Why Connect NC Bond won't require a tax hike

by Andrew Heath, State Budget Director, published in Greenville Daily Reflector, March 13, 2016.

Some citizens have raised a very good question regarding the Connect NC bond: How can the state afford to pay for a $2 billion bond without a tax increase?

Aggressive debt retirement, strong revenues, and a conservative bond proposal well within the state’s credit capacity is why the Connect NC bond will not require a tax increase today or in the future.

The Connect NC bond allocates $1.3 billion or 66 percent of the $2 billion bond to universities and community colleges, reflecting Governor McCrory's commitment to education. The bond is being proposed because most major capital projects such as new educational buildings, particularly those at our universities and community colleges, cannot be paid out of the annual operating budget without a serious impact on students.

If the bond is approved by voters on March 15, UNC Wilmington will receive $66 million for a new health and human services building and nursing school. The bond also provides nearly $6 million for projects at Cape Fear Community College.

It has been 15 years since the last bond was approved by voters to update our state’s infrastructure and since then North Carolina’s population has grown by 2 million. To put this growth in perspective, that’s the equivalent of adding the entire population of the state of New Mexico to North Carolina. This growth has resulted in significant infrastructure needs from the mountains to the coast.

Think of North Carolina as a growing family. Most families take out a mortgage to pay for their house. As the family grows, it needs a house with more bedrooms and bathrooms. If the family had to pay for a larger house with upfront cash, its ability to pay for other family needs would be severely restricted. So just as the growing family would take out a mortgage to pay for their house as they use it, the Connect NC bond allows the state to pay over 20 or 25 years for assets that will last for 50 years or more.

The Connect NC bond proposes taking on only half of the debt we can conservatively afford. A recent report by the state’s Debt Affordability Advisory Committee, a nonpartisan oversight committee, demonstrates that even with the issuance of the $2 billion Connect NC bond, North Carolina could comfortably borrow an additional $2 billion over the next ten years and still keep its hard earned AAA rating, the highest bond rating level awarded by the rating agencies.

Therefore, North Carolina’s proposed $2 billion bond for infrastructure improvements when it has a credit line of over $4 billion is akin to the growing family opting for the modest house that meets its needs even when they could afford the house with the swimming pool.

Debt capacity is just one reason a tax increase won’t be needed. Another is the fast rate the state is paying off its current debt. North Carolina’s debt retirement is so aggressive that if voters approve the Connect NC bond, the state will still have less debt five years from now than it does today.

As stewards of the taxpayer’s purse, we owe it to our growing North Carolina family to invest during a time of historically low interest rates. It literally has never been less expensive to borrow. Our state has a long history of responsibly using bonds to pay for long-term infrastructure investments, and North Carolina is financially well positioned to make the Connect NC investments for our future and to do so without a tax increase.

Andrew T. Heath is North Carolina’s state budget director.

http://www.reflector.com/Op-Ed/2016/03/13/Why-the-Connect-NC.html