The Senate is scheduled to vote today on a bill returning a great deal of financial self-governance to the voters.
Senate Bill 129 passed the Senate Finance Committee on Tuesday afternoon and moved immediately to the floor calendar. Sen. Tommy Tucker, R-Union, ushered the bill through committee with some compelling numbers supporting the measure.
“This is an act to limit the issuance of debt under the State Capital Facilities Finance Act,” which sets up “special indebtedness” mechanisms that allow the state to assume debt by raising taxes without a vote being put before the voters in the form of a ballot referendum, Tucker said.
Special indebtedness includes certificates of participation (COPS), but that acronym has come to generally be understood as including all types of non-voter approved debt – lease purchase revenue bonds and limited obligation bonds being the other types.
Special indebtedness is activated “to hastily receive money when you have major capital projects within the state,” Tucker said. It normally is used for “worthy causes, prisons, and schools, and primarily the university system.”
At present, special indebtedness is equivalent to 40 percent of the state’s general fund debt. The bill prohibits any further debt being incurred through special indebtedness until that debt level is reduced to 25 percent or below of the general fund debt.
“Up until 2001 the state had never issued any COPS in the history of the state, and then from 2001 on up until roughly 2009 we issued about $3 billion worth of COPS,” Tucker said.
“This was done without people knowing it. We incurred $3 billion in debt over the last decade without voter approval,” Tucker said.
“They don’t even know we’ve got $7.2 billion in general fund debt,” he said. “They don’t have any idea we’re going to pay $706 million in principal and interest this year. That’s a lot of teachers’ raises, a lot of money this debt’s incurred.”
“Moving forward, it will probably be eight or nine years before we can use COPS again in our debt service, so we’ll have to go before the people to get a vote to incur any debt,” Tucker said.
“And, of course, the constitution allows us to get money in an emergency, so I think we’ll be OK. We lasted a couple hundred years without COPS, we can probably last a little longer,” Tucker said.
“The reason we couldn’t do away with COPS — the best way to do that is a constitutional amendment. I didn’t have support for that,” Tucker said.
“Secondly, we needed to protect the Capital Facilities Act and leave that in place for the bondholders,” he said. “They didn’t want to wipe it out because the bondholders get nervous when we take away the vehicle the debt is going to be paid through.”
Tony Solari, director of government relations with the state Department of Treasury, also spoke in favor of the legislation at Tuesday’s Finance Committee meeting.
“We are in full support of the bill. The legislation would do a couple of things. It brings us in line with other AAA-rated entities that have about a 25 percent debt of COPS or special indebtedness,” Solari said. And “it’s been a recommendation of the Debt Affordability Study that the state rely more on general obligation debt than on COPS, and this is in line with that as well.”
General obligation debt is less expensive than special indebtedness and is viewed more favorably by bond rating agencies.
General obligation debt involves floating bonds, with a promise to bond purchasers that the state will back the bonds with the full faith and credit of its taxing power. A portion of a property tax is a popular method of repaying bonds. A referendum on the bond must gain voter approval before bonds can be issued.
State Sen. Floyd McKissick, D-Durham, asked Tucker whether there might be occasion when special indebtedness funding were needed and it could be used again.
“If you want to go before the voters and tell them you want to incur debt without their approval go for it,” Tucker replied.
