News: CJ Exclusives

North Carolina running out of room to borrow for road projects

State Treasurer Dale Folwell, in an interview at the John Locke Foundation.
State Treasurer Dale Folwell, in an interview at the John Locke Foundation.

North Carolina may run out of room to borrow money for transportation projects in just a few years, according to a new report released this week by State Treasurer Dale Folwell.

This puts in jeopardy the state’s Build NC Bonds, a $3 billion transportation package approved in 2018. 

At the current rate, the Department of Transportation will run out of debt capacity in 2026 and won’t be able to issue all of the bonds it is scheduled to. There’s no room for more borrowing beyond what has already been authorized, the report states.

“The Department of Transportation should be much more prudent than it has been,” said Joseph Coletti, senior fellow for fiscal studies at the John Locke Foundation.

The debt concerns are complicated by fiscal mismanagement at the Department of Transportation under the Cooper administration. The department overspent its budget by $2 billion in 2019, making short-term loans between funds to cover shortfalls. Hundreds of employees were laid off and projects were delayed, forcing the General Assembly to essentially bail out NCDOT. 

North Carolina’s other debt capacity is in much better shape. Based on the General Fund, North Carolina could borrow nearly $1.5 billion per year for the next decade.

The state treasurer’s office prepares such a debt affordability study each year by law, in tandem with a committee made up of the state auditor, secretary of revenue, and several General Assembly appointees. One of the main goals is to promote the responsible use of public borrowing and maintain the state’s AAA credit rating.

This rating was last affirmed in 2020 by all three major ratings agencies, Moody’s, S&P and Fitch. 

North Carolina’s public debt as compared with tax revenue is below the median of the 13 states currently maintaining AAA ratings. In total, North Carolina owes roughly $5.2 billion in debt backed by tax revenue. This debt level has been falling steadily since peaking in 2013.

Nearly half is for projects at the state’s universities and colleges, and another 20% are for transportation projects, mostly highway construction.

“North Carolina’s debt is considered manageable at current levels,” the report concludes.

The state carries another roughly $3 billion in debt, mostly for special transportation projects like toll roads.

The recommendation for General Fund borrowing comes with a major caveat. The report notes that North Carolina now has nearly $40 billion in unfunded pension and other retiree benefit liability. 

“That bill will come due much sooner than people realize,” Folwell said in a statement accompanying the report.

The $1.5 billion that can be borrowed per year is provided that the state continues to set aside money in reserve for its pension fund, the report states. 

The committee also notes that the credit rating agencies also did not look favorably on North Carolina’s failure to pass a budget last session. The General Assembly’s budget was vetoed by Gov. Roy Cooper, and override efforts failed.

Andrew Dunn is a freelance writer for Carolina Journal.