Raleigh debt shapes debate

RALEIGH -- The city of Raleigh is $1.2 billion in the hole, four times the amount of debt it had a decade ago.

The borrowed money reinvented the city's downtown and paid for roads, water pipes and parks in neighborhoods well outside the city's core where newcomers moved in droves.

The debt also burdened the city with obligations that devour 19 percent of its annual budget.

This year, Raleigh's taxpayers will write out $117 million worth of checks to pay creditors. Raleigh may not be able to take on high-dollar projects without considering a tax increase, as seen with a stalled proposal to build a $205 million public safety center. The project has faltered largely because of initial suggestions to raise taxes to pay for it.

Rapid growth made it necessary for city leaders to borrow to build parks and roads. The stagnant economy, with municipalities continuing to feel the effects of foreclosures on tax rolls, could show how risky that borrowing was.

"You keep telling yourself the good times are going to keep rolling, but that's not always the case," said Bob Orr, a conservative Raleigh-based lawyer with the N.C. Institute for Constitutional Law who has been critical of the size of Raleigh's debt.

City Manager J. Russell Allen told the City Council this spring if it didn't approve an increase in the city's water rates, it could jeopardize the city's top-tier bond ratings because of struggles the city's water and sewer system is having in making budget. Council members haven't yet approved the increase, which would help cover large debt payments owed for the system.

A drop in bond ratings, a governmental equivalent to a person's credit score, would mean the city couldn't hold onto the low interest rates it can get now with the Aaa and AAA ratings the city has from the three major rating agencies - Moody's, Fitch and Standard & Poor's.

Allen, Raleigh's city manager since 2001, maintains that the city's credit ratings remain safe and the city's total debt load is at a healthy level. Debt payments have been factored into the budget for coming years, he said.

"Our debt load has always been low," Allen said. "It's still low."

Debt abounds

Government debt has become a crucial issue in the current financial climate, the worst since the Great Depression. America's $13 trillion national debt overshadows debate in Washington. Europe is grappling with Greece's credit crisis, where debt outweighs the country's gross domestic product, and which threatens to metastasize across the global financial system.

A recent survey of financial restructuring analysts predicted that a major U.S. city will default on its loans by 2012, according to the Wall Street Journal. Jefferson County, Ala., which is home to Birmingham, and cities such as Harrisburg, Pa., San Diego and Detroit have openly discussed their deep financial problems and have even contemplated filing for bankruptcy.

In North Carolina, State Treasurer Janet Cowell recommended in a February report that the state scale back the amount of debt it carries. Cowell's analysis found the state has exhausted the debt capacity in its general fund until next year and recommended that the state move toward taking on debt approved by voters, which allows for lower interest rates in general obligation bonds.

In the western part of the state, Mecklenburg County risks having its credit rating downgraded because of debt it took on during high-growth years. The debt has become a factor in the current budget talks. County leaders are considering budget proposals to close two-thirds of the county's libraries and lay off up to 500 teachers.

The $1.2 billion Raleigh owes is also far lower than the $3.95 billion allowed under state law, which gives communities caps on debt.

And it's been necessary for the city to invest in high-dollar projects, like the recent new water plant in Garner, to respond to the area's growth, Allen said. He also points out that Raleigh's property tax rate is lower than in most North Carolina cities; locally only Cary and Apex have lower rates.

Shielding taxpayers

Raleigh's debt figure translates into $3,085 per resident for streets, parks, water and sewer services, based on figures provided by Raleigh's finance department. In New York, that figure is $7,760 and in Washington, D.C., the per capita debt load is $11,081, according to those cities' annual financial reports.

Much of Raleigh's debt is covered by fees and other revenue streams, an important distinction for Allen and Mayor Charles Meeker, who took over as Raleigh's political leader in 2001. They said that leaves a much smaller portion of the debt that will have to paid out of the city coffers supported by property and sales taxes.

The $243 million owed for the Raleigh Convention Center is paid for out of a fund collected by a countywide tax on hotels and restaurants. And the city's public utilities and parking departments pay off debt by collecting fees and bills from consumers.

That leaves $325.3 million in general government debt, worked out to be about $836 for each Raleigh resident, according to 2009 population figures and Raleigh city finance data. In 2000, that figure was $492 per resident.

Meeker said he's comfortable with that amount.

"Much of it has been paid for by other sources," Meeker said. "We're the most conservatively managed in North Carolina."

But not everyone is happy with the climbing levels of debt.

Most of the debt comes from decisions made by council members during the past decade, not through bond referendums in which voters agree to commit to paying for large parks or roads projects.

Orr thinks voters should be the ones to decide whether the buildings get built, not city councilors, who can also vote to take on large amounts of debt by opting to fund projects through bonds or certificates of participation.

"There has been an increasing escalation of debt that is not submitted to the public," Orr said. "You can only borrow so much."