State’s Credit Card Maxed Out, Bond Rating in Jeopardy

State Treasurer Janet Cowell’s office yesterday released the 2010 Debt Affordability Study. The results are not pretty. Among the findings are:

• The state has “substantially exhausted its General Fund debt capacity until FY 2012.”  This means the state will violate its stated debt capacity goals if it issues any new debt in the next two years. Technically, the report suggests the state can issue $9.1 million in new debt in each of the next five years (a drop in the bucket) and remain within their debt service targets. The new calculations are down substantially from last year’s suggested $50.2 million and $480 million from two years ago.
• Transportation debt has been “more than utilized until FY 2013,” and is projected to be “well above its limit” in 2011. In other words, the state is above its transportation debt capacity target and shouldn’t issue any transportation bonds for at least another three years. No wonder Gov. Perdue did so much begging for more federal stimulus funds.
• The state’s AAA bond rating is in jeopardy. According to the report, the share of North Carolina’s debt made up of “special indebtedness” (i.e. COPs that are not approved by voters) is projected to be “well beyond the medians” for double AA rated states in the coming couple of years. If the state’s bond rating is downgraded, it will become noticeably more expensive for North Carolina to finance state debt. The report therefore recommends that the “State consider the authorization of GO debt as the preferred method to provide debt financing.” In short, state lawmakers should subject future debt issues to a vote of North Carolina citizens, a decision they haven’t enjoyed since 2000.

The report also excludes the state’s massive $30 billion unfunded liability for state retiree health benefits. A liability that continues to grow unchecked, and as the report states, “the State will need to develop a realistic plan to meet these obligations.”

In October, I examined North Carolina’s state and local “true” debt burden.

The national debt isn’t the only one we should be concerned about.