Build N.C. Bond Act: Don’t take on new debt without first asking taxpayers
Just when things were going so well. …
Since 2011, the Republican-led General Assembly has restrained the growth of government, brought spending in line with revenue, paid down debt, put more money in savings than ever, and restored voter approval for new debt.
The results of smart fiscal management have resulted in record low employment, a strong and growing economy, and a confidence in conservative fiscal policies.
But now comes the Build N.C. Bond Act of 2018. Introduced last week as Senate Bill 758 and House Bill 1010, the proposal is for a 10-year, $3-billion bond for road construction across the state.
Up to $300 million could be used each of the 10 years. The state treasurer would have to approve each round of debt, and two legislative committees would be consulted before each round of spending. Instead of a general obligation bond backed by the full faith and credit of the state — requiring voter approval — this proposed debt would come from transportation revenue, aka “special indebtedness,” and can go into effect without a referendum. A special indebtedness bond is considered riskier than a general obligation bond and, therefore, more expensive.
In this case, interest payments could be $80 million more for the whole debt package. In addition to the debt being non-voter approved and more expensive, it’s not clear for which projects the money would be used.
Non-highway and tolling projects are prohibited. N.C. Build projects are supposed to be under the Strategic Prioritization Funding Plan for Transportation Investments, but it’s not clear which projects would qualify. The money would be divided between division needs and regional impact projects, but it’s unclear what these projects are and how — and by whom — these priorities would be determined.
State Treasurer Dale Folwell, keeper of the state’s purse, has expressed concerns with the bond proposal, saying a debt affordability study is needed before the state incurs additional debt, and he wants more transparency on the projects to be funded.
North Carolina already faces more than $50 billion in pension and state health insurance liabilities. No question, North Carolina has big, expensive long-term needs. Transportation and infrastructure needs have long been a concern.
The General Assembly, along with Republican and Democratic governors, are to be commended for looking for ways to address the needs. Three years ago, the transfer of gas tax dollars from the Highway Fund finally stopped, putting hundreds of millions of dollars back into maintaining and expanding roads and bridges every year. The Highway Trust Fund was at $1.6 billion in April.
Ending the gas-tax transfer was supposed to build a sustainable source for transportation needs. Not all roads lead to non-voter-approved, expensive debt. The Connect N.C. Bond of 2016 provided $2 billion for universities and community college facilities and infrastructure projects. Voters were provided a detailed list of all projects that would be funded and given the opportunity to decide whether they wanted to take on additional debt.
That question was on the March 2016 primary ballot, and after nearly two-thirds of voters said yes, the debt was incurred. To date, only 10 percent of the bonds have been issued, calling into question how immediately all those projects were needed.
After considering a statewide $1.9 billion K-12 school construction bond, this year’s budget writers instead increased the percentage of lottery proceeds for the Needs-Based Public School Capital fund from 16.9 percent to 40 percent over a number of years. This will increase the money available for school capital projects from $30 million this fiscal year to $117.3 million in the coming fiscal year; $42.3 million was a from a direct appropriation in this year’s budget. If 40 percent of lottery proceeds were directed to school construction when the lottery was enacted, billions of dollars would be available today.
As budget writer Sen. Harry Brown said, “The downside of a bond is, after you spend the money you’ve got debt, and then you’ve got no more money. We’re trying to grow this pot as quick as we can to address the construction needs across this state.”
The best way to solve the big-ticket, long-term needs of our state is first determine what projects are so critical they warrant funding outside the General Fund and how much it would cost to meet those needs. Then, decide if the best avenue is borrowing money, or are there better, more sustainable options? After careful analysis, consider how much you can afford to borrow and the costs of repayment. Submit that plan in detail to the folks who will be paying for it — the taxpayers.
If you can convince them it’s a good idea, then it probably is. If you have to go around them and don’t have a solid, transparent plan, questions arise about the validity of any debt proposal and arouses suspicion.
Good ideas subjected to sunshine are not only sustained, but they also grow even better. You can take that to the bank. And to the voters.
Becki Gray is senior vice president at the John Locke Foundation.