A Major Issue Just Around the Corner: How Much State Bonding is Too Much?

Several months ago, while he was running for re-election, State Treasurer Ted Wheeler advised the legislature to be very careful about the level of bonding it approved in the 2011 legislative session. To some, his admonition was even stronger – don't do any more bonding.

Whether he meant "no more" or a "caution," the State Bond Advisory Committee went on record last Friday with similar advice. 

A news release issued by the Treasurer's Office said:

"Oregon policymakers should be judicious and strategic about the use of scarce state debt capacity in the upcoming budget cycle, the State Debt Policy Advisory Commission recommended today (Friday, February 18). The Commission advises the Legislature and Governor about the prudent level of state debt that is repaid from two sources: The General Fund and Oregon Lottery revenues. Bonds that are repaid with dedicated sources of revenue, such as gas taxes, tuition and loan repayments, are not part of the commission’s debt capacity calculus. 

"Public debt is a powerful tool that can create jobs in the short term while improving roads, colleges and other public facilities. But the economy has sharply limited the state’s capacity to prudently borrow over the next few years

"The state debt capacity targets are key benchmarks because they recommend a maximum percentage the state should expend for annual debt service payments. Those thresholds reinforce confidence that Oregon will repay its loans, and are among several factors that help to determine the state’s credit ratings. Oregon’s ratings are currently solid, and are helping to keep interest costs low on projects for which the state anticipates issuing bonds to fund.

"Because of sharp declines in projected general fund revenue, the state is likely to temporarily exceed the historical target for general fund-backed debt, which translates to a maximum of 5 percent of general fund revenue devoted to annual debt service in the upcoming biennium, according to the State Debt Policy Advisory Commission annual report, which can be found online.

"As a result of those projections, the Commission is recommending that no net increase in general fund-backed debt be authorized by the Legislature and Governor for the next two years. That recommendation is consistent with the Commission’s position at an interim meeting in September 2010.

“We recognize that there are pressing economic development needs today across the state, and I will work with the Legislature and the Governor to make sure that Lottery-backed debt is allocated to those economic development projects that get us the biggest bang for the buck,” said State Treasurer Ted Wheeler, the chairman of the Commission."

All of this could be disconcerting news for a variety of interests heading to the legislature this session to seek bond funding, even if, as the news release says, bonds are backed by sources other than general or lottery funds.

  •  Advocates of increasing bonding programs for higher education institutions, including the traditional requests for bond money for capital construction, as well as this year's aggressive – some say too aggressive – proposals by the University of Oregon for bonds to free the university from legislative oversight and depending on the legislature for funding every session.
  • Advocates of a new mental hospital in Junction City.
  • Advocates for interoperable public safety communication improvements that will help law enforcement officers, firefighters and others as they respond to natural or manmade disasters.

The treasurer has made at least one thing crystal clear:  He intends to assert a rationale for his involvement in all things budget – and especially for the level of debt incurred by members of the Joint Ways and Means Committee that considers bond funding proposals.

Photo: State Treasurer Ted Wheeler wants the legislature to proceed with caution on the state's debt capacity.