The latest debt capacity report from the state Treasurer’s office finds that North Carolina has essentially exhausted its borrowing capacity — if it wants to keep its AAA credit rating. The economic slowdown and associated drop in state revenue is a part of that exhaustion, but it seems an even bigger part is the debt party the state has been running in recent years.
In fact, Raleigh seems to have gotten very quickly hooked on the cheap drunk of non-general obligation debt — debt that the General Assembly adopts in the form of certificates of participation, lease-purchase agreements, capital leases, basically anything bought on credit by the state — to the point where North Carolina looks like an AA-rated state. States with lower credit ratings typically go for these more expensive, but easier to sneak past the taxpayers, forms of appropriation-supported debt.
Lower rated states also have multiple debt-issuing entities, which brings us back to the 485 completion financing turkey-shoot. Treasurer Janet Cowell still wants the General Assembly to clarify what it wants NC DOT to do regarding debt-like obligations. Bev Perdue’s appointees wanted no part of that — foolishly thinking that the AG’s office settled matters — and so State Budget Director Charlie Perusse and Revenue Secretary Ken Lay voted not to include this recommendation in the report.
Guys, you can run, but you cannot hide. The state credit card is maxed out and highway contractors will not be able to get credit either — not without explicit state guarantees of their debt. Which NC DOT does not have the legal authority to issue. Yet.
The choice is clear for state policymakers. Begin to sober up now — or face one hell of a hangover. And even higher borrowing costs.
Bonus Question: Will this be the year that someone stands up and says, “Screw the credit rating, let’s keep spending!” I wonder.
