House Bill 35, with primary sponsors Rayne Brown (R-Davidson) and George Cleveland (R-Onslow), would repeal the statutory authority enabling the state to issue Certificates of Participation (COPs) as a form of debt financing.
COPs have been the preferred method of non-voter approved debt for the state since 2000. Traditional, general obligation bonds require a vote of the people. However, state lawmakers have relied on forms of “special indebtedness” – especially COPs – as a means to rapidly grow state debt without first getting voter approval. HB 35 was referred to the House Finance Committee last week.
North Carolina legislators should seriously consider HB 35 for a number of reasons:
- North Carolina citizens have been denied a vote over new state debt since 2000.
- Since that time, state debt has skyrocketed.
- Per capita state debt has more than doubled.
- Annual debt service payments have tripled.
- The borrowing binge has maxed out the state’s credit line. The 2010, 2011 and 2012 Debt Affordability studies produced by the State Treasurer’s office concluded that the state has “substantially exhausted” its capacity to issue new debt without threatening its credit rating. The recently-released 2013 study confirmed that the state now has a minimal level of debt capacity.
- The exclusive reliance on non-voter approved debt (such as Certificates of Participation) also threatens the state’s bond rating. The Debt Affordability Studies (including the 2013 study) strongly recommended that the state once again use voter-approved debt (i.e. General Obligation bonds) as “the preferred” method of financing, or it will risk losing its “triple A” credit rating.
What Do Voters Think?
An overwhelming 83 percent of likely North Carolina voters believe the North Carolina General Assembly should not be allowed to borrow money without voter approval (Civitas Poll, March 2012).