State debt message needs to be heeded
It is true that State Treasurer Richard Moore is running for governor. That means it’s easy to take statements he makes as political hype.
For now, let’s forget the messenger and think about the message.
Moore is repeating his call for a limit on how much North Carolina elected officials can borrow without asking for permission from voters.
Moore’s comments came after the release of the 2008 Debt Affordability Study. The study committee, which included Moore and six other top state officials, concludes that the state could authorize and issue $479 million in new general fund-supported debt for each of the next 10 years and maintain manageable debt levels. That’s the good news. That’s an improvement over the financial picture just the year before when the cap was $384 million.
The bad news, according to Moore, is that the state is moving away from going to voters when the state needs to borrow money.
Moore and the committee strongly urged the governor and the General Assembly to move away from issuing nonvoted debt, so-called special indebtedness, and return to the use of general obligation debt, which requires a vote of the people and costs less.
It’s not just Moore who has concerns. The committee included the secretary of revenue, the state auditor, the state controller and members of both the state Senate and the state House.
Since 2000, the state has relied entirely on the issuance of nonvoted debt, which typically carries an interest rate ranging from five to 20 basis points higher than general obligation debt, Moore said. By 2010, the state’s percentage of nonvoted special indebtedness is projected to exceed the median level for other “triple A” rated states and even the median for all “double A” states. That’s something to consider because keeping a high financial rating is critical for borrowing money at a low interest rate.
Control of the debt burden is a key factor used by the rating agencies to determine credit quality, according to Moore’s office. Last year, North Carolina regained its status as one of only seven states awarded the top rating by all three rating agencies.
In 2003, special indebtedness represented just .4 percent of the state’s outstanding debt. This year, it’s up to 22.9 percent, and by 2010 it will hit 37. 5 percent, or about $2.6 billion.
There are cases where it might make sense to use special indebtedness. There are windows of opportunity that may require the state to act quickly to capitalize on a financial situation, and calling for voters to approve the measure might mean losing that opportunity. However, the state seems to use special indebtedness as the rule, not the exception.
Borrowing money is not in itself a bad thing. There are capital projects like highways and schools that need to be addressed, and if there isn’t money in reserve to pay for them, borrowing money or increasing taxes are the prime options.
What we suggest is that lawmakers present their case to the voters on larger projects. Let politicians do what they do best, use the art of argument and tell use why this project is so important. In the end, let voting taxpayers decide what to do. After all, they are the ones who have to pay in the long run.