107oag117

Gen. 117] 117

PUBLIC FINANCE

STATE DEBT – WHETHER SUBJECT TO APPROPRIATION BONDS
AND LEASES QUALIFY AS STATE “DEBT” WITHIN THE
MEANING OF ARTICLE III, § 34 OF THE MARYLAND
CONSTITUTION

November 16, 2022
The Honorable Dereck E. Davis
Maryland State Treasurer

Article III, Section 34 of the Maryland Constitution places
certain restrictions on the State’s ability to incur debt. That
provision, broadly speaking, prohibits the General Assembly from
contracting debt unless the debt is authorized by a law that provides
for the collection of taxes “sufficient to pay the interest on such
debt as it falls due” and unless the debt is discharged within fifteen
years. Md. Const., Art. III, § 34. You have asked for an opinion
of the Attorney General as to whether that constitutional provision
prevents the State from either issuing bonds with a maturity longer
than fifteen years or entering into lease agreements with an
amortization period of longer than fifteen years if the payment of
principal and interest on those bonds or leases is made subject to
appropriation by the Legislature. In other words, is a bond or lease
“debt” within the meaning of Article III, § 34, if payment is
expressly contingent on the General Assembly’s future decision to
appropriate funds for payment on that bond or lease?

For the reasons discussed below, it is our opinion that subject-
to-appropriation obligations are generally not debt in the
constitutional sense and that, therefore, the restrictions contained
in § 34 of Article III generally would not apply to those
obligations. This is because the Court of Appeals of Maryland1
has, in a series of cases decided over the course of nearly a century,
taken an increasingly formalistic and narrow view of what the term
“debt” means in § 34. Under those cases, the Court has so far
concluded that obligations qualify as “debt” for purposes of the
State’s constitutional restrictions only if those obligations are
secured by a pledge of either (1) tax revenue or (2) valuable,
1
Last week, Maryland voters apparently voted to ratify a
constitutional amendment that will change the name of the Court of
Appeals to the Supreme Court of Maryland. But because the final steps
for the adoption of that amendment have not yet been completed, see
Md. Const., Art. XIV, § 1, we will continue to refer to the Court of
Appeals by its soon-to-be obsolete name.
118 [107 Op. Att’y

existing State property. Subject-to-appropriation obligations,
however, are not actually secured by either of those things. Instead,
they are typically secured only by a promise to seek appropriations,
with no guarantee that any funds will in fact be appropriated for
payment on the obligations.
Although the Court of Appeals has not yet considered the
precise question you ask, courts in other states have applied similar
reasoning to conclude that subject-to-appropriation obligations do
not create constitutional debts. Thus, under the framework used by
the Court of Appeals up to this point for determining whether an
obligation is debt under the State’s Constitution, our view is that §
34’s requirement that debts be discharged within fifteen years does
not apply to bonds or leases when payment of those obligations is
subject to appropriation by the Legislature.2

I
Background

A. History of Maryland’s Constitutional Debt Restrictions

In the mid-19th century, Maryland, like many states,
experienced a financial crisis caused by the State lending its credit
to railroad and canal companies as they expanded westward.
Const. Convention Comm’n, Report of the Constitutional
Convention Commission 214 (1967) (“Constitutional Convention
Report”); Richard Briffault, Foreword: The Disfavored
Constitution: State Fiscal Limits and State Constitutional Law, 34
Rutgers L. J. 907, 917 (2003) (“Disfavored Constitution”). In
many instances, the State transferred long-term State bonds to the
companies and, in turn, the companies sold those bonds to raise
capital. Constitutional Convention Report, supra, at 214-15. The

2
We stress that, even though we have determined that subject-to-
appropriation obligations are generally not “debt” within the meaning of
§ 34, we are speaking in generalities and cannot say unequivocally that
all such obligations are not debt in the constitutional sense. For example,
if a subject-to-appropriation obligation were nonetheless secured by an
interest in existing, valuable State property, that might raise a separate
question. Ultimately, each specific financing scheme that involves
subject-to-appropriation bonds or non-appropriation clauses must be
considered in light of its own provisions. It also bears noting that, if a
specific subject-to-appropriation obligation qualifies as constitutional
debt, then all of § 34’s restrictions apply. This means that, in addition to
providing for discharge within fifteen years, the law authorizing the debt
must also provide for the collection of an annual tax sufficient to service
the debt.
Gen. 117] 119

companies did not produce the revenue that they expected,
however, so the State was left to repay those bonds. Dan Friedman,
The Maryland State Constitution: A Reference Guide 116 (2006)
(“Reference Guide”). To do so, the State had to levy hefty property
taxes, which allowed Maryland to narrowly avoid financial ruin.
Constitutional Convention Report, supra, at 215.

In response to that fiscal catastrophe, the State adopted, in
1851, the predecessor of what is now Article III, § 34 of the
Maryland Constitution: Article III, § 22. See Goldsborough v.
Department of Transp., 279 Md. 36, 38 (1977) (tracing the history
giving rise to § 34); Dan Friedman, Magnificent Failure Revisited:
Modern Maryland Constitutional Law from 1967 to 1998, 58 Md.
L. Rev. 528, 584-85 (1999) (“Magnificent Failure”).

That Maryland provision—like the provisions of many other
states—was adopted chiefly for “the protection of present and
future taxpayers,” to defend them against “ever-spiraling taxes
necessary to finance a burgeoning debt.” Reuven Mark Bisk, State
and Municipal Lease-Purchase Agreements: A Reassessment, 7
Harv. J. L. & Pub. Pol’y 521, 526 (1984); see also Forrer v. State,
471 P.3d 569, 573-74 (Alaska 2020) (noting that, prior to 1840, “no
state constitution contained a restriction on incurring state debt,”
but that many states revised their constitutions to include such
restrictions after the Panic of 1837). Indeed, the debates of
Maryland’s Constitutional Convention of 1850 are rife with
“references to the difficulty of marketing state bonds due to the
depressed condition of the State’s credit” and “elaborate
expressions of regret that extraordinary taxes had to be levied in
order to meet the debt.”3 Constitutional Convention Report, supra,
at 215.

3
Although not expressly articulated in the records of the
Constitutional Convention’s debates, some have suggested that state
constitutional debt limitations may also be justified as “a means of
reconciling the conflict between short-term and long-term interests that
debt generates.” Richard Briffault, State and Local Finance, in 3 State
Constitutions for the Twenty-First Century 211, 216 (G. Alan Tarr &
Robert F. Williams eds., 2006) (“State and Local Finance”). On the one
hand, it may be appropriate to “spread the costs of [a capital] project over
the project’s useful life,” given the long-term benefits that capital
projects typically provide. Id. At the same time, “the ability to shift the
costs into the future may also induce elected officials to incur too much
debt,” because those elected officials “can get the credit for the new
project, but the blame for the additional taxes needed to pay off the debt
will be borne by their successors.” Id. at 217.
120 [107 Op. Att’y

Like § 34 does today, § 22 precluded the State from taking on
debt unless it was authorized by a law levying taxes sufficient to
repay the obligation. Md. Const., Art. III, § 22 (1851). The
provision also required that any debt be discharged within fifteen
years, and that “the amount of debts so contracted and remaining
unpaid shall never exceed one hundred thousand dollars.” Id.

Voters ratified another State Constitution in 1864, which
moved the debt provision to § 33 and eliminated the $100,000 debt
ceiling. Md. Const., Art. III, § 33 (1864). Then, in 1867, the State
adopted yet another constitution, which relocated the provision to
Article III, § 34, where it resides today. But aside from relocating
the debt restriction provision to § 34, the constitutional convention
of 1867 made no substantive changes to the provision’s debt
limitations. See Magnificent Failure, supra, at 585 & nn.324, 325
(explaining the “slight” modifications to debt limitations).

The provision has been amended several times since 1867.
One amendment in particular, ratified in 1972, is worth mentioning
here. See 1972 Md. Laws, ch. 372 (ratified Nov. 7, 1972). As
originally proposed by the General Assembly, the amendment
would have “chang[ed] the taxing requirement for bills that create
a State debt.” Id. Instead of requiring that debt-enabling acts
provide for the collection of taxes and the discharge of the debt
within fifteen years, the amendment would have allowed the State
to “incur indebtedness for any public purpose in the manner and
upon the terms and conditions that the General Assembly
prescribes by law.” Id. The proposed amendment as originally
introduced in the Legislature also explicitly stated that an
obligation would not be considered debt unless the law authorizing
it “include[d] an irrevocable pledge of the full faith and credit of
the State.” Id. A legislative committee struck that broad language
in the proposed constitutional amendment, however. 66 Opinions
of the Attorney General 234, 238 n.4 (1981) (noting that the
original bill, which was amended in committee, “provide[d] for
securing State debt by the general taxing power of the State, rather
than by specific taxes”).4 As enacted, the amendment permitted
that the taxes levied to service the debt are not to be collected “in
the event that sufficient funds to pay the principal and interest on

4
We have been unable to locate a bill file or any other historical
documents related to the legislation that proposed this constitutional
amendment, and we therefore do not know why the bill was amended in
the way it was during the legislative process. For that reason, we hesitate
to read much into the history. In any event, the final constitutional
amendment as adopted has no real effect on our analysis below.
Gen. 117] 121

the debt are appropriated for th[at] purpose in the annual state
budget.” 1972 Md. Laws, ch. 372 (ratified Nov. 7, 1972).5
Thus, even with the language added by the 1972 amendment,
§ 34’s debt restrictions today read essentially the same as they did
in 1851:

No debt shall be hereafter contracted by the
General Assembly unless such debt shall be
authorized by a law providing for the
collection of an annual tax or taxes sufficient
to pay the interest on such debt as it falls due,
and also to discharge the principal thereof
within fifteen years from the time of
contracting the same; and the taxes laid for
this purpose shall not be repealed or applied
to any other object until the said debt and
interest thereon shall be fully discharged. The
annual tax or taxes required to be collected
5
Over the years since § 34’s adoption, voters have ratified other
amendments to that section. In 1924, voters ratified an amendment that
allowed the State to “rais[e] funds for the purpose of aiding or
compensating . . . those citizens of the State who have served, with honor,
their Country and State in time of War.” 1924 Md. Laws, ch. 327
(ratified Nov. 4, 1924). Then, in 1960, voters approved an amendment
that broadened the State’s ability to borrow in order to “meet temporary
deficiencies in the treasury” and to “make and sell short-term notes for
temporary emergencies,” so long as the revenue from those notes went
only to “appropriations already made by the General Assembly.” 1959
Md. Laws, ch. 234 (ratified Nov. 8, 1960). And, in 1976, voters ratified
an amendment that removed the prohibition on appropriations to aid in
works of internal improvement, 1976 Md. Laws, ch. 551 (ratified Nov.
2, 1976), a change apparently proposed so that the State could “take
advantage of portions of the Federal Rail Service Continuance Subsidies
Program as provided in the Regional Rail Reorganization Act of 1973,”
Hearing on H.B. 2148 Before the Senate Budget & Taxation Comm.,
1976 Leg., Reg. Sess., at 1 (Apr. 1976) (written testimony of the
Maryland Department of Transportation). Finally, an amendment
ratified in 1982 made changes to the portion of § 34 that addresses
borrowing to meet “temporary deficiencies” or “temporary
emergencies,” and allowed the Treasurer to “issue short-term notes in
anticipation of revenue including bond revenues.” Reference Guide,
supra, at 117; see 1982 Md. Laws, ch. 600 (ratified Nov. 2, 1982). The
Legislature proposed the change in order to clarify an “ambiguity” in §
34 which “cast doubt on the constitutionality of borrowing on the credit
of the State in anticipation of the receipt of non-tax revenues.” See 63
Opinions of the Attorney General 95, 95 (1978) (discussing a bill
proposing a similar constitutional amendment).
122 [107 Op. Att’y

shall not be collected in the event that
sufficient funds to pay the principal and
interest on the debt are appropriated for this
purpose in the annual State budget.

Md. Const., Art. III, § 34. As discussed in more detail below, “[t]he
restrictions of Art. III, § 34 have, over time, forced the state to find
creative ways to finance necessary improvements,” and the courts
have “assisted in this enterprise by stretching the words of
restrictive constitutional provisions beyond their normal
meanings.” Reference Guide, supra, at 118.

B. General Obligation Debt and Subject-to-Appropriation Bonds

The State’s general obligation bonds are a clear example of
how § 34’s debt provisions work in practice. These bonds are
issued to fund, among other things, State-owned capital
improvements and are backed by the full faith and credit of the
State. See Dep’t of Legislative Servs., 4 Legislative Handbook
Series: Maryland’s Budget Process 86 (2018) (“Legislative
Handbook”); see also Maryland State Treasurer, General Obligation
Bonds, https://www.treasurer.state.md.us/debtmanagement/general-
obligation-bonds.aspx (last visited Nov. 1, 2022). Typically, the
General Assembly authorizes debt in the Maryland Consolidated
Capital Bond Loan—also known as the capital budget bill—which
provides that:
An annual tax is imposed on all assessable
property in the State in rate and amount
sufficient to pay the principal of and interest
on the bonds, as and when due and until paid
in full. The principal shall be discharged
within 15 years after the date of issue of the
bonds.

See, e.g., 2022 Md. Laws, ch. 344, § 1(4). The Board of Public
Works (“BPW”) must then authorize the issuance of bonds.
Legislative Handbook, supra, at 87.

Regarding the tax rate itself—which the capital budget bill
does not specify—each year the Commission on State Debt
recommends to the BPW a State property tax rate that will be
sufficient to service the State’s debts. See, e.g., Comm’n on State
Debt, Report to the Board of Public Works 5 (2022)
(recommending specific property tax rates); see also 39 Opinions
of the Attorney General 272, 274-75 (1954). Property tax revenue
Gen. 117] 123

is deposited into the State’s Annuity Bond Fund, which provides
the funds necessary to pay the principal and interest on the general
obligation bonds. Legislative Handbook, supra, at 89-90.

By contrast, subject-to-appropriation bonds—the topic of
your opinion request—differ from general obligation bonds in
significant ways. These bonds, also called “appropriation risk
bonds,” see, e.g., Letter from Richard E. Israel, Assistant Attorney
General, to Sen. Barbara A. Hoffman, at 2 (Feb. 9, 2000)
(“Hoffman Letter”), typically allow a state or local government to
make payment on an obligation subject to appropriation and then
specifically disclaim “any duty to make an annual appropriation,”
Disfavored Constitution, supra, at 920-21. Subject-to-
appropriation obligations tend to “assume the regular appropriation
of public funds to the authority issuing the debt,” but that
appropriation is not legally required. Id. at 922 (emphasis added).

Unlike general obligation bonds, then, subject-to-
appropriation bonds are not backed by a pledge of the taxing power
of the government issuing them, and the state or political
subdivision pledges neither tax revenue nor existing, valuable
property to secure the bonds. Rather, the issuing government
simply agrees to seek the appropriation of sufficient funds to repay
the obligation without actually promising to appropriate those
funds year over year. See, e.g., Schowalter v. State, 822 N.W.2d
292, 300 (Minn. 2012) (examining tobacco appropriation bonds
and explaining that, “[a]lthough the Legislature has created a
continuing appropriation to pay the principal and interest on the
bonds on an annual basis, the bond documents make clear that the
annual appropriation is subject to repeal, reduction, or
unallotment”).

Typically, if a non-appropriation occurs, the bondholders
have no legal course of action against the state or political
subdivision, because the government cannot be forced to pay or
otherwise honor its obligations. See, e.g., id. at 300-01 (“[T]he
bondholders have no remedy for the State’s failure to make
principal or interest payments.”). At most, the terms of a subject-
to-appropriation financing scheme might provide the
bondholder(s) with an interest in the property to be constructed or
improved with the bond proceeds, see, e.g., State v. School Bd. of
Sarasota County., 561 So.2d 549, 551 (Fla. 1990), but the taxing
power of the State is not implicated in any limited remedy for
default that such an interest might provide. Because subject-to-
appropriation bonds “present a slightly greater risk to investors,”
they typically carry a slightly higher interest rate than general
124 [107 Op. Att’y

obligation bonds do, thus potentially costing the State more to
issue. See Disfavored Constitution, at 926. In addition, subject-to-
appropriation bonds may also involve higher administrative and
legal costs, id., and may also have lower bond ratings, see, e.g.,
Moody’s Investors Serv., US States and Territories Methodology
34-36 (2022) (discussing “downward notches” for “contingent
obligations,” which include subject-to-appropriation bonds and
leases).6
Lease agreements with non-appropriation clauses, about
which you also asked, have similar characteristics.7 It is our
understanding that such leases, like subject-to-appropriation bonds,
do not pledge tax revenue, and are not secured by existing, valuable
property. See, e.g., Bruce v. Pikes Peak Library Dist., 155 P.3d
630, 633 (Colo. App. 2007) (examining leases that contained non-
appropriation clauses providing that the library district was “not
obligated to appropriate funds or make payments in future years”).
Rather, if the funds necessary to make a lease payment are not
appropriated, the lease agreement is generally subject to
cancellation, and the government has no obligation to ensure that
the lease payments are made. See, e.g., Haugland v. City of
Bismarck, 429 N.W.2d 449, 450-51 (N.D. 1988) (noting that,
although tax revenue was expected to contribute to the lease
payments in a municipal financing arrangement, tax revenue was
not pledged and the leaseback was subject to cancellation if the city
chose not to appropriate funds for lease payments).
II
Analysis
We now turn to your question: assuming that the State makes
the payment of principal and interest on bonds or other obligations
subject to appropriation, would the State violate § 34 of the State’s
6
Whether the use of subject-to-appropriation bonds is good policy
is, of course, beyond the scope of this opinion. We express an opinion
only about the permissibility of such financing mechanisms under the
Constitution.
7
Certain types of leases can arguably be viewed as paying off debt
on an installment basis, akin in some ways to a mortgage, especially
when the government will own title to the leased property when the lease
ends. For example, the Nevada Attorney General’s Office apparently
questioned whether a lease for computer equipment created a
constitutional public debt where the lease agreement provided a
“schedule of base payments,” the payment of which would result in the
state’s ownership of the equipment. Business Comput. Rentals v. State
Treasurer, 953 P.2d 13, 14-15 (Nev. 1998) (per curiam).
Gen. 117] 125

Constitution if it were to issue bonds, or enter into leases, that
mature or amortize over a span of more than fifteen years?
Although those types of subject-to-appropriation obligations might
seem like debt in the colloquial sense, the requirement in Article
III, § 34 that a debt be discharged within fifteen years applies only
to debt that is “debt” in the constitutional sense, as that term has
been interpreted by the Maryland courts. Thus, if subject-to-
appropriation bonds or lease terms do not qualify as debt within the
meaning of the State’s Constitution, they are not subject to the
fifteen-year limitation in § 34.8

The key question, therefore, is whether making the payment
of principal and interest on an obligation subject to appropriation
means that obligation is not “debt” for purposes of § 34.
Answering this question involves interpretation of the debt
limitations contained in § 34 of the State’s Constitution—in
particular, the meaning of the word “debt,” which the Constitution
does not define. Compare, e.g., Minn. Const., Art. XI, § 4 (defining
“public debt”), with Md. Const., Art. III, § 34. Ordinarily, to
interpret a provision of Maryland’s Constitution, we would engage
the same rules applicable to statutory interpretation. Bernstein v.
State, 422 Md. 36, 43 (2011). But we are not operating in a vacuum
here. The Court of Appeals has, on numerous occasions,
interpreted § 34 and—as explained below—given the term “debt”
a “highly specialized meaning[.]” Constitutional Convention
Report, supra, at 220.
The text of § 34 precludes the General Assembly from
authorizing State debt unless, in the same act enabling the debt, the
General Assembly also provides for taxes sufficient to pay the debt
and for the discharge of the debt within fifteen years. Md. Const.,
Art. III, § 34; see also 35 Opinions of the Attorney General 150,
151 (1950). Interpreted literally, the provision might mean that,
any time the General Assembly seeks to borrow money in some
form, it must also impose a tax to repay that money and ensure that
the money is repaid within fifteen years. Indeed, “debt” is
commonly understood as “a specific sum of money due by

8
Of course, even if subject-to-appropriation bonds or lease terms
were not constrained by § 34, they would still be subject to any statutory
limitations that the General Assembly placed upon them. Cf., e.g., Md.
Code Ann., State Fin. & Proc. (“SFP”) § 8-120(6) (permitting the BPW
to allow bonds authorized by an enabling act to “mature in certain
amounts at certain times . . . but not later than 15 years after their
respective dates of issue”). We note, however, that you have not asked—
and thus we do not consider—the extent to which any existing statutory
provision would impose such limits.
126 [107 Op. Att’y

agreement or otherwise,” Black’s Law Dictionary (11th ed. 2019),
or “something owed,” Merriam-Webster Dictionary,
https://www.merriamwebster.com/dictionary/debt (last visited
Nov. 1, 2022).

But, as detailed below, “[t]he words of the present
Constitution . . . do not mean what they appear to say.”
Constitutional Convention Report, supra, at 221. Rather, despite
the broad language of the provision, the Court of Appeals has
interpreted the term “debt” in § 34 more narrowly, focusing on
whether there is an actual pledge of tax revenue, or of existing,
valuable State-owned property. In doing so, the Court of Appeals
has taken an approach that examines the form of the financing
scheme at issue and does not emphasize or give great weight to
what the scheme might aim to do in practice.

A. How the Court of Appeals Has Defined Debt

In an early case addressing the meaning of debt in a
constitutional context, the Court of Appeals seemed inclined
toward a more literal and broad interpretation. See Mayor & City
Council of Baltimore v. Gill, 31 Md. 375 (1869). That case—which
was decided less than 25 years after the State financial crisis that
led to the enactment of what is now Article III, § 34, see
Constitutional Convention Report, supra, at 215—defined debt as
“money due upon a contract, without reference to the question of
the remedy for its collection.” Id. at 390.9 Working from this
understanding of debt, the Court of Appeals held that Baltimore
City created a constitutional debt when it enacted an ordinance that
authorized the City to borrow money, the repayment of which was
backed by a pledge of the City’s shares of Baltimore and Ohio

9
In Gill, the Court of Appeals was interpreting Article XI, § 7 of the
State Constitution, which contains the limitations on Baltimore City’s
ability to take on debt. Though the restrictions themselves are a bit
different—for instance, § 7 requires that the debt be “submitted to the
legal voters of the City of Baltimore,” and requires discharge of the debt
within forty years rather than fifteen years, Md. Const., Art. XI, § 7—
the judicial construction of the term “debt” is the same for both § 7 and
§ 34 of Article III, see Hall v. Mayor & City Council of Baltimore, 252
Md. 416, 424-25 (1969) (citing cases interpreting “debt” as used in § 34
to determine if a particular financing scheme created a debt for purposes
of Art. XI, § 7). Such parity make sense, given that similar financial
circumstances motivated municipal debt restrictions. See id. at 421
(noting that “[l]ocal debt increased very rapidly until the business crisis
of 1873 brought about many municipal defaults caused by excessive and
unwise debt” that, in many cases, were related to railroad financing).
Gen. 117] 127

Railroad Company stock. Id. at 391-92. In doing so, the Court of
Appeals stressed that it was “dealing with substance, not with
form,” and suggested that “[i]t is the thing to be done, or sought to
be accomplished, which must determine the question of the power
[to enact] the Ordinance.” Id. at 387. At bottom, Gill proceeded
from the understanding that the “plain intent” of the constitutional
debt provisions is to restrain the government from borrowing
money “either upon the general credit of the city, or by a pledge of
its revenues or assets.” Id. at 390.

But any inclination that the Court of Appeals may at first have
had toward a broad reading of § 34 has abated over the years as
subsequent decisions have limited Gill’s holding and narrowed the
meaning of debt under § 34. For instance, though initially there
was a question as to whether Gill would “prevent the issuance of
[so-called] revenue bonds in Maryland,” Constitutional
Convention Report, supra, at 218, it is now widely accepted that
such bonds—e.g., bonds that are issued to generate funds to build
or improve upon property or enterprise and for which the source of
repayment is generally the revenue produced by that property or
enterprise, Secretary of Transp. v. Mancuso, 278 Md. 81, 87
(1976)—do not create a constitutional debt.

One of the first cases to narrow the meaning of “debt” after
Gill involved such revenue bonds. In examining the
constitutionality of revenue bonds, the Court found it significant
that the obligation was “not one in which property or income
already existing and owned by the State is to be applied to
repayment of the cost.” Wyatt v. Beall, 175 Md. 258, 266 (1938)
(emphasis added). The Court of Appeals distinguished Gill,
observing that, there, “the pledge of the existing property was
indistinguishable . . . from a pledge of credit,” Wyatt, 175 Md. at
266, and thus held that revenue bonds “payable exclusively from
tolls to be charged on the bridges and tunnels” constructed with or
acquired by the bond proceeds did not create constitutional State
debt, id. at 261, 265.

The Court of Appeals continued over the next couple of
decades to enlarge the universe of revenue bonds (and,
consequently, constrict the universe of constitutional debt). In one
case, for example, the Court found that the bonds at issue—which
would help finance improvements to a market, part of which had
burned in a fire—were not “debt” when they were secured by the
revenues of the existing market that was not revenue-producing
prior to the improvements. Castle Farms Dairy Stores v. Lexington
Mkt. Auth., 193 Md. 472, 483 (1949). By stressing that the market
128 [107 Op. Att’y

had been “operat[ing] at a loss,” id., the Court of Appeals
distinguished Gill, which held that the “pledge of valuable
property, or assets, held by the city,” created a constitutional debt,
Gill, 31 Md. at 389 (emphasis added). Similarly, in another case,
the Court found that the bonds at issue were not debt when backed
by the trade center to be built with their proceeds. Lerch v.
Maryland Port Auth., 240 Md. 438, 462 (1965). In Lerch, the Court
emphasized the “majority view” that a debt is created when
“existing valuable, income-producing property” is mortgaged as
security for the payment of bonds used to finance a project and
further explained that, in the case of the trade center, the State was
not pledging any such existing property. Id. at 458. Instead, as the
Court explained, if the State defaulted on the bonds and the trade
center was sold for the benefit of the bondholders, “the State
w[ould] lose nothing which it now has.” Id. at 459; see also id. at
461-62 (discussing Wisconsin cases that were “based on the
rationale that a municipality can walk away from the obligation
none the poorer”) (citation omitted).

Notably, the decision in Lerch relied to a significant degree
on the specific historical circumstances leading to the adoption of
§ 34 to support a narrow interpretation of the word “debt” in that
constitutional provision. The Court in Lerch explained that what
is now § 34 was trained on a very specific “evil”—that it was meant
“to curb the reckless and improvident investment of public funds
in aid of railroads and canals, promoted by private corporations,
organized primarily for profit to their stockholders, although they
might eventually serve a public purpose.” Id. at 453 (quoting Johns
Hopkins Univ. v. Williams, 199 Md. 382, 398 (1952)). Thus, in the
Court’s view, the framers of § 34 could not have meant to
“foreclose[] [a financing scheme] which was not and could not
have been envisioned by them, and which had no relation whatever
to the problems they were facing.” Id. (quoting Johns Hopkins,
199 Md. at 399).

Then, in 1966, the Court of Appeals further extended this
doctrine and explicitly gave it a name—the “special fund doctrine.”
That doctrine applies where “the obligation incurred is payable
wholly out of the income and revenue of the enterprise which it
finances,” even including situations where the revenue derives
partly from existing, already-revenue-producing State property.
Lacher v. Board of Trs. of State Colls., 243 Md. 500, 506-08
(1966); see also Md. Op. Att’y Gen. No. 84-021, 1984 WL 251388,
at *4 (Sept. 5, 1984) (unpublished) (summarizing the special fund
doctrine). Explaining that Gill had been “limited in its effect,” the
Court of Appeals held that “the pledge of future revenues by a State
Gen. 117] 129

agency from an existing enterprise or building to sweeten the pot
available from the future revenues from the facility or building to
be constructed from the proceeds of the revenue bonds does not
amount to the creation of a debt by the state.” Lacher, 243 Md. at
508-09 (emphases added).10
The Court of Appeals has, however, set some limitations on
what qualifies as non-debt for purposes of § 34. Unlike courts in
some other states,11 the Court of Appeals has held that the special
fund doctrine applies only to the use of non-tax revenues to secure
an obligation and not to the “use of the taxing authority for debt
service payment,” Mancuso, 278 Md. at 89, 91, even if the debt is
serviced from a specially defined fund that receives only tax
revenue that is arguably related to the projects it finances. Thus, in
Mancuso, the Court of Appeals held that a law that authorized the
Maryland Department of Transportation (“MDOT”) to issue bonds
payable solely through the proceeds of excise taxes on fuel and title
certificates, as well as certain corporate taxes, created a debt to
which § 34 applied. Id. at 83, 91.

In reaching that conclusion, the court quoted a Washington
State case that also involved the use of specifically defined tax
revenue to service a debt, explaining that the “true test” of the
special fund doctrine’s application was:

[N]ot what comes out of the fund, but what
goes into it. If the revenues in it derive
exclusively from the operation of the device
or organ of government financed by the fund,
as in the case of a toll bridge . . . any securities
issued solely upon the credit of the fund are
not debts of the state, but debts of the fund
only. But if the state undertakes or agrees to
provide any part of the fund from any general
tax, be it excise or ad valorem, then securities
10
The plaintiffs in Lacher also argued that, because revenue from the
existing buildings—revenue that was used for maintenance of the
buildings—would be diverted to repayment of the bondholders, the
scheme ultimately created a debt because the State would need to use tax
revenue to maintain the buildings going forward. Lacher, 243 Md. at
509-510. The Court of Appeals rejected this argument, noting that the
State was under no legal obligation to maintain its property. Id. at 511.
11
See State and Local Finance, supra, at 218 for a discussion of the
“extension” of the revenue bond concept to “bonds backed by taxes on
activities that benefit from the project financed by the bond,” and
citations to cases approving such bonds.
130 [107 Op. Att’y

issued upon the credit of the fund are likewise
issued upon the credit of the state and are in
truth debts of the state.

Id. at 90 (alteration in original) (quoting State ex rel. Washington
State Fin. Comm. v. Martin, 384 P.2d 833, 842 (Wash. 1963) (en
banc)); Letter from Richard E. Israel, Assistant Attorney General,
to Del. Howard P. Rawlings, at 4 (Aug. 26, 1997) (concluding that
constitutional debt limitations likely applied to tax increment bonds
to be serviced by certain property tax revenues).

B. How to Apply the Court’s Definition of “Debt” to Subject-to-
Appropriation Obligations

Based on this history and the narrow view of constitutional
debt that the Court of Appeals has taken, the type of subject-to-
appropriation obligations about which you have asked do not
appear to be constitutional debt—at least not as the Court of
Appeals has defined the term so far. As the cases discussed above
illustrate, the Maryland courts have taken a “formalistic”—rather
than a “practical” approach—toward the definition of “debt” in
§ 34, see Hoffman Letter, supra, at 3, and have found § 34 to apply
only when the State pledges tax revenue or existing, valuable
property to secure its bonds or lease payments.12 Because subject-
to-appropriation obligations do not pledge either of those things,
they do not appear to qualify as “debt” within the meaning of
Article III, § 34. We elaborate on that conclusion below.

As an initial matter, the key cases finding that an obligation
did qualify as “debt”—Gill and Mancuso—are distinguishable.
The problem in Gill was that valuable government property was
used as security for the bonds. 31 Md. at 389-90. Presumably,
however, financing schemes that involve subject-to-appropriation
obligations will either be backed only by the promise to seek
appropriation of the money necessary to service the obligation or,
at the most, by an interest in the not-yet-existing property or
enterprise that the scheme seeks to finance. Although some of the
language in Gill is perhaps broad enough to suggest that subject-
to-appropriation bonds might qualify as debt, see id. at 390
(defining debt as “money due upon a contract, without reference to
the question of the remedy for its collection”), the Court of Appeals
has since made clear that Gill “has been limited in its effect . . . to
its precise holding that a pledge or mortgage of existing

We do not attempt to decide the limits of what “existing, valuable
12

State-owned property” would include, as it is not necessary to answer
the question asked.
Gen. 117] 131

governmental property creates or constitutes a debt,” Lacher, 243
Md. at 508.
Similarly, subject-to-appropriation bonds are also different
from the obligations at issue in Mancuso, which were backed by
pledged tax revenues. 278 Md. at 83. To be sure, it might be that
the funds used to pay the principal and interest on a subject-to-
appropriation obligation will, once appropriated, contain revenue
derived in part from various taxes. But such a scenario differs from
Mancuso in that, there, the bonds issued by the MDOT were legally
secured by a fund containing certain motor vehicle fuel and title
excise tax revenue—which were “irrevocably pledged” for the
payment of principal and interest on the bonds—and not merely the
promise to seek an appropriation from that fund. See id. (bonds
“shall be payable as to both principal and interest solely from the
proceeds of the tax and other revenues levied, imposed, pledged, or
made available for such purpose”). Indeed, the enabling law for
the bonds levied the pledged taxes, id., just as § 34 requires for the
creation of debt. Thus, there was a direct line between the debt
created and the taxes imposed and pledged to support that debt.

But, with subject-to-appropriation obligations, because the
State has not actually pledged any tax revenue or existing property,
the threat to future taxpayers—e.g., that their tax bills would
increase in order to pay back the debt—is mitigated, at least to
some degree. That is important because we know that the
protection of future taxpayers was one of the central purposes that
motivated the adoption of § 34. See id. at 86 (detailing past
imposition of taxes to “ameliorate the prior abuses of the State’s
credit,” and thus finding it “clear that one of the purposes of [§ 34]
was to guard against future credit abuses by including within its
purview any evidence of State indebtedness which is secured by its
taxing power”). Because there is no imposition of a tax, and no
direct recourse to tax revenue as a source of repayment, subject-to-
appropriation bonds do not implicate the same abuse-of-credit
concerns.

In addition, the rationales offered by the Court of Appeals in
sustaining other financing schemes against § 34 challenges further
support a conclusion that subject-to-appropriation obligations are
not constitutional debt. For instance, in Lerch, the court reasoned
that:

The pledge of the [Trade] Center, when built,
as security for the Authority’s bonds will not
jeopardize any property of the State which
132 [107 Op. Att’y

now exists. If there is a default in the bonds
and the Center is sold for the benefit of the
bondholders, the State will lose nothing which
it now has. The future burden on the
taxpayers will be no greater than if the Center
had never been built.

240 Md. at 459. That justification applies with equal—if not
greater—force to subject-to-appropriation obligations. If an
obligation is backed only by the State’s promise to seek the
appropriation, at regular intervals, of the funds necessary to pay the
principal and interest and nothing more, clearly no State property
is in jeopardy. The State can, at least in theory, decline to
appropriate the funds and “walk away from the obligation none the
poorer.” Id. at 462 (citation omitted).

Similarly, when considering whether the State’s obligation to
maintain property built with the proceeds of revenue bonds
qualifies as constitutional debt, the Court of Appeals emphasized
that, under those circumstances, the General Assembly was not
“forced” to authorize any expenditures:

The obligation of the State to maintain the
buildings at the State Colleges in the future is
exactly that it has to maintain any buildings it
owns and that of any provident owner of
property. It has not agreed with the
bondholders or with anyone else to pay any
amount in future years to maintain any
building. Whether it does maintain them
depends on whether the Legislature
appropriates the necessary funds, and it
cannot be forced to authorize such
expenditures. An obligation of this sort is not
in our view a debt within the meaning of the
Constitution.

Lacher, 243 Md. at 511 (emphasis added).

In doing so, the Court appeared to draw a distinction in this
context between a practical reason that the General Assembly
might decide to appropriate funds as a result of a financing
arrangement and a legal obligation to do so. Given that a similar
distinction exists between subject-to-appropriation obligations
(which the State might have a strong practical reason, but no legal
obligation, to honor) and general obligation debt, it is our view the
Gen. 117] 133

Maryland courts would likely find that subject-to-appropriation
obligations are generally not “debt” under Article III, § 34.
This conclusion that subject-to-appropriation obligations are
not constitutional debt is consistent with prior advice from this
Office, as well as the majority rule in other states. Our Office
previously examined a “modified tax increment financing” scheme
under which, rather than irrevocably pledging tax increment
revenue toward repayment of the bonds, “the revenues representing
the levy on the tax increment [we]re subject to annual
appropriation.” Hoffman Letter, supra, at 2. That letter concluded,
consistent with our view here, that “in the absence of a legally
enforceable obligation to pay debt service, the opinions of the
Court of Appeals suggest that appropriation-risk bonds would not
be considered debt” in the constitutional sense. Id. at 3.

In reaching that conclusion, we also looked to a Virginia case
that examined a scheme to finance a parkway that involved bonds
issued by a transportation commission, and for which a county
agreed to pay the annual principal and interest from the county’s
general revenues. Dykes v. Northern Va. Transp. Dist. Comm’n,
411 S.E.2d 1, 3 (Va. 1991). The contract provided that “[t]he
obligation of the County to make any payments . . . is contingent
upon the appropriation for each fiscal year by the Board of
Supervisors of the County of funds from which such payment can
be made.” Id. (alteration in original). The Supreme Court of
Virginia ultimately concluded that no constitutional debt existed
because the financing scheme “d[id] not impose any enforceable
duty or liability on the County.”13 Id. at 10, on reh’g.
Indeed, the vast majority of other states to consider the issue
have similarly held that subject-to-appropriation bonds, and leases
containing non-appropriation clauses, are not constitutional debts.

13
Initially, the Supreme Court of Virginia held that, in making
payment on the obligation subject to appropriation (and not submitting
the measure to the voters), the county and transportation commission
were “impermissibly seek[ing] to accomplish indirectly what they
c[ould] not do directly.” Dykes, 411 S.E.2d at 5. One motivating factor
in that decision was the county’s recognition of “the importance of its
fiscal integrity,” and the “disastrous effect that would follow any failure
by the board of supervisors to make an annual appropriation.” Id.
Noting the county’s assertion that “such a disaster would never be
permitted to occur,” the court found an implicit acknowledgement that
“the bond issue would have the practical effect of a long-term debt
binding the county.” Id. Upon rehearing, however, a majority of the
court reversed that initial decision. Id. at 10, on reh’g.
134 [107 Op. Att’y

For example, the Supreme Court of Iowa has held that no
constitutional debt was created when “[t]here [wa]s nothing in the
agreements creating the notes and bonds that b[ound] the city to
any particular future course of action.” Fults v. City of Coralville,
666 N.W.2d 548, 557-58 (Iowa 2003). This was so even if the
“practical effect” of the agreements was that the city would repay
its obligations to avoid negative financial consequences. Id.
Similarly, the Supreme Court of Florida has ruled that there was no
constitutional debt where “[m]oney from several sources, including
ad valorem taxation, will be used to make the annual facilities’
lease payments,” but “[i]f, in any year, a board does not appropriate
the money to pay the lease, the board’s obligations terminate
without penalty and it cannot be compelled to make payments.”
School Bd. of Sarasota County, 561 So.2d at 551.14

We recognize that, even though there is no legal obligation to
appropriate funds to satisfy a subject-to-appropriation obligation,
there would be significant pressure on the State to do so (and thus
significant pressure on the State to increase taxes if necessary to
satisfy such an obligation). As the Department of Legislative
Services has stated, “a cautious fiscal culture has evolved in
Maryland,” and “[h]aving earned a AAA bond rating from all three
major rating agencies (Fitch, Moody’s, and Standard & Poor’s), the
State makes few important decisions without considering the
potential impact on that treasured status.” Legislative Handbook,
supra, at 2. For that reason, one might argue that, from a practical
standpoint, the Legislature is extremely unlikely to risk the State’s
credit rating by declining to appropriate the necessary funds to
14
See also Lonegan v. State, 819 A.2d 395, 402 (N.J. 2003) (accepting
that there are “constitutionally significant differences between the
Legislature being ‘highly likely,’ rather than being ‘legally bound,’ to
repay its debts,” and holding that “only debt that is legally enforceable
against the State is subject to the Debt Limitation Clause”); Fent v.
Oklahoma Capitol Improvement Auth., 984 P.2d 200, 205, 208 (Okla.
1999) (per curiam) (financing scheme that involved “[a]t most . . .
appropriation-risk or moral obligation bonds” did not create
constitutional debt because there was “no legally enforceable contract
between [the Legislature] and either [the Capitol Improvement
Authority], the various agencies, etc. or the citizens of Oklahoma to
make the anticipated appropriations necessary to retire the bonds”);
Wilson v. Kentucky Transp. Cabinet, 884 S.W.2d 641, 642, 644 (Ky.
1994) (finding no constitutional debt created by road bonds issued for
road construction projects where the funds to pay bondholders were
subject to appropriation because “there [wa]s no legal obligation or debt
which the courts c[ould] enforce against future generations,” and
because “[t]he distinction between debt as a legal obligation and any
other type of financing is a real distinction”).
Gen. 117] 135

service bonds that are subject to appropriation and that thus such
bonds differ little in practice from general obligation bonds. Cf.
Disfavored Constitution, supra, at 922-23 (noting that, though
appropriation-backed bonds are “not considered debt under a strict
legal definition, Standard & Poor’s considers all appropriation-
backed bonds of an issuer to be an obligation of that issuer and a
failure to appropriate will result in a considerable credit
deterioration for all types of debt issued by the defaulting
government” (citation omitted)).

The Supreme Court of Alaska relied in part on a similar
argument when invalidating, under Alaska’s constitutional debt
provision, legislation that created a state corporation authorized to
issue subject-to-appropriation bonds to raise funds to pay off
certain state obligations. Forrer, 471 P.3d at 573, 579, 593.
Although that decision also relied on grounds that were unique to
Alaska and would not be relevant in Maryland15, the court appeared
to find some merit to the argument that the prospect of negative
credit ratings would have essentially the same effect as requiring
an appropriation, thus leaving no meaningful constitutional
difference between subject-to-appropriation obligations and other
forms of debt. See id. at 593 (concluding that the court “need not
decide whether a potential credit downgrade alone suffices to
create debt,” but explicitly noting that, while the scheme might not
require appropriations, in practice “legislatures would feel
enormous pressure to appropriate funds due to the potential negative
impact on Alaska’s credit rating”).

As discussed above, however, Maryland’s Court of Appeals
has so far taken a more “formalistic” approach to defining
constitutional debt. Hoffman Letter, supra, at 3. In fact, the Court
has expressly clarified that, despite the “broad language” of Gill
suggesting that any action that could directly or indirectly lead to
an increase in taxes might qualify as debt, “[t]he fact that action by
the [government] may result in increased taxation does not
necessarily mean that debt will be created.” Eberhart v. Mayor &
City Council of Baltimore, 291 Md. 92, 103 (1981). The Maryland

15
Forrer involved a constitutional provision adopted in 1956—much
later than Maryland’s—and accompanied by a rich, detailed, and well-
documented history that included discussion about the meaning of the
word “debt.” See, e.g., id. at 588. Alaska’s constitution also contains an
explicit exemption from its debt restrictions for revenue bonds but not
subject-to-appropriation bonds, see Alaska Const., Art. IX, § 11, and the
Alaska court found that “the constitution’s plain text draws a clear and
meaningful distinction between the terms ‘revenue’ and
‘appropriations,’” Forrer, 471 P.3d at 596-97.
136 [107 Op. Att’y

courts have instead, as described above, tended to look to the form
of the arrangement, including whether the State has pledged any
tax revenue or any valuable, existing State property.

In our view, then, the Maryland courts would more likely find
that “there are constitutionally significant differences between the
Legislature being ‘highly likely,’ rather than being ‘legally bound,’
to repay its debts.” Lonegan, 819 A.2d at 402. Indeed, that
distinction is more than just a formal one: When the State has not
actually pledged any tax revenues (or valuable existing property),
the Legislature has more discretion to weigh the harm of defaulting
on an obligation versus the harms that might be caused by honoring
the obligation. Cf. Wyatt, 175 Md. at 267 (explaining that “[t]he
[General] Assembly was given the chief part of the task of deciding
questions of financial policy”).

Thus, like many of the states that have considered this
“pressure to appropriate” argument, we conclude that, while credit
rating considerations are relevant to a legislative determination as
to the wisdom of authorizing a particular transaction, see Wilson,
884 S.W.2d at 645-46, they do not create a constitutional debt.
Lonegan, 819 A.2d at 402; see also Fults, 666 N.W.2d at 558
(explaining that, even if the “practical effect” of subject-to-
appropriation obligations is that the government will repay its notes
and bonds, this does not affect the analysis as long as the city
“cannot be held legally responsible for the debt”); Dykes, 411
S.E.2d at 375 (reasoning that “[e]xpectations of bondholders,
County officials, or bond rating agencies do not create County
‘debt’”), on reh’g.
C. Leases

A final point about lease financing bears mentioning and
provides an independent reason why leases containing subject-to-
appropriation payment terms likely do not create constitutional
debts. More specifically, in at least two cases, the Maryland courts
have held that certain types of lease financing schemes—schemes
that, as far as we know, did not contain non-appropriation
clauses—were not subject to § 34’s restrictions, based on the
separate rationale that an agreement to pay rent “creates no debt
until the time stipulated for the payment arises.” Hall v. Mayor &
City Council of Baltimore, 252 Md. 416, 424 (1969) (quotation and
citation omitted) (so holding in case involving Article XI, § 7);
Eberhart, 291 Md. at 107-08 (same); see also Wyatt, 175 Md. at
268 (“According to all decisions known to us, even if ascertained
amounts are now agreed to be paid in the future, as, for instance,
Gen. 117] 137

rentals, this would not be the contracting of a debt in the
constitutional sense.”). This common law rule—which was in
effect when § 34 came into being, Hall, 252 Md. at 423—reflected
the view that “rent issues from the land, is not due until the rent
day, and is due in respect of the enjoyment of the premises let,” id.
at 424 (quotation and citations omitted).

In Hall and Eberhart, the Court of Appeals held that the
challenged leases did not create constitutional debt because they
were “bona fide” leases, Hall, 252 Md. at 424-25—i.e., leases that
constituted “economically balanced transactions” involving “the
exchange of value for value,” Eberhart, 291 Md. at 107-08. In both
cases, the Court found it important that the rental payments
represented the fair rental value of the properties being leased.16
See id. at 107; Hall, 252 Md. at 427; see also 54 Opinions of the
Attorney General 351, 352 & n.1 (1969) (suggesting that the
legality of a sale-leaseback scheme depends on whether a court
determines that the lease is a “bona fide lease transaction,” and not
“a subterfuge for a plan of financing the purchase of a facility” that
would create a constitutional debt); Bisk, supra, at 531 & nn.55-56
(noting that “[c]ertain courts approving lease-purchase agreements
without the benefit of a nonappropriation mechanism have relied
heavily upon the reasonable and fair cost of rental payments under
lease-purchasing,” and citing Maryland cases).

We do not, however, need to decide the precise contours of
what would constitute a “bona fide” lease here, as that was not the
question that you asked. Rather, it is enough to say that, given that
at least some lease arrangements are not constitutional debt in the
first place under Hall and Eberhart, it is difficult to see how the
addition of a term that makes payment of lease obligations subject
to appropriation could transform such a “non-debt” into
constitutional debt.

16
The dissent in Eberhart is notable. Maintaining that the court must
“examine the transaction . . . as a whole, not its individual parts,”
Eberhart, 291 Md. at 118 (Smith, J., dissenting), the dissent opined that
“[s]tripped of all dross, trappings and camouflage, what we have here is
a municipal asset which the City is to pledge as security for money
advanced to it which it is to pay back over a thirty year period. That is a
debt,” id. at 123. Thus, according to the dissent, “the City’s obligation
to pay [wa]s not based upon the economic worth of the building, but
[wa]s to pay not less than the sum necessary to cover the debt
obligation.” Id. at 124. But that rationale was not, of course, adopted by
the majority.
138 [107 Op. Att’y

Moreover, for decades Maryland has utilized installment sale
and lease purchase arrangements to finance certain capital needs—
primarily equipment and real property. See SFP §§ 8-401 through
8-407; see also Floor Report, House Comm. on Appropriations,
S.B. 50, 1995 Leg., Reg. Sess. (noting that, for purposes of S.B. 50,
“capital lease means financing equipment purchase or the purchase
and improvement of real property”). Although the State must
consider capital leases as “tax-supported debt” for purposes of debt
affordability calculations, Legislative Handbook, supra, at 100, the
statute provides explicitly that capital leases are “contingent on the
availability of appropriated or other legally available funds,” “may
not be construed or deemed to be a debt of the State or a unit of
State government,” and “may not constitute a pledge of the full
faith and credit and taxing power of the State or a unit of State
government,” SFP § 8-404. Of course, these legislative caveats by
themselves do not guarantee constitutionality. See Mancuso, 278
Md. at 83, 91 (finding a bonding bill unconstitutional despite
similar disclaimers). But given that the scheme remains
unchallenged after close to thirty years17 and that any challenge
would have to contend with the “bona fide” lease precedent from
the Court of Appeals, our sense is that the General Assembly’s
classification of capital leases as non-debt is correct.

In any event, to answer the question that you asked, it suffices
to say that leases with subject-to-appropriation clauses or terms are
likely not debt—at least not for purposes of § 34—and, therefore,
there is likely no constitutional requirement that such leases
amortize within fifteen years.

III
Conclusion

In our opinion, the restrictions in Article III, § 34 of the State
Constitution do not apply to bonds or leases when repayment of the
obligations created by those bonds and leases is expressly made
subject to appropriation by the Legislature. The Court of Appeals
has so far found an obligation to be “debt” for purposes of § 34
only when the obligation is secured with tax revenue or when the
State pledges existing, valuable property as security. Subject-to-
17
In some cases, the fact that a state has long engaged in certain
methods of public finance may influence the conclusion as to what does
or does not constitute debt. See, e.g., Lonegan, 819 A.2d at 407 (“We
are unwilling to disrupt the State’s financing mechanisms in the
circumstances presented to us, and agree with the majority of state courts
interpreting their own constitutions that the restrictions of the Debt
Limitation Clause do not apply to appropriations-backed debt.”).
Gen. 117] 139

appropriation obligations, however, neither pledge the State’s tax
revenue nor require that existing, valuable property be used as
security. Therefore, in our view, the Constitution likely does not
preclude the State from issuing bonds that take longer than fifteen
years to mature, or leases that amortize over a period longer than
fifteen years, if payment of the obligations created by those bonds
and leases is made subject to appropriation by the General
Assembly.
Brian E. Frosh
Attorney General of Maryland

Sara Klemm
Assistant Attorney General

Patrick B. Hughes
Chief Counsel, Opinions & Advice