| | Advanced Search

 

John Perilli: Battle Heats Up to Succeed Fox in House District 4—Keep an eye on this one...

Newport Goes Daffy with Weeklong Daffodil Celebration—Over 250,000 blooming daffodils on display

B’s Dominate Wings, Take Game 3—shut out Detroit 3-0 to take 2-1 series…

Organize + Energize: 4 Ways Getting Organized Will Save You Money—Stop wasting time and money

Dear John: Single Dad - How Do I Handle Daughter’s Adolescence?—How to support your daughter through puberty

State Report: Marijuana Tax + Bill Targets Prostitutes and Pimps—Plus increased sentences for gang crimes

John Rooke - Thinking Out Loud—JR's column on the sports stories and personalities…

RI Beauty Insider: Pedi Nation – Get the Best Pedicure Ever—A guide to finding a pristine pedi place

Fit for Life: Fail to Plan? Plan to Fail—Plan and prioritize, and you will prevail

Arthur Schaper: Grand Theft Auto Cicilline—MINDSETTER Arthur Schaper examine's Cicilline's role in Prov's…

 
 

INVESTIGATION: State Debt Hits $8.2 Billion

Thursday, October 18, 2012

 

State debt has risen by at least half a billion dollars over the last decade and now tops $8 billion when all long-term liabilities connected with the state—including those incurred by public colleges and quasi-public agencies—are counted, according to a GoLocalProv analysis of state annual financial statements.

As of June 30, 2011, total state liabilities stood at $8.2 billion, a figure much higher than the figure for the amount of tax-supported debt that is normally discussed in public policy circles, which was approximately 1.7 billion in mid-2011.

A spokeswoman for the Ocean State Tea Party in Action said voters should keep in mind the total amount of debt connected with the state when they go to the polls next month to vote on an estimated $307 million in potential new debt.

“Rhode Islanders need to have more light shone on the aggregate debt that we carry on the state and municipal level. It’s a stretch to ask how much is too much when most Rhode Islanders have never been presented with the aggregate debt already on the book,” said Lisa Blais. “Too often, we get pieces of the puzzle but not the overall picture of what we have already approved on bond ballot questions in prior election years. Do we remember what we voted for?”

Quasi publics borrow the most

The $8 billion figure encompasses a wide range of debts, including general obligation bonds, money the state has to set aside for accrued vacation and sick time, the future cost of cleaning up Superfund sites, and capital leases, to name just a few.

The total figure incorporates all of the debt associated with the operations of state government, which totals $2.9 billion. The lion’s share of the remainder, about $4.8 billion, is debt incurred by the many quasi-public agencies affiliated with the state, including RIPTA, the Economic Development Corporation, the state landfill, the Rhode Island Turnpike and Bridge Authority, and state colleges and universities.

Under normal circumstances, that $4.8 billion in additional debt should have no direct or immediate impact on taxes. But the Government Accounting Standards Board nonetheless mandates that states record it on its balance sheets when those states are “financially accountable for legally separate organizations” by making appointments to their governing boards. Debt from quasi-public agencies also has to be recorded if the agency has the potential to provide financial benefits or impose financial burdens on state government—a scenario that hits a little closer to home in a state still reeling from the 38 Studios scandal.

But in big picture terms, the $4.8 billion in additional debt is offset by about $7.9 billion in long-term assets.

As broad and all-encompassing as the $8.2 billion figure may seem, it still does not account for the sheer entirety of all the state’s liabilities, including some that undoubtedly will affect taxes and spending. For example, as much as $9 billion in unfunded pension liabilities and another $775 million in unfunded retiree health benefit liabilities are not recorded—and don’t have to be until 2015.

Also not included is yet another additional $4 billion in debt that is issued on behalf of businesses, hospitals, school districts, and others by the Rhode Island Industrial Facilities Corporation, Health and Educational Building Corporation, and the Economic Development Corporation, according to Dennis Hoyle, the state auditor. That borrowed money does not have to be accounted for on the state books because the organizations that benefit from the money are responsible for paying it back. The debt is instead recorded on their respective financial statements. 

Debt is increasing

What taxpayers should be most concerned about is the amount of debt that is supported by taxes, said Gary Sasse, the former director of administration under Gov. Don Carcieri.

But there isn’t agreement on exactly how much of the state debt is actually supported by taxes. The state calculates the current number at $1.7 billion. But Moody’s Investor Services pegs it at just over $2 billion.

The disagreement is over how to classify the GARVEE debt for the Department of Transportation, which allows the state to borrow against future federal highway funding, according to Thomas Mullaney, the state budget officer. The state doesn’t count that as tax-supported debt; Moody’s does.

Further complicating the picture is debt that was not originally envisioned as tax-supported debt, but could become just that. The most obvious example is the now all-too-familiar $100 million debt stemming from 38 Studios. Not only is the money not counted among the tax-supported debt, it isn’t even really on the books, showing up only as a footnote.

One thing is certain: over the last decade tax-supported debt has increased by roughly half a billion dollars, state records show. (See chart at right.)

Mullaney said the increase is due to large bond issues that have been approved by voters as well as the purchase of the Dunkin Donuts Center by the Convention Center Authority. But he pointed out that the amount of debt is expected to decline, as the state starts paying for transportation projects out of its budget, rather than by borrowing the money.

A better measure of debt is not the amount, but the state’s ability to pay for it, sometimes measured as a ratio of debt to personal income, according to Mullaney.

Progressive blogger and former state treasurer candidate Tom Sgouros agreed. “Evaluating borrowing in the context of what you can afford to pay is the right yardstick, not some imaginary measure of the ‘right’ level,” he said.

“As personal income in a state rises, the view is it can afford to take on more debt while maintaining the same ratio,” Mullaney said. “Our projected debt issuances compared to projected personal income will lower our ratio over time from a current level of about 4.03 percent to 3.08 percent.” (See below table.)

However, the ratio of tax-supported debt to personal income still puts Rhode Island above the national median. In per capita terms, Rhode Island recently was ranked as the ninth most indebted state, according to a 2010 RIPEC report.

Economist Leonard Lardaro says the more debt there is relative to the size of the state economy, the more difficult it will be to get out of debt and manage it in the future. “You keep lopping on the debt to a slow-growing economy, that’s going to make us stand out in a way we don’t want to stand out,” Lardaro said. “We’ve got to clean up our act.”

State officials say they are doing a better job of reining in state liabilities. When asked what Gov. Lincoln Chafee has done to address the problem, spokeswoman Christine Hunsinger pointed to the “instrumental role” he played in pension reform, which reduced the state’s long-term liabilities. She also pointed to Chafee’s push to end the state’s practice of borrowing money for transportation. “The Governor felt very strongly about not using the state’s credit card to do that,” she said.

 $307 million in new debt on ballot

Some say that in the current economic climate, the state cannot afford to take on any more debt. It’s something that voters will have a direct say over in just a few weeks as they to go the polls to vote on five referenda that, if approved, will add $307.5 million to the debt.

“There’s really nothing wrong with saying ‘no’ to these proposals, even if we’d normally pass them,” Lardaro said. “This is not a normal time.”

Blais suggested that there should be a moratorium on issuing any more debt until the state presents voters with a comprehensive plan for dealing with state debt.

But another taxpayer advocate, the Rhode Island Statewide Coalition, supports two of the bond referenda: the $94 million bond for the new veterans home and $50 million in higher education bonds. RISC Executive Director Donna Perry said the new veterans home “reflects our state’s acknowledgment of the contribution of veterans” while the higher education bonds are necessary for the state to offer a quality education, which “is connected to the quality of the workforce.”

“We don’t support the other bonds because the state is already carrying too much debt at a time when it has shrinking sources of revenue and still carries tremendous pension plan debt, both in the state system and in locally run plans,” Perry added. “Voters need to understand the connection between these bonds and the added debt they represent and the overall Rhode Island tax burden. There will be a continual added burden to tax rates to meet bond debt if our local economy does not improve.”

“Cutbacks on spending, and elected leaders making tough decisions to trim spending—not more debt—seems to be what voters need to support at this point,” she concluded.

But Hunsinger said voters can’t only look at the state balance sheets when making a decision about the referenda. Even in tough fiscal times, it’s necessary to make decisions about where to invest state money, she said. Rhode Island particularly needs to make investments in infrastructure, education, and workforce development, according to Hunsinger.

Some bonded projects, according to Lardaro, could have an economic benefit. “In the near term, you get a little push,” Lardaro said. “Then you’ve got to service the debt.” He said the best kind of debt to take on is investment-oriented spending in areas like higher education.

How much is too much?

Sgouros said the right question is not how much debt is too much, but what the state and its residents are getting in return for it.

“What’s irritating about Rhode Island debt is that we often pay a lot for not very much in return, and this discredits the idea of debt for things that really matter,” Sgouros said. “For example, I think the new 195 bridge is attractive, but that highway is still clogged. The new bridge and interchange didn’t change the traffic patterns dramatically and didn’t make it easier to get to Riverside, but it cost us about a billion dollars, so was that worth it? Weigh that against the fact that all that borrowing likely means that no transit improvements that would require borrowing will ever see light of day.”

He also said some debt “doesn’t really matter”—like the money the state borrowed against future payments from the tobacco lawsuit settlement. As of June 30, 2011, the state owed $795 million on tobacco settlement asset-backed bonds. “The tobacco bonds are paid for, as I understand it, by a captured stream of payments from tobacco companies,” Sgouros said. “So why is that in the same list as debts that don’t have a payment stream attached to them?”

Blais maintains that eight billion in total state liabilities “seems pretty large for the littlest state in the union.” She said taxpayers should be concerned about the whole amount—not just what is officially regarded as tax-supported debt, invoking the cautionary example of 38 Studios.

“Bottom line, one way or another we all pay for the debt incurred—think budget, taxes, and bond ratings,” Blais said.

If you valued this article, please LIKE GoLocalProv.com on Facebook by clicking HERE.

 

Related Articles

 

Enjoy this post? Share it with others.

Comments:

Howard Miller

set um Joe i got a little you ought to know
make it one for my baby and six more for the road

pearl fanch

send the bill to the firefighters throughout the state. they can start passing those boots around, like they do on labor day weekend. they can go into every public office and collect as much as they can.
that will get the debt down.

Chris MacWilliams

"But Hunsinger said voters can’t only look at the state balance sheets when making a decision about the referenda."

Too stupid for words...

michael riley

As far as I know ,puppeteer Tom Sgouros was never state treasurer(thank God), as was stated in the article above.

http://blogs.wpri.com/2011/10/25/sgouros-ri-pension-crisis-caused-by-accounting-not-shortfall/#comments

David Beagle

The real sad thing around here is that we don't have ANYONE to turn to for help. IN the real world, there are spending limits based on one's ability to pay, in the liberal world ist just spend and worry about paying for it later.

anthony sionni

vote NO on all bonds!

Charles Beckers

"But in big picture terms, the $4.8 billion in additional debt is offset by about $7.9 billion in long-term assets." That statement is meaningless, because it implies that the state would be willing or capable of doing without those assets or of letting some creditor take possession of them and operate them at a profit. Furthermore, these are primarily bonds we are talking about, not secured loans.

And, yes, David Beagle, we will have to turn to ourselves, as self-reliant people in a democracy, to work this out. There is no one out there who is going to step in and tell us what to do or do it for us. It is not sad; it is what our forefathers fought a war of independence over.

Gov- stench

While this figure is scarey, it appears to be low. If you look at the National Debt clock website and click on RI, you find the total debt listed as $11.7 Billion and slowly going down. Perhaps this study is missing some figures.

pamela gencarella

If RI ranked 9th in most indebted state and we have nearly 11% unemployment, it would seem that we are not in a very strong position to support that debt, especially given that study after study shows our level of taxation continues to push more and more wealth out of the state.

As for the bonds that are coming up for a vote, there is no question that our veterans should always be taken care of first. The problem is, RI makes decisions like allocating money to things like a $21 million bike path. Where is the prioritization of government services? There is a constant cry for spending on education, do we know if we are benefiting from that incremental spending? It is the decision on how the state allocates resources that needs to be looked at by the Governor and the General Assembly. That’s why RI needs a plan, a vision, before we continue down the path of placing RI further in debt. Until we see that plan, the government should not be asking the voters to agree to anymore debt.

Related to the $800 million tobacco bonds, if the stream of revenue is unquestionable, why does the financial statement footnote state that many of the tobacco manufacturers dispute the calculations of amounts due under the settlement agreement? Additionally, why does the footnote discuss the fact that the tobacco settlement itself is being questioned by the companies claiming that the award violates the US Constitution and in the event of an adverse ruling, there may not be adequate financial resources to service the debt?

For more details on RI debt see the Ocean State Tea Party in Action (OSTPA) Sunday Alert distributed September 30, 2012. http://www.oceanstateteapartyinaction.com/ocean_state_tea_4/September30.html

Mark St. Pierre

Was that a slap at firefighters !

Ford Renner

Tom Sgouros was a state treasurer? I DONT THINK SO. FACT CHECK anyone?

pearl fanch

Mark,
Not at all. Don't get defensive.
It's just that they seem to do well at collecting money on Labor day. I figured that they could go to all the public union employees and collect for this debt.

ella mentry

Tom at first threw his hand in the ring to be treasurer against Gina Raimondo but then he dropped out. I believe he thought he had the same thoughts at the time as Raimondo, and since she had the money and Democratic support (at that time...not now!) to run, he dropped out.. He was not a Treasurer. And that is most unfortunate. Perhaps he might reconsider in the future

Gov- stench

Last time I saw Sgouros, he was rowing a boat in Wickford harbor.

Gov- stench

The disagreement is over how to classify the GARVEE debt for the Department of Transportation, which allows the state to borrow against future federal highway funding, according to Thomas Mullaney, the state budget officer. The state doesn’t count that as tax-supported debt; Moody’s does.
Perhaps Mr. Mullaney is forgetting where the debt service payments are coming from. 50% of that tax is absorbed by this debt service. Perhaps he should refer back to the 2008 Blue Ribbon Commission that was formed to come up with a plan to fix the highways in this state. This 80/20 federal matching grant program has been badly abused by this state to keep these highways open. These bonds that were approved to fix certain projects listed on the bonds were used for other projects or to help pay the debt service on the total bonds outstanding. I am sure there are other project bonds that were approved by the voters but have yet to be started because the funds of those bonds were hijacked for other purposes. This is where an inspector general needs to come in and investigate these abuses and hold those responsible for these acts.

Gov- stench

That statement should read "50% of the gasoline tax is absorbed by debt service."

Samuel Bell

Any number over a billion sounds big when you cite it without context. The real question is how do we stack up compared to other states?

Also, Michael Riley, Tom Sgouros was totally right about the pension crisis being created by accounting changes by the Government Accounting Standards Board.

Gary Arnold

Does anyone in this state know how to cut expenses? Our costs and yearly expense are going up each year without any control. Our long term ability is also lessening our ability to afford our debt which leaves us in a financially exaggerated negative position.
Look at the Governor’s attitude to our fiscal problems: raise more taxes and do nothing to cut costs and expenses. This is the exact opposite of what we need to really lead RI into a phosphors future; instead we have no future, no leadership in our Governor and GA. Just think of what could have been done if only we would change our dimwitted voting of Democrats come every election session. Clearly the state of RI has completely failed and the population has succumbed to this way of life. Slowly but surely people are leaving RI, where do you think your future will be?




Commenting is not available in this channel entry.