Borrowing grows without voter approval

As state House members take up a $20.3 billion budget proposal today, they will also consider tacking on another $450 million in debt for several university facilities, expansions at three state prisons and other projects.

That level of borrowing -- none of it to be approved by voters -- is more than twice what Gov. Mike Easley recommended in his budget proposal, and is roughly $65 million more than what State Treasurer Richard Moore has suggested the state borrow for each of the next five years. The House would add $48 million in debt service to the 2008-2009 budget, and push debt service spending for that year to more than $700 million.

If adopted, those projects would join a long list of debt-financed projects for new buildings, expansions and land purchases totaling nearly $2.2 billion -- none of which has been approved by voters. None of it would be possible if the state hadn't begun using a new method of borrowing seven years ago called certificates of participation, known as COPS, that circumvent public referendums.

Some lawmakers are getting nervous at the level of borrowing. They are not challenging the projects. They just want the public to sign off on them.

"We're committing the voters' money for eight years from now, 10 years from now, so the voters ought to have a say as to whether they want to pay for that much debt," said Senate Minority Leader Phil Berger, a Rockingham County Republican.

An aide to Easley suggested the governor may want House leaders to borrow less and leave the rest for voters' approval.

"The governor has always favored limiting COPS borrowing to generally public safety and health needs," said spokesman Seth Effron.

House budget writers defend the borrowing, saying the projects are worthy and ready for construction.

They say the additional spending does not endanger the state's strong credit rating, which allows it to borrow at more favorable rates.

"It's a reasonable amount," said House Speaker Joe Hackney, an Orange County Democrat. "We have a big influx of kids coming into our colleges and universities and we need to be ready for them."

Hackney said he is willing to support moving some of the projects into a bond referendum that voters could consider this fall if Easley and legislative leaders can agree on putting one forward. Easley has recommended a $1.4 billion bond referendum, with some of the House's COPS projects included.

The COPS package survived the first few rounds of the budget battle in the House. Much of Wednesday's action on the budget involved trimming several items that had been labeled pork by critics, and shifting smaller amounts of money around among various programs.

If the COPS package clears the chamber this week, there's a good chance the Senate will make changes.

For starters, Senate leaders are not planning to extend roughly $300 million in temporary sales and income tax increases that are scheduled to expire this year. The House budget proposal continues them for another two years.

One issue with using COPS over voter-approved bonds is the financing cost is slightly greater. According to the state treasurer's office, $100 million in COPS could add as much as $200,000 in additional interest costs.

Moore has not taken a position on the House's borrowing plan. A recent report by his office recommends that lawmakers not exceed an annual average of $384 million in borrowing over the next five years. But that means lawmakers could borrow more than that in one year, and less the next, so that it adds up to no more than $1.92 billion over that period.

"We intend to stay within the guidelines, I assure you," Hackney said.