North Carolina’s state government has virtually maxed out its debt capacity and the state’s credit rating may be in jeopardy by next year, according to a new report by the state treasurer. Last week, the office of new state treasurer Janet Cowell last week released its Debt Affordability Study for 2009.1 The findings reflect lawmakers’ recent preference for ever-growing levels of debt spending the last several years.
- To meet the treasurer’s debt affordability targets, North Carolina can only support an additional $50 million in “general-fund supported debt for each of the next five years”. Exceeding the affordability targets would threaten the state’s credit rating, making it more expensive for taxpayers to pay back future debt.
- The new target is a dramatic reduction from last year’s recommended $480 million annual new debt ceiling
- In the last six budgets, the state has authorized an average of more than $500 million in new debt
- Similarly, the state has fully “exhausted” its ability to afford any further transportation-related debt until FY 2011-2012. This means the state must refrain from any transportation bonds for the next two fiscal years, in order to meet the treasurer’s debt targets.
Credit Rating in Danger
- Unaccountable borrowing jeopardizes the state’s credit rating, even if new debt remains within the treasurer’s affordability targets.
- Because North Carolina’s total debt consists of a high – and growing – ratio of non-voter approved debt, the state’s much ballyhooed “triple A” credit rating is in danger
- Estimates project North Carolina’s ratio of non-voter approved debt in 2010 will be consistent with states receiving only “single A” ratings
How Did We Get Here?
The current situation is the result of an aggressive, unaccountable use of debt to finance capital projects throughout the state over the last several years.
- The state has issued more than $7 billion in new debt since 2000
- Per capita state debt has more than doubled in the last seven years
- The last time North Carolinians were allowed to vote on new state debt was 2000. Since then, the General Assembly has authorized $3.1 billion in new debt without consent of the voters, while relying almost exclusively on such debt
1The annual Debt Affordability study is assembled by the Debt Affordability Advisory Committee, comprised of seven members that include Cowell, the secretary of Revenue, the state budget officer, the state auditor, state controller and two legislative appointees. The first study was prepared in 2003, and its primary purpose is “to provide a methodology for measuring, monitoring and managing the State’s debt capacity.” Report is available at: http://www.nctreasurer.com/NR/rdonlyres/12F51D88-2AA5-4FDF-B004-6A790F28C71A/0/2009_Final_DAAC.pdf