Bill Would Modernize Delaware’s Bond Borrowing Calculation

HB 195 would institute graduated schedule based on municipal bond interest rates

DOVER – With options recently being discussed to raise additional funds for much-needed infrastructure improvements, Rep. Dennis E. Williams introduced legislation Tuesday that would allow the First State to take advantage of historically low interest rates and modernize Delaware’s bond borrowing limit calculation for general obligation bonds.

Rep. Williams’ House Bill 195 would allow Delaware to borrow additional funds for capital infrastructure via a graduated schedule based on municipal bond interest rates. Currently, the state is limited to borrowing up to 5 percent of the state’s general fund revenue, a limit that has been in place since 1991, when interest rates were much higher. With current interest rates, Rep. Williams said this change would allow the state to access up to an additional $150 million for infrastructure projects.

“I strongly believe that we must take advantage of these historically low interest rates to fund much-needed infrastructure projects,” said Rep. Williams, D-Talleyville. “An additional $100 million would create 3,000 new jobs in construction, an industry that has suffered far in excess of many others and provide necessary infrastructure improvements needed to attract new businesses to the state.”

Under the graduated schedule, the state could borrow up to 9.5 percent of general fund revenue if interest rates are below 2.5 percent. The borrowing limit would decrease gradually as interest rates increase, to 7 percent for interest rates between 4.5 percent and 5 percent, and ultimately to 5 percent for interest rates above 6.5 percent. The bills also would lower the total debt service authorized from 15 percent to 12.5 percent of the estimated aggregate general fund revenue, which Rep. Williams said ensures that the state debt would remain at a reasonable level.

HB 195, which has 10 House co-sponsors, has been assigned to the House Administration Committee.