A few more comments and observations on HB 491:
I’ve written before on the need for such a measure. State lawmakers have exploited a clause in the state constitution allowing for certain types of “special indebtedness” to be issued without voter approval – primarily Certificates of Participation. For more background on COPs, see here.
Naturally, state lawmakers have taken a shine to skirting voter approval to borrow billions over the last decade. Indeed, the last time voters were granted a vote on new state debt was 2000.
This Wilmington Star News Online article has some of the details from the debate on this bill. Opponents like Deborah Ross (D-Wake) claimed that the state legislature has used non-voter approved debt “responsibly.”
But let’s look at the record. Since 2000, per capita state debt more than doubled in nine years, and annual payments to service the debt have more than tripled. Doesn’t sound too “responsible” to me.
Other opponents of the bill noted that neglecting voter approval of debt grants them “flexibility” and the opportunity to quickly issue state debt for projects, taking advantage of low interest rates, rather than waiting up to a year or so for a bond referendum. But that arguement also falls flat, for a number of reasons:
COPs have higher interest rate than voter-approved debt
•Because there is no pledge of the state backing COPs, they bear a slightly higher risk for investors, and therefore carry a higher interest rate.
◦Lawmakers are knowingly paying a higher interest rate for COPs debt on the chance that interest rates on voter-approved debt may rise while waiting a couple of months for a bond referendum.
◦Even if interest rates do creep up while awaiting a bond referendum, the higher COPs interest rate may very well still be higher than the interest rate on voter-approved debt.
Continued use of COPs threatens state’s credit rating
•As noted above, the continued use of COPs may threaten the state’s bond rating.
◦A lower bond rating means higher interest rates on future issues of state debt.
Last minute, non-voter approved bond issuances to exploit low interest rates are unnecessary
•G.S. 143C-8-5 outlines the “six year capital improvements plan.” Each even-numbered year the General Assembly is presented with this plan outlining capital needs and priorities for the next six years.
◦Clearly, state budget writers are well aware of the capital projects that will require funding well ahead of time.
◦Often times, new issues of debt are authorized several months, and occasionally years, before the debt is actually issued.
◦Therefore, securing voter approval well ahead of time of before debt is actually issued can become routine practice.
◦These factors undercut the claim that lawmakers have to rush the approval of COPs in order to hurriedly take advantage of low interest rates to finance capital projects.
Lastly, an act to require voter approval of all state debt issues has tremendous support from the people actually required to pay back the debt – North Carolina citizens. A whopping 77% of North Carolinians believe state government should not be allowed to issue debt without voter approval.
Here’s hoping HB 491 continues to win approval through the General Assembly.