The Department of Legislative Services’ annual report on the effect of long-term debt on the financial condition of the state was recently released. By many accounts, this is not the most exciting read for your Kindle or whatever method you chose to read, but it is important for business leaders to at least be familiar with several recommendations highlighted here that are important to the business community.
Legislative priorities often require money and this document significantly influences not only how much the state will spend in the upcoming year but also where the state will spend it.
On December 19, the state’s Capital Debt Affordability Committee raised the state’s debt limit to $1.075 billion — $150 million beyond the previously-recommended $925 million for new general obligation bond authorizations during the 2012 legislative session. This action would bring the state’s capital debt service closer to the limit established by lawmakers of 8 percent of state revenues, but would not exceed it, according to estimates.
The State ended fiscal 2011 with $7 billion of general obligation bond debt outstanding and $9.6 billion in State debt outstanding. General obligation bond debt service was $835 million in fiscal 2011, while total debt service is under $1.2 billion. There is some concern that general obligation bond debt service costs are increasing at a higher rate than the State property tax revenues supporting them.
The Department of Legislative Services, while agreeing with the Capital Debt Affordability Committee’s previous limit for new debt of $925 million, also recognizes in this report that there may be benefits to accelerating capital construction projects. It recommended any acceleration of capital construction projects be offset by reductions to the capital program in the out-years that are sufficient to maintain a debt program within affordability limits.
Another recommendation of note was the recommendation that the General Assembly continue to set an annual limit on the level of State transportation debt to keep debt outstanding within the 4 percent of personal income debt affordability criterion and debt service within the 8 percent of revenues debt affordability criterion.
On the topic of public-private partnerships, it is noted that at this point it is unclear to what extent the State will be entering into P3 agreements and to what extent those agreements will increase State debt. The out-year forecast does not assume any new P3 agreements will be adding to State debt. However, it is quite possible the State will be entering into these agreements and that some will involve State debt.