WASHINGTON - The Maryland Capital Debt Affordability Committee on Monday raised the state's debt ceiling to 4% of total personal income from 3.2%, a ratio that has not been increased since the 1970s, in response to growing funding needs for school construction, according to state finance officials.

Patti Konrad, director of debt management with the state treasurer's office, said the decision to increase the ceiling has been two years in the making and is necessary because of school construction needs that have pushed the state close to bumping up against the 3.2% mark.

However, Maryland's debt service ratio of 8% of state revenues has not changed, and the state will likely bump up against that cap before the new 4% debt limit, Konrad said.

Despite the state action, the decision to increase the amount of bonds the state issues will still fall to lawmakers. The committee, which is chaired by Treasurer Nancy K. Kopp, reviews the size and condition of the state tax-supported debt and annually submits to the governor and the General Assembly its estimate of the maximum amount of new general obligation debt that prudently may be authorized.

"Obviously, changing the ratio gives you the ability to increase debt issuance, but the decision as to whether you do increase it is a separate one," said Howard Freedlander, a spokesman for the treasurer's office.

Maryland is rated triple-A by all three major rating agencies, and Konrad said after meeting with analysts the committee felt comfortable with the increase.

Standard & Poor's director Richard Marino said the agency considered Maryland's debt ratios low, even with the increase, and they "had no real concerns" over the state's decision to raise the debt limit.

A Standard & Poor's report issued in February said that Maryland's debt ratios were "a moderate $1,256 per capita and 2.7% of personal income, with annual debt service at 5.4% of revenues."

Meanwhile, Gov. Martin O'Malley said yesterday that the state faces major budget cuts in the coming weeks as revenue collections in fiscal 2009 are expected to be $432 million less than officials projected six months ago because of a major slowdown in income and sales tax collections. And the situation also will likely be worse for fiscal 2010, with some sources projecting revenue shortfalls will climb as high as $1 billion.

O'Malley's warning about cuts was in response to a letter from the state's Board of Revenue that said the weaknesses in Maryland's economy likely will have the biggest affect on sales tax collections. The board said that general fund sales tax collections are forecast to grow only 3.1% in fiscal 2009 to $3.787 billion, a reduction from an earlier forecast of $265.3 million.

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