Senate Says New Debt-Limit Study Backs Pay as you go to Build Schools | Eastern North Carolina Now

    Publisher's note: This post appears here courtesy of the Carolina Journal, and written by Dan Way, associate editor.

House leaders noncommittal on study's impact for potential construction bond

    A new debt affordability study for North Carolina could throw cold water on plans by the House and Gov. Roy Cooper to pass a nearly $2 billion bond for public school construction.

    The Senate said the study at least indirectly justified its alternative proposal to fund K-12 building with a pay-as-you-go plan which also would apply to community college, UNC System, and government agency construction projects.

    "The debt advisory committee recognized the success of the Republican legislature's fiscally responsible budget philosophy, along with the strength of our rainy day fund, describing North Carolina as a state with 'good fiscal management and [a] high financial rating,'" said Pat Ryan, spokesman for Senate leader Phil Berger, R-Rockingham.

    "We'll continue to take their guidance very seriously as we keep improving the state's stellar fiscal position," Ryan said. "The Senate proposed a debt-free package that allocates $2.03 billion over nine years to school construction and maintenance. Now is not the time to max out our credit card."

    Joseph Kyzer, spokesman for House Speaker Tim Moore, R-Cleveland, took a more reserved stance. "The debt affordability report, along with the state's $188 million revenue surplus, strong savings reserve, and unanimous AAA credit ratings, provide important fiscal guidance for House lawmakers as they continue to successfully balance responsible budgets with forward-looking investments in North Carolina's education systems."

    Attempts to obtain responses from Cooper to the Debt Affordability Advisory Committee's conclusion that the state has only $2 billion borrowing capacity over the next 10 years were unsuccessful.

    Joe Coletti, a senior fellow at the John Locke Foundation who researches tax and fiscal policy, isn't surprised the debt affordability report has political implications. Moore and Cooper want to issue a $1.9 billion bond for school construction and repair, and have publicly campaigned for it. The bond package would all but exhaust the state's remaining debt capacity outlined in the debt affordability report.

    Coletti said the state should retire unfunded liabilities rather than add new state debt for schools and public works infrastructure which are the responsibility of local governments.

    The debt study for the first time included $38.5 billion in unfunded state pension and health liabilities into its calculations. National credit rating agencies are demanding a more comprehensive and accurate computation of state debt.

    Excluding those obligations from debt calculations could lead rating agencies to lower the state's creditworthiness. Then the state would have trouble borrowing money for needed projects, and have to pay higher interest rates on bonds.

    Despite his misgivings about piling more debt on the state instead of paying down existing bills, Coletti said building and refurbishing schools has a higher political value with voters.

    "You don't get political points for doing the right thing by state employees and by state teachers," Coletti said.

    He thinks if a school construction bond is approved it likely wouldn't go before voters until 2020 so its backers can use it as part of election campaign strategy.