Contact: Julia Vail (919) 807-3132

February 2, 2012

For Immediate Release

Cowell Releases 2012 Debt Affordability Study
State’s “triple A” bond rating confirmed by all three national agencies

RALEIGH – State Treasurer Janet Cowell released the 2012 Debt Affordability Study to Gov. Beverly Perdue and members of the General Assembly yesterday.

The annual analysis, approved by the Debt Affordability Advisory Committee, found that the state has exhausted its General Fund debt capacity until fiscal year 2013. Additionally, the combined debt capacity of the Highway Fund and the Highway Trust Fund has been exhausted until fiscal year 2014.

The committee sets a percentage of revenue as the primary metric for determining debt affordability. This percentage for the General Fund is slightly above 4 percent, which is the self-imposed target adopted by the committee. The Highway Fund and Highway Trust Fund’s percentage also slightly exceeds its 6 percent target.

North Carolina’s “triple A” bond rating has been reaffirmed by all three national bond rating agencies. Currently, all of the state’s debt ratios are at or below the median levels for the state’s peer group, composed of other states rated “triple A” by all three agencies. North Carolina’s debt is considered manageable at current levels. The report acknowledges that the state’s current revenue picture is only modestly optimistic and reflects the continued slow pace of economic recovery. Additionally, the study outlines the need for replenishment of the state’s reserves.

“The slow recovery, in combination with the reduction of the state sales tax rate, has resulted in another year of no debt capacity,” Cowell said. “However, many projects are still moving forward with funding provided by the issuance of previously authorized but unissued debt, federal GARVEES [Grant Anticipation Revenue Vehicle Bonds], tolls and other sources.”

Cowell and the committee continue to recommend the need for centralized debt management and the issuance of General Obligation debt as the preferred method of debt financing. Special Indebtedness is not subject to a vote of the people and is rated lower than the state’s “GO” bonds.

The study identifies two key liabilities that will require the General Assembly to address and determine the best course of action. These liabilities are the unfunded portion of retiree health care benefits, which totaled $32.84 billion as of December 31, 2010. During its inaugural board meeting on Jan. 5-6, the Board of Trustees for the State Health Plan for Teachers and State Employees reduced the unfunded liability by approximately $6 billion by approving a recommendation to implement an Employer Group Waiver Program for retirees on Medicare.

Another key liability is the $2.54 billion to the U.S. Treasury for funds borrowed to make unemployment benefit payments. Although these liabilities do not impact the calculation of debt capacity, they may ultimately have a negative impact on the bond ratings. A study is being conducted by the N.C. Department of Commerce on how to best retire this debt.

The study was prepared by the staff of the State and Local Government Finance Division of the Department of State Treasurer, and approved by the Debt Affordability Advisory Committee, which was created by the General Assembly in 2004 and is chaired by Treasurer Cowell. Other committee members are Secretary of Revenue David Hoyle, State Budget Officer Andy Willis, State Auditor Beth Wood, State Controller David McCoy and legislative appointees Frank Aikmus, William Graham, James Porto, and Jack Vogt.


A full copy of the report is available on the Department of State Treasurer’s website under the “State and Local Government” section.​