Treasurer Folwell Releases 2017 Debt Affordability Study Debt Affordability Advisory Committee Recommends New Policy to Address Unfunded Liabilities

Debt Affordability Advisory Committee Recommends New Policy to Address Unfunded Liabilities

RALEIGH, N.C. – State Treasurer Dale R. Folwell, CPA announced today the results of the 2017 Debt Affordability Study, advising the Governor and the General Assembly on the estimated debt capacity of the General and Transportation Funds for the upcoming 10 fiscal years.
 
The annual study, approved by the Debt Affordability Advisory Committee, provides analysis of the impact of future debt issuance on the state’s fiscal position. In addition to the analysis, the study offers several policy recommendations required to maintain the state’s longstanding history of conservative debt management.

For the first time, the primary recommendation of this year’s report suggests significant additional money be put toward North Carolina’s pension and Other Post-Employment Benefits (OPEB) obligations that represent retired employees’ health benefits. The state currently has unfunded pension and OPEB obligations totaling at least $38 billion.

Under this new proposal, the Committee recommends that the targeted debt limit ratio be raised from 4 percent to 4.5 percent of general tax revenues, allowing for debt capacity in the General Fund, after placing funds in trust for the purpose of funding the pension and OPEB liabilities. The result is General Fund debt capacity of approximately $1.268 billion in the current fiscal year or just over $180 million a year for the next 10 years. The combined debt capacity of Transportation Funds (Highway Fund and the Highway Trust Fund) is approximately $1.364 billion for the current fiscal year.

“As Treasurer, I have pledged to preserve and protect the state’s AAA bond rating,” said Treasurer Folwell. “The recommendations in this study are a necessary recognition of a changing fiscal landscape. Even as the General Assembly has fully funded the pension, we have witnessed the unfunded health care and pension liabilities of our state continue to grow. Deliberate, gradual action is required to address this issue and cannot wait another year. This committee didn’t create these liabilities, we discovered them. With this action, we are taking a step towards solving the problem. North Carolina is certainly not alone on this issue but we have the unique opportunity to lead the nation and make a generational difference for North Carolinians.”

The 2017 Debt Affordability 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 Folwell.
 
Other committee members are Ronald Penny, Acting Secretary of Revenue; Linda Combs, State Controller; Charles Perusse, State Budget Director; Beth Wood, State Auditor; Frank Aikmus, Senate Appointee; Bradford Briner, Senate Appointee; Cecil T. Turner, House Appointee; and Eugene Chianelli, House Appointee.

View the 2017 Debt Affordability Study here.