Debt Management
As a member of the Board of Public Works, the Treasurer has the lead role in the Board’s activities relating to the issuance and oversight of State debt and under Article VI, Section 3, of the State Constitution, the Treasurer is responsible for arranging for the payment of principal and interest on State debt.
The State Treasurer acts as the paying agent for all Maryland General Obligation (GO) Bonds as well as leases issued to finance capital assets for Maryland state agencies. All debt issuance, analysis, capital lease purchase programs and the payment of debt service is managed by the Division of Debt Management in the State Treasurer’s Office. Maryland has approximately $10.0 billion in GO Bonds outstanding which are rated triple-A (the highest rating possible) by all three major rating agencies (Moody’s, S&P, and Fitch).
The Treasurer also serves as the chair for the Capital Debt Affordability Committee and the Commission on State Debt. The Debt Management Division organizes both annual meetings, compiles the final report and delivers presentations to the Committees. The Capital Debt Affordability Committee is required to review the size and condition of State debt on a continuing basis and to submit to the Governor and General Assemble by October 20 of each year an estimate of the total amount of new State debt that may prudently be authorized for the next fiscal year. An executive order created the Commission on State Debt to recommend to the Board of Public Works, on an annual basis, a State property tax rate sufficient to meet debt service requirements on outstanding general obligation bonds during the next fiscal year.
Frequently Asked Questions
Maryland general obligation bonds cannot be purchased directly from the State. You must purchase Maryland bonds from a broker, either during a retail sale (when the bonds are originally sold by the State) or on the secondary market (where investors sell to each other). To learn about future retail sales, periodically visit here.
The State of Maryland’s general obligation bonds have been assigned the highest credit rating by Moody’s Investors Service, Inc. (Aaa), Standard and Poor’s (AAA) and Fitch Ratings, Inc. (AAA). More details can be found here.
Maryland general obligation bonds are issued in denominations of $5,000 each and can be purchased in any integral multiple thereof. This is the par value of the bonds. However, depending on various market related factors, your purchase price could be at a premium or discount to the par value, meaning the purchase price could be somewhat above or somewhat below the actual par value.
Both the coupon rate and the yield of a bond are important when considering how much interest a bond pays. Many of Maryland’s general obligation bonds are structured with a 5% annual coupon rate, though the coupon rate can vary and be higher or lower than 5%. Maryland’s general obligation bonds also are usually structured so interest is paid semiannually and the coupon rate does not change and is known from the time the bonds are sold. However, the yield, or what is often thought of as the income rate of return, of a specific Maryland bond will vary depending on many different market related factors, including whether the bond is purchased at a premium, discount or par.
Maryland general obligation bond issuances are normally structured with anywhere from two to 15 year maturities, so that a portion of the overall bond sale matures annually. By law, Maryland’s general obligation bonds must mature within 15 years. This means that on the secondary market maturities of Maryland general obligation bonds could vary anytime from very near term to 15 years from the most recent sale.
In addition to Maryland general obligation bonds, State agencies also issue bonds. For instance, there are Consolidated Transportation Bonds and Bay Restoration Bonds. Proceeds from the Community Development Administration Bonds are used to make mortgage loans, primarily to first time home buyers. The Maryland Health and Higher Education Facilities Financing Authority (MHEFFA) uses bond proceeds to build hospitals and educational institutions. The University System issues bonds to finance higher education facilities. Finally, many local governments in Maryland also issue bonds. You should check with your broker about the rating of these bonds and about any special call provisions.
Official Statements provide valuable information on general obligation bonds that have been recently sold by the State. The Official Statements also include important financial and economic information about the State that was current at the date of the Official Statement. Official statements for Maryland general obligation bonds can be found here. You can also call the State Treasurer’s Office at 410-260-7155 with any questions.
Continuing financial information for the State of Maryland general obligation bonds is available here and on the EMMA website for the Municipal Securities Rulemaking Board, where market activity related to the bonds may also be found.
The Municipal Securities Rulemaking Board (MSRB) also has an Education Center to help investors understand municipal bonds.
