Taxpayers Would be the Borrower and the Lender in Some of the Loans
At a time when many people are calling for a cut back in government spending local governments are telling North Carolina lawmakers they are making plans to borrow and spend almost three quarters of a billion dollars. This information is being provided because of a new state law requiring all local governments to tell the Joint Legislative Committee on Local Government how much they intend to borrow for certain projects. The rule applies to loans over $1 million.
Between July 22 and October 6 the committee received reports showing cities, towns and counties are looking to borrow a total of $749, 969,577. Nearly $670 million of that would require no voter approval. Many are revenue bonds that would be issued by a city or county. Investors would be promised proceeds from local revenue produced by projects, such as water systems. Other debt would be through installment loans worked out with a financial institution. In those cases some or all the property being built or expanded would be used for collateral.
Over $112 million – or 15 percent – of the total local debt would result from borrowing funds from the federal government. $40.1 million of the federal loans being requested would come from the Drinking Water Revolving Fund set up in 1996 by Congress to fund public water systems. President Obama’s administration set aside $65 million in stimulus funds for communities in North Carolina, but for loans not grants. The interest rate on these federal government loans could be anywhere from zero percent to the market rate depending on the financial state of the local government. In some cases the state could be required to put up 15 percent of the funds for small communities. Another $71.9 million in federal loans are being sought from the U.S. Department of Agriculture. Such transactions merely represent one government borrowing tax dollars from another government and those who paid the taxes may see no benefit from the projects.
Just $82 million or 11 percent of the borrowing would come from General Obligation Bonds, which do have to be approved by tax payers. Those type of bonds carry the full faith and credit of the government and are the lowest risk to investors.
|Type of Debt||$ total||Percent of Total|
|Debt Needing Voter Approval||$82 M||11%|
|Debt Not Needing Voter Approval||$670 M||89%|
|Total Federal Loans||$112 M||12%|
|From Federal Drinking Water Revolving Fund||$40.1 M|
|From U.S. Agriculture Department||$71.9 M|
|Total Local Proposed Debt||$749,969,577|
Even those numbers don’t tell the whole story because they don’t include the interest rate the localities would have to pay. A 20-year revenue bond, for example, currently has an interest rate of nearly four percent. For example: at that rate, a 20-year, $20 million bond, will require roughly an additional $10 million in interest payments from taxpayers.
Many of the local projects involve water and sewer improvements. Some would fund hospitals or build housing. Other projects involve airport improvements, recreation facilities, land acquisition for parks and street improvements.
In one case the Nash County Healthcare System wants to issue $75 million in revenue bonds for a hospital expansion, buying equipment and other capitol needs. The hospital won’t have to ask the citizens to approve the debt, largely because the debt is slated to be repaid by new revenue generated by the hospital.
The Local Government Commission in the State Treasurer’s Office will have to review and approve most of the requests. However, that is not necessarily the case for the localities seeking installment loans through financial institutions. Over $110 million of the planned borrowing would be such installment agreements. The Joint Legislative Committee on Local Government does plan to review all of the borrowing plans. If members question certain projects they will ask local leaders to appear before the panel. The committee, however, does not have the power to approve or reject the plans.
This is just a small snapshot of local government borrowing, much of it with little or no input from taxpayers.
The link below will let you browse the proposals.