News: CJ Exclusives

Treasurer, DOT differ over debt limit’s impact on transportation bonds

The N.C. Department of Transportation doesn’t have enough debt space to borrow the full $3 billion for local road and bridge construction promised in the Build NC Bond Act of 2018, State Treasurer Dale Folwell says.

Folwell made this comment Tuesday in his monthly conference call with reporters. He cited the just-released state debt affordability study which evaluated the state’s ability to issue $300 million in transportation debt annually over the next 10 years. Transportation borrowing capacity is figured separately from the state’s General Fund debt affordability.

“Because the Build NC Bonds have a shorter maturity structure than the standard calculation methodology, the issuance of the Bonds will more than exhaust available transportation debt capacity” before the 10 years are up, the report stated. Only $137 million could be issued in the final two years to remain under the debt cap.

But DOT officials aren’t deterred. The department expedited its request for the first borrowing installment to June 30. While the debt affordability study determined only $2.3 billion of borrowing would be available rather than $3 billion, “It should not affect the status of any projects in terms of cuts, delays, or scaling back, therefore there is no need for a plan to address the issue,” DOT spokesman Steve Abbott said.

“Build NC was created knowing it would be impacted by debt issued in several ways, including the $3 billion limit over the 10-year life of the program, and the debt affordability analysis issued annually by the state,” Abbott said.

All the money is pledged to regional and division level construction and maintenance already in the Statewide Transportation Improvement Plan. None will go to statewide projects.

Folwell said some tweaks to the plan may be needed within a couple of years. Adjustments may come from changes in interest rates, material costs, or weather delays, among other factors which are hard to predict.

Transportation Secretary James Trogdon and DOT Chief Financial Officer Evan Rodewald proposed raising the debt cap to make the full $3 billion in borrowing available, Folwell said. Rodewald sent a letter to the Treasurer’s Office asking to use 15 percent of future transportation revenue instead of 6 percent to pay for the bonds.

Abbott said pledging 15 percent of transportation revenue is conservative compared to other states. It is the same ratio the state uses to issue so-called GARVEE (Grant Anticipation Revenue Vehicle) debt for transportation projects whose repayments are guaranteed by expected future federal funding.

The Debt Affordability Advisory Committee rejected the DOT appeal because it veered from typical debt repayment terms.

Folwell said Trogdon, Rodewald, and a DOT-commissioned study confirmed the transportation bonds would most likely be lower rated AA-plus rather than AAA, requiring tens of millions of dollars in higher interest payments.

He blamed the way the General Assembly structured the transportation debt for the projected shortfall.  

Folwell warned last year the Build NC borrowing should have been passed as a general obligation bond backed by the full faith and credit of the state’s general revenues, and put before voters in a referendum.

Instead lawmakers chose special indebtedness borrowing, repaid from, say, the car sales tax, motor fuel tax, and vehicle title fees in the state Highway Trust Fund.

Last year, Folwell and some lawmakers worried of the potential for playing political favorites rather than making decisions based on the greatest need.

Folwell would have preferred lawmakers to ask voters to approve the spending as general obligation bonds. The projects would have to be listed in a bond measure, and voters could decide if they wanted to commit debt to those projects.

“We — no pun intended — don’t have any of that in concrete,” Folwell said. He said DOT gave him two spreadsheets containing different projects.

“I’m very concerned when we’re putting this much debt on the people of North Carolina, and the project list keeps getting adjusted back and forth. That’s the flexibility you have when you don’t go to the voters and ask them for a vote,” Folwell said.

DOT provided what it called the most recent list of 112 projects in 61 counties to Carolina Journal. Some projects involve two counties.

Multiple projects are listed in Wake (11); Mecklenburg and Guilford (9); Cabarrus and Iredell (5); Cumberland and Craven (4); Durham, Pitt, Union, Robeson, Richmond, Johnston, Wilkes, Catawba, Forsyth, and Rowan (3); and Orange, Rutherford, Lincoln, Nash, Northampton, Franklin, Haywood, Wayne, Chatham, Greene, Clay, Cherokee, New Hanover, and Pender (2).

Thirty counties have one project listed: Randolph, Yadkin, Gaston, Onslow, Henderson, Wilson, McDowell, Buncombe, Scotland, Duplin, Sampson, Montgomery, Stanly, Camden, Currituck, Edgecombe, Moore, Lenoir, Perquimans, Macon, Carteret, Hertford, Columbus, Lee, Alexander, Graham, Swain, Rockingham, Watauga, and Caswell.