In spite of an already alarming level of debt, Raleigh and Wake County council members continue to max out the taxpayers’ credit card without even asking first for permission.
In December, Wake County government completed the sale of $160 million worth of Limited Obligation Bonds (LOBs) to finance a new Justice Center. This action came on the heels of $163 million of LOBs issued by Wake County to fund the expansion of the Hammond Road detention center.
Similarly, the Raleigh city council is currently finalizing plans to issue nearly $450 million in new debt to finance its new Public Safety Center along with a number of public “remote operations” facilities. Their chosen method of financing is Certificates of Participation (COPs).
Several issues surrounding these projects present cause for concern for area taxpayers – the ones who will be forced to foot the bill for these debt-financed projects.
Taxpayers, Voters Not Allowed to Decide
The debt instruments chosen by Wake County (LOBs) and the City of Raleigh (COPs) are not subject to voter approval, as General Obligation (GO) bonds are. It is simply unfair that local politicians have once again decided to deny voters and taxpayers of any say regarding the very debt they will be forced to pay back. Would we allow someone to run up debt on our credit card without asking permission, and then expect us to pay the bill? Why are our government officials allowed to do the same?
Raleigh city officials, in particular, are defending their decision to deny voters a say claiming that time is of the essence, and the city should act now to take advantage of low interest rates and construction costs. As Raleigh Mayor Charles Meeker said, "Delaying construction of the public safety center for 10 months could cost Raleigh citizens as much as $50 million. That is a gamble I’d prefer not to take."
The fact is, contrary to Meeker’s claims, Raleigh’s plans for the new projects have been solidified for quite some time. Indeed, an internal memo dating back to May of 2009 shows plans for the new city buildings already well under way, complete with debt model projections. There would have been plenty of time to get the bond referendum on the ballot last fall if city leaders were interested in the opinion of taxpayers.
Unapproved Debt Will Cost Taxpayers Millions More
Because General Obligation bonds are approved by voters and backed by the local government’s taxing authority, they are considered slightly less risky than LOBs or COPs – which are backed by the assets (land, buildings) being financed.
Being considered less risky, GO bonds typically carry a lower interest rate than LOBs or COPs in the bond market. Therefore, the decision by Raleigh and Wake County to use LOB and COP debt will cost area taxpayers millions more in interest payments.
According to estimates obtained from government officials, using LOBs will cost Wake County taxpayers $11 million more than voter-approved GO bonds would have. Similarly, the city of Raleigh’s decision to use COPs will cost taxpayers an estimated $6.3 million more than if GO bonds were to be used.
Raleigh, Wake Debt Already Highest in the State, and Growing
At a staggering $7 billion, the City of Raleigh already has the highest level of real debt (principle plus interest, as of June 30, 2009) of any local government entity in the state of North Carolina. Adding the $3.5 billion in debt held by Wake County brings the combined city/county debt total to $10.5 billion. By comparison, the combined city/county debt total of Charlotte/Mecklenburg comes to $8.9 billion.
On a per capita basis, Raleigh’s real debt burden equals $18,600 per city resident, almost three times as high as Charlotte’s $6,400. Wake County’s per capita real debt is $4,023 per person, a bit lower than Mecklenburg County’s $5,200 debt burden per person.
Local government debt in Raleigh and Wake County has been escalating rapidly. Debt service in Raleigh’s city budget recently more than tripled in just five years (2004-2009). Payments on debt in the 2009 city budget consumed about 18% of total budget expenditures, up from 10.3% in 2004. That means basically one in five dollars spent in the city budget is already going toward paying down debt.
Similarly, debt service in Wake County climbed by 65% in the last five years.
Such high debt loads should cause Raleigh and Wake County taxpayers to ask why our governments choose to finance such massive projects through the continued use of debt financing instead of pay-as-you-go budgeting. Moreover, taxpayers should insist that any new debt be approved by voters – the ones actually picking up the tab.