Gov. Roy Cooper is again pushing for a multibillion-dollar infrastructure bond, but Republican leaders caution that North Carolina’s still-unsteady economy makes it impossible to tell whether it would be prudent.
In remarks to the N.C. Association of County Commissioners on Thursday, Jan.14, Cooper said “now is the time” for the state to take on a massive amount of debt. He listed a number of places he’d like to spend the money — including construction at public schools and community colleges and universities, water and sewer lines, and other infrastructure needs.
“You’re never going to find better interest rates,” he said. “Our economy needs the money, and this is the time for North Carolina to move forward with a significant infrastructure bond. I’m hoping we can work together with the legislature to do that.”
Cooper’s comments on a bond appear similar to his previous bond proposals. In last year’s $25 billion recommended budget, Cooper asked for a $4.3-billion bond issuance to include $2 billion for public schools, $1 billion for colleges and universities, $800 million for water and sewer infrastructure, and $500 million for affordable housing.
The year before, Cooper called for $2 billion or more in bonds. The General Assembly instead opted to fund capital projects through a pay-as-you-go fund. That budget never made it past the governor’s veto.
Voters would need to approve a bond issuance of the size Cooper is proposing.
Interest rates are low, but is that enough?
It’s true that interest rates across the board are at historic lows as the Federal Reserve tries to boost a still-struggling economy. In October, the state issued $400 million of bonds under the Connect NC program at 1.48%, which State Treasurer Dale Folwell described at the time as likely the lowest rates seen in a century. Folwell’s latest debt affordability study also found that the state could bear additional bonds of roughly $1 billion per year for the next decade.
But Folwell isn’t so sure it’s the right time for a major debt issuance. He told Carolina Journal on Friday the debt study “is a ‘can,’ not a ‘should,’” and that prudent financial management will be especially important in the coming year.
“It’s a credit card limit based on a fantastic credit score,” he said. “I can certify as N.C. Treasurer and the keeper of the purse that our ability to maintain North Carolina’s solvency during these economic lockdowns is directly related to the conservative budgeting and bonding decisions made before anyone heard of COVID.”
He pushed back on Cooper for using low interest rates as a rationale for borrowing now.
“There are many needs that need to be properly evaluated without the simplistic seduction of low interest rates,” Folwell said.
COVID budget troubles
Among those needs are the potential to bolster core government functions in an uncertain time. The COVID-19 pandemic has thrown traditional budget planning into disarray.
The Fiscal Research Division had hoped to have a new forecast in August, but still has not published an updated prediction.
The available numbers are troubling: Last year’s tax revenue was $900 million less than the year before, after several years of steady increases.
This leaves leaders in the General Assembly in wait-and-see mode. Senate leader Phil Berger, R-Rockingham, hasn’t closed the door on a bond issuance, but he isn’t willing to commit to pursuing one, either. He does, however, appear to anticipate capital spending in this year’s budget.
“We don’t know what the revenue forecast will be for this year,” said Berger spokesman Pat Ryan. “If the outlook is much better than anticipated and the state has a substantial surplus, then pay-as-you-go could still be the right path forward. If the state’s revenues take a big hit, then a bond may make sense for one-time expenditures like infrastructure projects. The Senate will consider the options once our revenue picture becomes clearer.”
What projects does North Carolina need?
But the effects of COVID-19 on any future bond could be more elemental.
As North Carolina grows, the state has consistently spent billions on the roads, buildings, and other infrastructure needed to sustain it.
The last major bond, known as the Connect NC Bond, was championed by then-Gov. Pat McCrory before the legislature passed it in 2015 and voters approved it in 2016.
Much of that money has gone to sectors Cooper’s bond would also support, including universities and community colleges.
The world in 2020 is much different than the world in 2015. Both K-12 and higher education have been significantly disrupted by the coronavirus, forcing students to stay home and off campus.
The long-term effects of this aren’t known, and it’s possible new buildings that seem necessary today may be obsolete by the time the proposed bonds are actually issued.
“COVID has disrupted how people live and work. There seems little reason to borrow $4 billion for projects aimed at meeting needs that may not exist by the time they are completed,” said Joe Coletti, senior fellow for fiscal studies at the John Locke Foundation. “Better to take care of repairs and renovations now and re-evaluate next year.”