For those of you who think government already borrows too much money, you might not want to read the 2008 Debt Affordability Study (DAS). Released yesterday by the Department of the State Treasurer, the report essentially gives a green light for the state to take on up to $479 million in new debt for each of the next ten years. For the first time, DAS also says the state could issue $175 million in new transportation-related debt for each of the next ten years. While the DAS is intended to help provide sound debt management practices, regrettably, the annual report has often become the starting point for determining the level of state borrowing. This year’s recommended debt ceiling is about $95 million higher than last year’s recommended level.
While ever-rising debt levels are certainly cause for concern, an even bigger issue is the type of debt. DAS has warned against government’s growing preference for “special indebtedness” – mostly in the form of certificates of participation. Special indebtedness is bad for a variety of reasons. Politicians like special indebtedness because it doesn’t require voters to approve borrowing. If that weren’t bad enough, special indebtedness projects also carry a higher interest rate than general obligation bonds. North Carolina’s addiction to special indebtedness borrowing has been quick. In less than ten years, the percentage of special indebtedness outstanding has increased from 10.4 percent in 2004 to 39.2 percent in 2013. But the damage doesn’t end here. If trends continue, “by 2010 the percentage of non-voted special indebtedness projects is projected to exceed the median level for other ‘AAA’ states and even the median level for ‘AA’ states.” Not good news. More reasons to break government’s addiction to special indebtedness borrowing and ensure that all questions concerning the public purse are decided only by a vote of the people.