Council approves $206 million debt

A borrowing package approved Tuesday that would fund new facilities for the UNC system has raised concern among some state officials, but experts say North Carolina’s credit rating remains sound.

By a 5-2 vote, the Council of State authorized $206 million in borrowing to finance a new psychiatric hospital, prisons and various projects at UNC-system medical centers.

Lew Borman, spokesman for Lt. Gov. Beverly Perdue, said projects such as UNC-Chapel Hill’s Lineberger Comprehensive Cancer Center deserve adequate financing.

“All of these projects are extremely important to the state,” Borman said, explaining Perdue’s vote in favor of the bond. “The UNC cancer center is as important to Lieutenant Governor Perdue as it is to the University.”

But Commissioner of Labor Cherie Berry expressed some concern with the borrowing package.

She said more consideration should have been given to the state’s fiscal situation. “It inches us closer to that 3 percent cap that everyone desires. In case something catastrophic happens, then we have no money to borrow to fix it.”

The 3 percent cap was proposed by Gov. Mike Easley as the maximum percentage of state revenues that should go toward debt payments.

Berry also said the measure should have been submitted for a statewide referendum. “I believe the voters have a right to say whether or not they should go into debt.”

Thad Beyle, professor of political science at UNC-CH, said North Carolina has used bonds effectively when there is not enough tax revenue to cover larger projects.

He said a slow economy or excessive debt, which make it difficult for the state to meet interest payments, can cause bond ratings to drop and investor confidence to decline.

“North Carolina has had a good bond rating for some time,” he said. “There has been some worry out there among people that we could be jeopardizing that good rating.”

Credit rating firms so far have maintained confidence in North Carolina’s standing.

“North Carolina is rated AAA, which is our highest credit rating,” said Robin Prunty, public finance analyst for Standard & Poor’s. “It is one of 10 states that has the AAA rating.”

A credit analysis involves examination of the state’s economy, debt profile, financial factors and overall management, Prunty said.

The borrowing of an additional $206 million should not change the state’s rating, she said, because the amount is fairly modest when compared to the total outstanding debt.

But positive assessments such as this one offer little reassurance for the two Council of State members who opposed the latest borrowing.

Berry said she is worried that paying the state’s debt could involve raising taxes or cutting programs.

“All departments of the state government could be affected.”

Contact the State & National Editor at stntdesk@unc.edu.