Tom Campbell: Will We Ever Vote Again?

Recent news accounts have outlined concerns about the large debt our nation is amassing. Under the radar, but just as significant is the 6.12 billion dollars in debt North Carolina has accrued. 

This is problematic for two reasons, the most obvious of which is the amount owed. The Debt Affordability Study, headed by State Treasurer Janet Cowell, recently concluded that North Carolina has maxed out the amount we should borrow. Our current debt service, which includes both principal and interest, amounts to more than 600 million dollars per year or 3.7 percent of our annual budget. Prudence and state policy dictates this amount should not exceed four percent, especially since debt service must be paid before any other government obligations.

More troublesome is the manner we have incurred much of this debt. The framers of North Carolina’s Constitution, worried about runaway debt, clearly stated in Article V, Section 3, “The General Assembly shall have no power to contract debts secured by a pledge of the faith and credit of the State, unless approved by a majority of qualified voters in the State who vote thereon, except for the following purposes…” The Constitution goes on to list six exceptions, which include emergencies, borrowings against currently due revenues, as well as borrowings not to exceed two-thirds of debt retired in the current year. 

When was the last time you were asked to approve government debt? Aside from a few local government referendums for school bonds and the like it has been a decade since the voters of this state were asked to approve any debt, and that vote was for the 3.1 billion dollar higher education bond package. But just because we haven’t been asked doesn’t mean the state hasn’t been borrowing large sums of money. It has.

How do leaders escape voter approval? Legislators have used a financing tool called Certificates of Participation or COPs. These COPs circumvent the intent of the constitution because technically the government isn’t required to pledge the full faith and credit of the state. North Carolina might not have formally pledged the state’s reputation and assets but anyone who knows anything about public finance knows this is a sham, a shell game played to avoid going before voters to approve pet projects our legislators want to fund. Next year the COPs debt will amount to 1.37 billion dollars, almost 30 percent of the state’s total debt, again dangerously high. 

Here’s the truth. Our state is never going to default on any government debt if humanly possible. If there was a default, future borrowings would find fewer lenders wanting our notes and costs that would increase exponentially, effectively limiting how much and how often we could borrow. We learned these lessons during the Great Depression; it took many years before this state was able to borrow at the lowest possible rates.

Many argue that now is the ideal time to borrow because it will put people to work at the same time construction costs are at recent lows. We would be effectively buying at discount prices. Perhaps if government leaders had exercised more restraint these arguments might be convincing, but unfortunately we have reached prudent limits and need to refuse more debt. 

But when the time is right to borrow more money the compelling question is will we ever be asked to vote again?