The state government has essentially exhausted its ability to borrow money for state buildings and roads if it wants to protect its top credit rating, according to a report released yesterday by N.C. Treasurer Janet Cowell.
The annual Debt Affordability Study written by a panel led by Cowell said that state officials can approve no more than $9.1 million in additional debt backed by general tax revenues for each of the next five years to remain within self-imposed guidelines. The number is effectively a rounding error compared with the state's $6 billion in outstanding debt.
Officials base the recommendation in part on the assumption that annual debt service should be no more than 4 percent of state revenues used for operating expenses. The debt service is currently at 3.7 percent, or more than $600 million a year, but will near 4 percent by 2012 before debt capacity improves, according to study data.
The panel estimated the annual five-year amount cap in last year's report at $50 million and a whopping $479.4 million in 2008. Since then, tax collections have declined because of the economic downturn and the amount of overall debt has risen.
The limit doesn't prevent $1.9 billion in borrowing already approved by state officials for projects but for which the debt has yet to be issued.
North Carolina is one of only seven states with the top credit ratings from each of the three major bonding agencies. The high marks allow the state to borrow money at the lowest rates possible.
Legislators will review the recommendations in deciding whether to authorize new borrowing when the General Assembly reconvenes in May. The legislature has generally followed the recommendations.
"North Carolina's debt is considered manageable at current levels," Cowell's office said.
In a rare dissent, two of the seven board members -- both appointees of Gov. Bev Perdue -- voted against another recommendation by the study panel that hints to the legal tussle between Cowell's office and Perdue over a new financing method to build the final section of Charlotte's Outer Loop.
In November, Perdue unveiled a proposal by which a winning road-building contractor would put up as much as $25 million toward the construction of the last five miles of Interstate 485 and an interchange with I-85. The N.C. Department of Transportation would pay the road-builder on an installment plan over 10 years.
Although N.C. Attorney General Roy Cooper's office has signed off on the legality of the "design-build-finance" concept, Cowell contends that the payment plan is unlawful because the DOT doesn't have the power to finance such an agreement on its own.
The study recommended that the General Assembly "clarify its legislative intent regarding any agency's ability to enter into alternative financing arrangements that may include debt and debtlike obligations."
Charlie Perusse, the state budget director, and Ken Lay, the state revenue secretary, voted not to include the recommendation.
Cowell was out of the country yesterday and unavailable for comment, but Heather Franco, a spokeswoman for Cowell, wrote in an e-mail that the recommendation "is not unique to an agency or project."
The report also affirmed that there's no extra capacity to issue state bonds for transportation projects paid for by taxes on gasoline, car sales and other fees and is on track to exceed next year a 6 percent debt-to-revenue recommendation.
This limitation is what motivated Perdue and DOT in part to develop the alternative financing. Additional debt capacity won't be freed up until 2013, the report said.
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