MacIver News Service | May 30, 2013
Updated Thursday May 30, 2013 at 4:09pm[Madison, Wisc…] The Joint Committee on Finance will vote today on the Building Commission’s recommendation to increase bonding authorization by more than half a billion dollars and another increase in state debt.
The Building Commission is recommending that $510.8 million in new bonds be authorized. This is $90.2 million more than in the previous budget and about $90 million more than the average amount authorized in the last 5 budgets.
Additional bond authorizations for other programs are also in the budget and would have totaled $211.1 million, but previous actions have reduced the new authorization to $148.5 million.
The total amount of outstanding debt currently owed by the state is $8 billion, with GPR supported bonds accounting for $5.31 billion of the debt owed. This large amount of debt is troubling to some because of how fast it is expanding.
In the last 9 years, GPR debt grew by $2 billion, but half of the total was added in the last 3 years. Ratings agencies consider the current level of debt to be in the high-moderate range. If these agencies find that the state is taking on too much debt relative to the state’s ability to pay the debt, it could lead to increased interest rates for the state and even a lower bond rating.
Because interest rates are historically low, borrowing costs have also been low causing some to embrace the strategy of borrowing and spending now while rates are low. However, racking on debt may make it more difficult and costly to borrow in a downturn when revenues are too low to match spending.
For now, low interest rates are helping the state to lower bonding costs. After re-examining GPR debt service payments, the Department of Administration is estimating that payments will be $39.3 million less than previously expected and that the general fund will see a corresponding increase in funds.
Debt payments for 2012-13 were $10.8 million lower than expected, and due to changes in interest rate assumptions, the Department of Administration is reducing forecasted payments by over $15 million. The remainder of the $39.3 million comes from ending the Badger Tobacco Asset Securitization Corporation and correcting a misallocation from the previous budget.
Debt service payments for GPR supported bonds are scheduled to be $737,996,000 in 2013-14 and $709,006,000 in 2014-15 under the governor’s budget plan.
The MacIver News Service will provide updates as they come available.
JFC passed motion 534 during an executive session on Thursday that slows down the amount of borrowing the Building Commission is allowed to do. In an omnibus motion, JFC reduced the Building Commission’s bonding authority by $250 million from the Governor’s budget.
The Committee left it to the Building Commission to decide what projects would need to be put on hold due to the decrease in bonding revenue.
The full motion passed by JFC can be seen here.