PHOENIX – Oregon lawmakers will have the option to issue as much as $1.14 billion in new general fund-backed debt and up to $209 million in lottery-backed debt for the 2017-2019 biennium, a key consideration as the state legislature works on the budget and considers requests for infrastructure investment.
The figures come from a report issued Monday by the State Debt Policy Advisory Commission, which is tasked with recommending how much public debt is available while remaining within the state's borrowing limit of 5% of general fund revenues. The five-member body is chaired by State Treasurer Tobias Read, with a public member appointed by the governor, appointees from the state House and Senate, and the director of the Department of Administrative Services.
The commission credited fiscal discipline over the past several years for the state's solid capacity entering this biennium. Oregon's total long-term general obligation, revenue, and appropriation-backed debt stood at $10.3 billion at the close of the 2016 fiscal year in June, a decrease of about $270 million from the previous fiscal year.
The commission nonetheless cautioned that bond debt be used only for the "highest priority state capital projects" to maintain the state's credit ratings and strong financial position. The commission also urged legislators and the governor to prioritize Oregon's debt capacity for the long-term, by balancing the costs and benefits of building new projects versus taking steps to fund the preservation of existing infrastructure.
"The Oregon State Treasury is helping to finance critical infrastructure that will improve Oregon's education opportunities and economic competitiveness," said Read, who won election in November to succeed Ted Wheeler, who is now the mayor of Portland. "We need to remember that while public debt is a powerful tool, it is limited and should be deployed in balanced ways that give Oregon the strongest benefits for the long term."
Commissioner Richard Devlin, a state senator, said lawmakers need to understand not only how much they can spend but have to be prepared to discuss what to spend it on.
"In every corner of Oregon, you will find important public facilities that were built with the help of Oregon bonds," said Devlin, D-Tualatin, who also is the co-chair of the budget-drafting Joint Ways and Means Committee.
"Now, in addition to understanding how much borrowing is prudent, it is important for legislators to have a conversation about the process for deciding what to finance," he said.
"The Legislature has taken a careful approach to public bonding and it is paying off," said the House representative on the commission, Phil Barnhart, D-Eugene, who is also the chair of the House Revenue Committee. "Oregon is on a path that protects our credit ratings while also giving us the ability to finance high-priority projects, today and tomorrow."
The commission recommended that the governor and the legislature establish an annual "pay as you go" funding target for the state's public buildings and infrastructure, noting that doing so could help save the state from more costly investments down the road.
"In many instances, a modest amount of maintenance money today can stave off a much more costly capital replacement project in the future," the commission said.
Oregon's bond ratings were affirmed late last month after Read and other state officials convened for a face-to-face with analysts from S&P Global Ratings, Moody's Investors Service, and Fitch Ratings.
They all rate Oregon at the AA-plus level.
The state's lottery-backed bonds hold ratings of AAA from S&P and Aa2 from Moody's. Read's office said that Oregon's low borrowing rates stemming from its strong credit ratings have allowed it to save in excess of $378 million through refinancing over the past few years.
In addition to recommending the debt capacity, the commission also advised lawmakers and the governor to not approve additional lending from the Small Scale Energy Loan Program, where loan loss reserves have deteriorated and need to be supplemented.
The treasury periodically reviews the bond-funded program to determine whether projected loan repayments are going to be enough to meet the program's debt service requirements.
The program may no longer be viable unless the state is willing to provide "substantial liquidity support," the commission found, and so recommended against making any new loans until the future of SELP can be determined. Lawmakers had to dip into the general fund to support the program a few years ago, when investments in ethanol and solar projects didn't pan out.
The commission applauded the work done by the Joint Interim Task Force on the Capital Construction Budget to evaluate the state's investment needs the past several months, and recommended that the task force be reauthorized with an expanded charter to include surveying best practices in long-term capital planning by state and local governments. This would culminate in recommendations to the 2019 legislature on how those best practices could be incorporated into the state's future biennial capital budgeting process, the commission suggested.
Oregon lawmakers must pass a balanced budget per the law. Gov. Kate Brown submitted her $74.3 billion budget on Dec. 1, which included authority to issue $968.9 million of general fund-supported debt. The state is facing a projected two-year budget shortfall of $1.7 billion, and Brown's proposed budget included some painful cuts and an education budget that school boards said was close to half a billion dollars short of what schools needed just to maintain current services.
The League of Oregon Cities' 2017 legislative priorities which it wants the legislature to address include transportation funding, as well as comprehensive property tax reform and pension fund inefficiencies. The Oregon legislature convened Feb. 1, and is in session until July 9.
