Oregon Officials Told to Curb General Fund-Backed Debt

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SAN FRANCISCO — Oregon's debt commission told the governor and lawmakers that they need to rein in general fund-backed bonding in the next two-year budget cycle.

The State Debt Policy Advisory Commission said in a recent report that a sharp falloff in projected general fund revenue will push Oregon above its historic target of having debt-service cost no more than 5% of general fund revenues in the next biennium budget period that starts July 1.

Oregon had $4.5 billion of outstanding general obligation debt as of June 30.

"The continued declines in forecasts of general fund and lottery revenues mean that public debt has become a scarcer resource, requiring careful consideration for its effective allocation," Treasurer Ted Wheeler, head of the commission, said in the report released Feb. 18.

Wheeler said Gov. John Kitzhaber should refrain from issuing any new general fund-supported debt in the 2011-13 biennium.

In Oregon, the governor and Legislative Assembly decide debt capacity.

The commission forecast that debt capacity will return to $500 million a year in following budget cycles.

Kitzhaber proposed issuing $200 million of general fund-backed debt in his executive budget, an 80% reduction from the current two-year budget cycle.

The governor proposed a combined bond-issuance authority ceiling for GO and revenue bonds of $4.69 billion in the 2011-13 biennium — $1.46 billion of GO bonds and $3.23 billion of revenue bonds. Most of the GOs would be double-barreled, or backed by other revenue sources other than the general fund.

The commission's report said the state could free up $282 million of additional debt capacity for the next biennium by restructuring the lottery debt.

Without refinancing, the state's Treasury Department projects just $9.4 million in lottery-backed debt capacity available in the next biennium. The state had $1.1 billion of outstanding lottery debt as of June 30.

"The new numbers reinforce the caution that [Wheeler] raised last fall," said Treasury spokesman James Sinks.

Before the November election, Wheeler proposed temporarily halting general fund-backed borrowing until the state's finances recover.

The report also recommends that Kitzhaber and the legislature review Oregon's school bond guaranty program, which backs almost $5 billion in debt-service payments on bonds issued by public school districts and community colleges. On an annual basis, the report said, the contingent liability represents 4.5% of general fund revenue.

"While no school or community college district has ever requested the state make a debt-service payment on its behalf, I believe that policy makers need to set prudent parameters on the upper limits of this program," Wheeler said.

Lawmakers are likely to agree with the treasurer's prudence.

"I think the legislature is very risk-averse right now," said Patrick Clancy, a financial adviser at Western Financial Group who works with government agencies across the Northwest.

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