North Carolina State Treasurer Dale Folwell said the state is on good financial footing when it comes to the credit rating of its Grant Anticipation Revenue Vehicle Bonds, or GARVEE bonds.
In a press release Thursday, Folwell said that Moody’s Ratings, a bond credit rating business of Moody’s Corporation, recently upgraded the credit rating of the state’s GARVEE bonds, which are issued by the state on a short term in anticipation of reimbursement of federal highway aid grant revenue. They help finance federal aid highway projects.
The state currently has about $846 million in outstanding GARVEE debt.
Moody’s upgraded the state’s bond rating from A2 to Aa3. In Moody’s Ratings system, securities are rated from Aaa, the highest quality, to C, the lowest quality.
Folwell said the company upgraded the state’s bond rating, citing “the credit strength of the state” under a newly revised methodology that places more prominence on credit consideration. A better credit rating allows the state to accelerate transportation construction timelines at a lower cost to taxpayers.
“It is no surprise the agency praised North Carolina as “one of the strongest states according to every measure,” with a gross domestic product of $794 billion,” he said in the release. “Strong legislative leadership has resulted in $26 billion in reserves, with long-term liabilities of 52.3% of revenue being the ninth lowest of any state. We are proud of the work we do every day at the Department of State Treasurer to maintain shrewd monetary management that helps to maintain our robust economy.”
The treasurer’s office has been keeping an eye on the North Carolina Department of Transportation’s (NCDOT) spending.
In June, Frank Bowen, a financial analyst from the Folwell’s office, issued a warning at a monthly Local Government Commission meeting that NCDOT is heading into a “danger zone,” noting spending was going up and available cash going down.
He said the cash balances of the 2025 Highway Trust Fund (HTF) are projected to decline significantly from their present level. The HTF is a combination of HTF, the Highway Fund (HF), and the emergency fund.
Bowen said open commitments (projects that have already been awarded) have increased steadily since 2021.
“My fear is we’ve got two things moving in the opposite direction,” he said. “We’ve got the commitments trending up, that’s part of the formula, and then you’ve got combined cash balances going down. So, by their metrics, and we can get into what’s in the Spend Plan, by their own projections, we’re getting into what historically could be a danger zone for lack of a better term.”
Bowen said that has been the history of open commitments, pointing to 2017, which precluded the crises of 2019 and 2020, which he said they don’t want to get anywhere near again.
He reiterated that putting a billion dollars into new commitments, while enduring a continued reduction in cash balances, is a dangerous combination.