To bond or not to bond?
Published July 9, 2015
By Becki Gray
by Becki Gray, John Locke Foundation and NC SPIN panelist, July 9, 2015.
On one hand, it’s a good time to borrow money. Interest rates are low, as are construction costs. North Carolina has many long-ignored needs — state buildings need repairs and updates, roads need repaving, and safety issues need to be addressed.
State Treasurer Janet Cowell has assured us we have the capacity to borrow without endangering our bond rating, and the state budget director says we can repay the bonds without increasing taxes. The proposed bond is subject to a referendum, so those paying the debt will have the final say.
On the other hand, debt is debt. North Carolina still is recovering from a recession. After decades of free spending and government growth, fiscally responsible decisions over the last four years have the state back on track.
Bold decisions — reforming a complicated tax system, rolling back regulations, improving education to ensure a skilled work force, and making smart infrastructure investments — have laid the groundwork for economic recovery and growth.
Will taking on debt jeopardize any of those hard-won reforms? Should North Carolinians approve almost $3 billion in debt, as proposed by Gov. Pat McCrory?
Maybe yes, maybe no. Less debt may be a better choice. Maybe there are other ways to repair, fix, and build without borrowing the money. Or maybe borrowing the money with a solid plan is the soundest fiscal and economic decision.
The governor has proposed two separate bonds. A $1.3 billion bond would build highways and pave roads in 57 counties. The projects come from the State Transportation Improvement Plan, a data-driven multiyear priority list.
Can the same projects be funded with an increase in fees as proposed in the House budget, eliminating transfers from the Highway Fund as proposed by the Senate, and some adjustments to the gas tax?
Lawmakers should reform transportation funding by using highway money only for highway projects. Borrowing against future revenues by issuing two-thirds bonds is another option.
The infrastructure bond is for $1.5 billion, almost all for maintenance and renovations of state-owned properties; half would go to the University of North Carolina and community college campuses.
Should all of the projects be financed with borrowed money, or should the interested parties share the cost? Park improvements could be covered by higher user fees. Port improvements could be funded with shipping and docking fees. Universities and community colleges could raise part of the costs of their projects — even 5 percent would require local buy-in.
A shared commitment could start a culture of community responsibility and shared financial obligation while reducing total state borrowing. Matching funds and challenge grants make sense for parks, historical sites, museums, zoos, and schools.
A bond financing long-neglected repairs and updates to state-owned resources would be enhanced greatly with a solid repair and renovation reserve fund for ongoing maintenance. Both legislative budgets add millions to the repair and renovation fund.
Bonds are serious business. The governor is asking for a lot of debt, even if we can afford it. He is to be commended for getting this conversation started. He’s shown great respect for the taxpayers by suggesting a general obligation bond that requires a vote of the people, the first since 2000.
We get to decide. Borrowing money at historically low interest rates to meet neglected needs for long-term projects with no new taxes and with no threat to our credit rating for over 200 transportation projects and 101 infrastructure projects OR put many of the projects on hold and pay as we go without incurring additional debt?
At least we’re talking about meeting North Carolina’s needs in a fiscally responsible way. Finally.
