RALEIGH – Constitutional principles aren’t supposed to be honored only when expedient. By their very nature, constitutional principles serve to bind the actions of public officials precisely when the temptation is greatest to break the rules.
North Carolina’s state constitution once established the principle that public debts should, except in a few specific instances (scroll down to Sections 3 & 4), be incurred only if voters approved them in a referendum. The specified exceptions generally involved the replacement of old debts with new ones (thus keeping overall indebtedness under control) or in critical emergencies.
Over the years, this clear principle has given birth to a multitude of evasions. Most recently, supporters of tax-increment financing – which creates a district within which debts, backed by property taxes, can be issued without a public vote – pushed through a constitutional amendment to allow this by arguing, preposterously, that the practice did not constitute a public debt without a public vote. But, then, what’s the amendment for? To exempt tax-increment financing from the referendum requirement, of course. Still, the political class got away with such mendacity, as they often do.
Another evasion is the certificate of participation, or COP. State and local governments have made increasing use of COPs to fund projects that officials did not believe voters would approve. Technically, a COP entitles the borrower to “participate” in a stream of income related to a public project such as a school, sewer system, or prison. The legal distinction is supposedly that a general obligation bond pledges the full faith and credit of the state to lenders, while COPs only promise to share the proceeds of an annual government appropriation. In practice, there is essentially no difference. No investor in a COP has ever initiated foreclosure and ended up owning, say, a broom closet in a state prison. COP buyers lend money, and taxpayers pay it back. That’s a public debt.
Might COPs be justified under North Carolina’s original constitutional principle? Yes, if their function fell within one of the specified exceptions. Some defenders of COPs argue that they are useful because they can be issued more quickly than referendum bonds. But their examples rarely meet the test of a true emergency, which must be unforeseen and requiring immediate remedy (within days or weeks, not months). The real reason state and local officials are using COPs more frequently now – for UNC buildings, state prisons, and the like – is because they fear voters, if asked, will say no.
Recent events in Randolph County illustrate the point. City and county officials had been planning to hold a referendum this May on a $50 million bond package to build a high school and other education projects. But according to a local newspaper report, Randolph County School Superintendent Bob McRae and others feared that voters might say no, which would then create space problems within a year or two and increase the eventual cost. Those sound like arguments for approving the bond that voters might well have heeded.
But Randolph commissioners decided it was too risky to ask. So they rescinded the bond vote this week in favor of issuing $81 million in COPs – stuffing another high school and $12 million for “contingencies” into the deal.
Good thing the voters of the county aren’t obligated to pay that back. Oh, wait a minute. . .
Hood is president of the John Locke Foundation and publisher of Carolina Journal.