Dueling school capital plans face North Carolina lawmakers

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As the Republican-led North Carolina Legislature considers its third major bond financing program since 2015, the House-sponsored measure has set the stage for a showdown with the Senate.

House Speaker Tim Moore, R-Cleveland, introduced the nearly $2 billion school construction bond bill he sponsored Feb. 28, saying it will “give more students 21st century classrooms.”

“School construction funding is a cornerstone of the state House’s 2019-2020 education agenda,” Moore said. “To train our workforce for the needs of tomorrow, we must meet the needs of their classrooms today.”

The Senate, also controlled by Republicans, has already proposed an education budget that uses cash to fund capital needs.

Moore's Education Bond Act of 2019 would ask voters statewide to approve $1.9 billion of state general obligation bonds. He was joined by three other Republicans in sponsoring House Bill 241. Pat Hurley of Randolph County, Jon Hardister of Guilford County and Hugh Blackwell of Burke County signed onto the measure.

As it’s written now, the measure would provide $1.5 billion of GO bond proceeds for public school capital outlay projects, repairs and renovations, $200 million for community college capital outlay projects, and $200 million for 14 higher educational facilities in the University of North Carolina systems.

Similar legislation was proposed last year but lawmakers opted to delay it, while they approved a $3 billion transportation financing program. Lawmakers approved a $2 billion general obligation bond program to fund infrastructure in 2015.

Gov. Roy Cooper, a Democrat, in his second State of the State address on Feb. 25, urged the Legislature to support school capital financing, saying it’s needed to address repairs and construction needs for aging schools across the state.

Cooper told lawmakers that K-12 schools need at least $8 billion for new construction and renovations, and that using bonds would lock in stable financing without cutting resources from other vital areas of the state budget.

In response to Cooper’s speech, Senate President Pro Tempore Phil Berger, R-Eden, said Feb. 27 that North Carolina shouldn’t have “multiple generations of taxpayers paying the costs” through debt.

“Sticking the bill to future generations for schools we have the money to pay for now is not good policy,” Berger said on Twitter.

A day later, Moore unveiled HB 241, knowing that the Senate had already passed a school construction budget that relies on pay-as-you-go funding.

Moore said the concern he has with a pay-as-you-go plan is that it ends the state’s traditional education model in which counties are responsible for capital construction with occasional support from the state.

It also encumbers “a substantial percentage of general fund tax revenue, immediately reducing spending flexibility,” he said.

“Our school districts need guaranteed support now – capital funds they can match with confidence,” said Moore. “A bond uses our state’s strong fiscal standing to leverage new money now.”

Moore said the state is in a strong fiscal position with triple-A ratings from Fitch Ratings, Moody's Investors Service and S&P Global Ratings.

“We have hundreds of millions of dollars in revenue surpluses, and more than a billion dollars in savings,” he said. “There is currently a competitive bond market and the state can borrow now at favorable interest rates. The opportunity is now, and waiting could change these factors and increase borrowing costs.”

The state has $2.44 billion of GOs outstanding, according to the 2019 Debt Affordability Study.

The study says the state has the capacity to issue new GOs backed by general fund revenues of $207 million a year over the next 10 years, a total of $2.07 billion.

Produced by the Debt Affordability Advisory Committee under state Treasurer Dale R. Folwell, the study said the panel is once again recommending that the state allocate additional funds annually to reduce unfunded pension and healthcare liabilities.

North Carolina currently has a combined $38.5 billion in unfunded liabilities for pensions and other post-employment benefits.

The committee recommended phasing in increased contributions each year for those liabilities of $213 million in 2019 to $359 million in 2023. The amounts were included in determining the state’s debt capacity, the study said.

Folwell said although the state has capital infrastructure needs, including for school construction, nothing in the committee’s recommendation prevents the governor or General Assembly from approving new debt to address those issues.

“This is not political or emotional, but mathematical,” said Folwell. “We have almost $40 billion in unfunded pension and health care liabilities. That bill will come due much sooner than people realize.”

In its recommendation to fund the liabilities, Folwell said the debt committee is “doing what’s necessary at this point in the state’s history because others didn’t.”

The debt analysis includes the amount of authorized-but-unissued bonds, such as the remaining $1.4 billion in the Connect NC Bond Program and the $3 billion Build NC Bond Program.

In 2015, Republican Gov. Pat McCrory signed the Connect NC act into law, setting the stage for implementing a $2 billion general obligation bond program. State voters overwhelmingly approved the initiative in 2016, casting 65.55% of their votes to fund statewide infrastructure, including higher education and state agency projects.

According to this year’s debt report, $600 million of GOs under the Connect program are expected to be issued this year.

In June 2018, Cooper signed the Build NC Bond Act into law, authorizing the state Department of Transportation to use the proceeds of $3 billion in “special indebtedness bonds” to accelerate hundreds of highway projects. The appropriation-backed bonds will be paid using money from the State Highway Trust Fund.

The Build NC Bond Act went into effect in January, and limits the amount of debt that can be issued annually to $300 million.

This year’s proposed Education Bond Act sets the stage for the House to clash with the Senate.

“Let’s give those voters the choice to approve investments in local schools and higher education,” House Speaker Moore said last week. “Responsible budgets have us well-positioned for forward looking investments.”

North Carolina hasn’t passed a K-12 school construction bond in 20 years, according to Moore.

The House’s bond proposal will help school systems with the greatest needs, particularly in rural areas, said Rep. Jeffrey Elmore, R-Wilkes, who is also a public school teacher.

“Many of our systems really don’t have the capability to issue bonds,” Wilkes said. “This approach is a partnership between county commissions, school boards, and the state of North Carolina, to help education communities secure a piece of funding for vital capital improvement plans.”

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School bonds Public school funding Roy Cooper State of North Carolina North Carolina