BRADENTON, Fla. - If North Carolina voters allow the state to issue $2 billion of general obligation bonds it could signal a shift in sentiment about tax-backed debt issuance, according to Fitch Ratings.
Tar Heel voters on Tuesday will decide on a referendum that would implement Gov. Pat McCrory’s Connect NC general obligation bond initiative to finance various infrastructure projects.
“If approved, the voters' decision will signal a shift toward GOs and away from appropriation-backed lease revenue bonds and, potentially, indicate how voters in the state may prioritize infrastructure funding,” said analyst Karen Krop.
Fitch assigns AAA ratings to North Carolina’s GOs.
If Tuesday’s referendum passes, more than half the GO bond proceeds would finance higher education projects, while the remainder would pay for local water and sewer, state agency, and National Guard projects.
With tax-supported debt of approximately $7.5 billion as of June 30, 2015, Fitch said it believes that North Carolina’s debt levels will remain relatively low if the $2 billion bond is approved. At the end of fiscal 2015, the state maintained reserves of $852 million or 3.8% of general fund revenues.
North Carolina’s current biennial budget further increase reserves to $1.1 billion or 5.1% of expected general fund revenues. The state has other reserves in excess of $1.7 billion.
“If voters decide against the authorization, North Carolina could pursue other infrastructure financing such as revenue bond offerings or public-private partnerships,” Krop said.
In addition to university and state agency projects, bond proceeds would provide $312.5 million for local water and sewer systems and parks.
According to the American Society of Civil Engineers, the state’s drinking water systems will need about $10 billion over 10 years to comply with new regulations and replace aging systems, Fitch said.
The ASCE also said the North Carolina will need more than $4 billion for wastewater infrastructure through 2030 and about $8 billion for education in the next five years, although some of the cost would be borne by the federal budget, tax collection, and user fees.
