Despite a budget deficit of nearly $800 million, the state will start selling municipal bonds to its citizens in March to finance the $3.1 billion higher education package that passed Nov. 7.
Municipal bonds, tax-free bonds issued by the state to fund public works, will be sold to finance facility improvements at the state's public universities and community colleges, public school construction and clean water programs.
Federal Reserve Chairman Alan Greenspan's decision last month to lower the federal funds rate by 1 percent means the interest rate paid out to bond holders will also decrease, saving the state money.
Though not a direct relationship, financial experts expect that the municipal bond rate also will decrease as a result of the drop in the federal funds rate. "This is good news," said Robert Nelson, UNC-system associate vice president for finance. "It is a great time for the state of North Carolina to be going into the bond market."
Nelson added that there are two more reasons for North Carolina's budgetary planners to celebrate. Planned construction projects will not only create new jobs for state residents but are costing much less than originally expected.
"New construction projects will stimulate the economy," he said. "It means jobs, and it means work."
But UNC economics Professor Richard Froyen said he doubts that North Carolina will save as much as some people are predicting.
Froyen said it is likely that state officials are overestimating the drop in municipal bond rate that will result from federal action.
He said no significant relationship exists between an interest rate drop and a municipal bond rate drop.