9542"},"modified":"2018-02-20T16:24:18","modified_gmt":"2018-02-20T21:24:18","slug":"mocos-skyrocketing-debt","status":"publish","type":"post","link":"https:\/\/www.theseventhstate.com\/?p=9542","title":{"rendered":"MoCo\u2019s Skyrocketing Debt"},"content":{"rendered":"

By Adam Pagnucco.<\/em><\/p>\n

Last fall, County Executive Ike Leggett proposed cutting the volume of new general obligation bonds issued by the county in future years and the County Council concurred unanimously<\/a>.\u00a0 Advocates for school construction fretted over the move as the county\u2019s needs in that area, as well as in transportation investment, are enormous.\u00a0 But Leggett and the council had a point.\u00a0 The county\u2019s debt has skyrocketed in the past twenty years and especially in the last decade.\u00a0 It now presents a substantial challenge to the county\u2019s fiscal well-being that the next generation of county leaders will have to deal with.<\/p>\n

The county government does not use debt to finance its operating budget, but it does use debt to finance its capital budget, known as the Capital Improvements Program<\/a> (CIP).\u00a0 The CIP is a six-year budget that is fully renewed every two years and is adjusted in off years.\u00a0 The Executive\u2019s latest recommended CIP currently totals $4.5 billion, of which $1.8 billion is recommended for school construction.\u00a0 The CIP has many funding streams for its projects, but the single largest one is debt.\u00a0 As of June 30, 2017<\/a>, the county had $4.1 billion of outstanding primary government debt, of which the largest category is general obligation (GO) bonds, which accounts for $2.7 billion.\u00a0 GO bonds are backed by the full faith and credit of county government.\u00a0 The fact that the county\u2019s GO bonds have had a AAA rating assigned to them by the nation\u2019s three largest credit agencies for many years is a substantial source of interest savings to the county.\u00a0 Other major categories of debt are short-term bond anticipation notes ($500 million outstanding), taxable Build America Bonds created during the recession ($308 million) and revenue bonds which are backed by dedicated revenue streams ($222 million).\u00a0 All of this is separate from the substantial liabilities the county has for pension funding and retiree health benefits.<\/p>\n

There are two salient facts about the county\u2019s debt.\u00a0 First, it has been growing rapidly.\u00a0 And second, it is paid off through debt service that is part of the county\u2019s operating budget.\u00a0 These debt service payments MUST be paid and they compete with other spending priorities.\u00a0 Along with total debt, debt service has also been growing rapidly.<\/p>\n

The chart below shows growth in total outstanding primary government debt and in GO bonds over the last twenty years.\u00a0 While growth has occurred throughout the entire period, it has accelerated since the onset of the Great Recession.\u00a0 From 1998 through 2008, GO bond debt grew by an average of 2.9% per year, about equal to growth in the Washington-Baltimore CPI (3.0% per year).\u00a0 Total debt grew by an average of 5.2% annually over that period.\u00a0 From 2009 through 2017, GO bond debt grew by an annual average of 8.1%.\u00a0 Total debt grew by 8.4% annually.\u00a0 The average rate of inflation in the Washington-Baltimore CPI was 1.5%.\u00a0 Over the last eight years, the county\u2019s debt has been growing by more than 5 times the rate of inflation.<\/strong><\/p>\n

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Relative to the size of the population, the debt has been rising too.\u00a0 When we compared the county\u2019s total debt levels to population estimates from the U.S. Bureau of Economic Analysis, we found that total debt per capita has grown from $1,370 in 1997 to $3,768 in 2017.<\/p>\n

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As for debt service, it has risen from $140 million in FY97<\/a> to $408 million in FY18<\/a>.\u00a0 If debt service was a county agency, it would be the largest agency in county government other than MCPS.\u00a0 Debt service payments are mandatory and cannot be cut like most other categories of spending during recessions.\u00a0 The pit of the Great Recession came in FY11, when debt service was $258 million and the county slashed services, doubled the energy tax and furloughed its workforce.\u00a0 Now that debt service exceeds $400 million a year, it will present a much greater impediment to the maintenance of county services when the next recession comes.<\/p>\n

Let\u2019s remember that debt is not an inherently bad thing.\u00a0 It is the primary vehicle by which the county pays for core government functions like school construction and transportation projects.\u00a0 The county\u2019s needs in those areas are absolutely undeniable.\u00a0 Also, construction costs were moderated during the recession, so the county was able to take advantage of that to build relatively cheaply in those years.\u00a0 But over the long term, if you are going to have rapidly growing debt, you need to have a rapidly growing economy to pay for it.\u00a0 And MoCo does not have that \u2013 instead, it has had weak growth in employment and incomes<\/a> in recent years.\u00a0 It saw 57 new business filings<\/a> in 2015 and 19 new filings a year later.\u00a0 It passed a 9% property tax hike and a year and a half later suffered a $120 million budget shortfall<\/a>.<\/p>\n

This is evidence yet again that an economic revival has to be a huge priority for the next generation of county elected officials.\u00a0 Without it, debt service will consume larger and larger chunks of the budget and eventually lead to service cuts and\/or tax hikes.\u00a0 As for those who oppose economic growth or have worked to undermine it, the debt situation makes this clear: you cannot oppose growth and favor expanding school construction and transportation investment.<\/strong>\u00a0 The economy and the credit markets won\u2019t allow elected leaders to have it both ways.<\/p>\n

Bear that in mind as we head to Election Day.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Adam Pagnucco. Last fall, County Executive Ike Leggett proposed cutting the volume of new general obligation bonds issued by the county in future years and the County Council concurred unanimously.\u00a0 Advocates for school construction fretted over the move as the county\u2019s needs in that area, as well as in transportation investment, are enormous.\u00a0 But … Continue reading MoCo\u2019s Skyrocketing Debt<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[151,33],"tags":[1545,1368,2138],"class_list":["post-9542","post","type-post","status-publish","format-standard","hentry","category-adam-pagnucco","category-budget","tag-adam-pagnucco","tag-budget","tag-debt"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p4mKJE-2tU","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/9542","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9542"}],"version-history":[{"count":6,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/9542\/revisions"}],"predecessor-version":[{"id":9556,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/9542\/revisions\/9556"}],"wp:attachment":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9542"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9542"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9542"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}