WINSTON-SALEM – More than a million dollars are being poured into a campaign this fall to persuade North Carolina voters to approve something called Amendment One to the state constitution. According to its backers, Amendment One is all about creating new jobs and helping cities and towns restore prosperity to their withering centers. As they used to say around the state legislature, “You can believe that if you want to.”
What Amendment One is about is bond issues and the substantial fees paid to those who put them together. It would authorize an avalanche of new debt in North Carolina, without limitations.
The last time a state constitutional amendment was adopted with the potential of being this financially destructive, Jimmy Carter was in the White House, wearing cardigan sweaters and bellyaching about the energy crisis. I should know. I organized the campaign for what passed in 1977 under the quiet-sounding title of Amendment Four. The result was more than $5 billion of debt as power agencies representing North Carolina’s city-owned utilities got into the nuclear-plant business, in retrospect an expensive decision to say the least.
Amendment One and the 1977 amendment have much in common. Each one is indecipherable by voters. Each one is permissive only – no unit of government is required to issue any bonds. Each one requires no referendum before bonds can be issued. Each amendment makes no ironclad pledge of general taxing power.
However, neither Amendment One nor its predecessor prohibits taxes from being used to pay bonds off. When the bloom comes off a bond issue’s rosy scenario, local governments can grab for every dollar in sight, from whatever source.
There are, however, important differences between Amendment One and the 1977 amendment. These differences make Amendment One worse. The 1977 amendment had a specific purpose: electric power projects. Amendment One contains no specifics. Bonds could be issued for most anything a city government and a developer can dream up. Amendment One does not bother to define a “public improvement.”
The 1977 amendment left the rest of the state constitution untouched. Not so with proposed Amendment One. It would gouge major loopholes into two existing sections. Those sections of the constitution are entitled, “limitations upon the increase of local government debt” and “state and local debt.” Amendment One would override them.
Two words appear throughout these two constitutional sections: “debt” and “taxes.” To put it simply: if Amendment One’s authors knew their scheme did not involve taxes, there would have been no reason to mention the other two sections. Instead, the backers decided they needed to circumvent them. They did so with a shotgun approach, overriding the entire sections.
Our state’s pundits might take the time to read the sections that Amendment One would pole-vault. They embody the public’s chief protections against willful, reckless, pie-in-the-sky spending by public officials.
Amendment One would give the General Assembly carte blanche to decide the form and the cost of these unknown projects. If Amendment One passes, it is safe to predict that every year thereafter, legislators will be asked to add more and more varieties of “public improvements” to the menu.
And what of that quiet Amendment Four from 1977? The $5 billion of bonds still outstanding are being grudgingly paid off by customers of city-owned utilities. Three years ago, those responsible for paying for them became so upset with their situation that they tried to stick the rest of North Carolina taxpayers with most of the tab. They’ll likely try again.
It will be interesting to see whether voters see through Amendment One’s publicity campaign and reject this concept. They did so in 1982 and 1993.
Voters would have an easier time assessing Amendment One, however, if its backers had given it a more accurate title. Amendment One might properly have appeared on the ballot as “An Amendment for the Benefit of Bond Attorneys, Investment Bankers, Financial Advisors and Assorted Feasibility Consultants.” And the commercials praising Amendment One might have also been different. Instead of showing job training, how about a scene with limousines pulling up to a lavish bond closing dinner, disgorging a gleeful throng of public officials and fee-smacking deal-makers?
That’s what is really on the ballot on November 2.
Marshall Lancaster is a recovering deal-maker who lives in Winston-Salem. He served as executive director of ElectriCities from 1972 to 1978 and recently authored a report on utility regulation and debt for the Raleigh-based John Locke Foundation.