Thursday, February 1, 2024

State Treasurer Folwell Releases 2024 Debt Affordability Study

Purchases NC Debt from Defunct Silicon Valley Bank at a Discount, Cancels It, Saving Taxpayers $11 Million
Raleigh, NC
Feb 1, 2024

State Treasurer Dale R. Folwell, CPA, announced today the results of the 2024 Debt Affordability Study, advising the Governor and General Assembly on the estimated debt capacity of the General and Transportation Funds for the upcoming 10 fiscal years.  
The annual study, adopted by the Debt Affordability Advisory Committee (DAAC), provides a comprehensive assessment of North Carolina’s ability to issue debt for capital needs. Control of a state’s debt burden is one of the key factors used in rating agencies’ analyses in assessing credit quality.

As part of the 2024 Debt Affordability Study, Treasurer Folwell announced that the repurchase of $20 million of Connect NC bonds is in its final stages. Last year during the banking crisis, Treasurer Folwell and members of the State and Local Government Finance Division identified an opportunity in the failure of Silicon Valley Bank (SVB). When the bank was forced to sell off its assets, staff recognized that SVB held $20 million in Connect NC bonds. Treasurer Folwell was able to purchase those bonds at a significant discount to par (71.875%) for a price of $14,375,000 plus closing costs. This repurchase will save taxpayers almost $11 million.

This was made possible by the North Carolina General Assembly allocating funds to pay off callable state of North Carolina bonds or purchase and cancel state bonds from the secondary market that have debt service paid from the State Capital and Infrastructure Fund (SCIF). These actions may be taken if the cost of redeeming or purchasing and canceling the bonds is determined to be an economically prudent use of SCIF funds.

“This was a great opportunity for the taxpayers of North Carolina to get some relief during a tough inflationary period,” said Treasurer Folwell. “We are in the sixth year of retiring over 60% of the state’s debt over an eight-year period. I don’t know of another state or country that can say that. And that’s why ‘NC’ stands for ‘nothing compares.’ It’s a tribute to taxpayers, employers and the General Assembly that we have budget surpluses and reserves. But we still have approximately $43 billion in unfunded pension and health care liabilities. That bill will come due much sooner than people realize.”

The DAAC has adopted the ratio of debt service as a percentage of revenues as the controlling metric that determines the state’s debt capacity. Over the 10-year planning horizon, the state’s DAAC general fund revenue projections show a positive growth trend not excessively impacted from earlier declines in economic activity or recent increases in interest rates.

Debt service projections incorporate the future issuance of $1.5 billion in Build NC Bonds. The Build NC bonds were authorized by the Build NC Bond Act of 2018 and provide funds to accelerate regional and divisional highway projects statewide. The remaining funds needed to complete the projects funded under the Connect NC Bond Act ($400 million) will be funded through an appropriation and from available premium funds from prior Connect NC bond issues. Therefore, no future debt service projections for Connect NC were incorporated into the debt capacity model.

The General Fund model results show that the state’s General Fund has debt capacity of approximately $1.63 billion in each of the next 10 years, or up to approximately $8.5 billion in the first year after incorporating the DAAC-recommended policy. That policy also directs continuing annual appropriations of $100 million to the Unfunded Liability Solvency Reserve to begin to address the state’s unfunded pension and OPEB liabilities. The North Carolina General Assembly has allocated $40 million to the Solvency Fund for fiscal year 2022 and $10 million for fiscal year 2023. The actual ratio of debt service to revenues is projected to peak at 1.82% this fiscal year. 

The transportation model results show transportation debt capacity of approximately $104.7 million in each of the next 10 years or approximately $745 million in the first year. Absent any future authorizations, transportation debt service as a percentage of transportation revenues is projected to peak at approximately 5.0% in fiscal year 2029. On a combined basis, the General Fund and Transportation Fund’s debt service is projected to peak at approximately 2.03% of combined revenues in fiscal year 2024.

DAAC members are Dale R. Folwell, CPA, State Treasurer, Chair; Ronald Penny, Secretary of Revenue; Nels Roseland, State Controller; Kristin Walker, State Budget Director; Jessica Holmes, CPA, State Auditor; Frank Aikmus, Senate appointee; Bradford Briner, Senate appointee; Donald Pomeroy, House appointee; and Eugene Chianelli, House appointee.

The N.C. Department of State Treasurer’s State and Local Government Finance Division handles the sale and delivery of most state and local debt and monitors the repayment of state and local government debt. More information can be found at: