Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, September 29, 1994 TAG: 9410150007
SECTION: EDITORIAL PAGE: A-15 EDITION: METRO
SOURCE: RAY L. GARLAND
DATELINE: LENGTH: Long
The real debate will come over how to pay for it. But even here, the governor is likely to prevail for the simple reason that pay-as-we-go alternatives aren't likely to command a majority at this early stage of the vast expansion of Virginia prison capacity under contemplation.
Allen is asking the assembly's special crime session to authorize the immediate issuance of $367 million in bonds, not subject to voter approval, through the Virginia Public Building Authority. This would fund nine new prison camps for low-risk offenders, expansion of eight prisons and four new facilities. It is expected these would be placed in service over the next five years.
But this represents only one-third of the building program the governor proposes. At least $718 million in additional projects will be required to do that. While it may be erring on the side of extreme optimism, the administration claims the entire $1.1 billion building program can be completed in nine years.
In his address to the joint assembly, Allen told legislators what they already knew: "Frankly ... I inherited a mess in terms of jail overcrowding ... and the pace of authorized prison construction has been far too slow." Local sheriffs would agree. Many urban jails are holding more than twice their rated capacity, including about 2,000 inmates long overdue for transfer into the state system.
Assuming the legislature approves borrowing the $367 million now on the table, there is no great urgency in approving the $718 million required in the second phase. But if the governor's timetable is to be met, bids would have to be received on the bulk of these projects during 1996-98.
Legislators are leery of looking to debt to finance this much prison construction, and voters are likely to agree. Allen's proposal was hardly out of the box before the House Appropriations Committee pointed out that the total price tag of $1.1 billion did not include interest payments, and these would inflate the final cost to the neighborhood of $2 billion. But it's very doubtful that everything will be financed by bonds. The first installment of $367 million would require annual interest payments unlikely to exceed $23 million, or less than one-quarter of 1 percent of general-fund revenues.
At this special session, we will hear much debate on Virginia's capacity to take on more debt and the impact it might have on the state's cherished AAA bond rating. In the general downgrading of debt that has recently affected many corporations and governments, Virginia is one of only five states retaining the highest rating on bonds backed by tax revenues, often referred to as "full faith and credit."
A top bond rating is not an insignificant benefit. While a downgrade from AAA to AA would result in the state paying only a slightly higher rate of interest on new bonds, that could soon add up to serious money. And the downgrading of a state's sovereign credit is likely to put pressure on ratings given bonds issued by state agencies but not backed by full faith and credit. Of these, Virginia has a bundle.
All bond offerings of the Housing Authority, the Education Loan Authority, the Public Building Authority and numerous other entities created by state law prominently display the legend: "The bonds and the interest payments thereon will not constitute a debt or a pledge of the faith and credit of the commonwealth of Virginia." But it isn't hard to imagine a scenario in which the state would have to rescue an authority in order to protect its own good name.
In the case of the prison bonds, the Public Building Authority would be leasing the new facilities to the state for an amount equal to debt service and the state would be morally obligated to make good on its commitment.
While bond buyers expect to get a slightly higher interest on such authority bonds because they don't carry the state's ironclad guarantee, they are really treated in terms of the state's overall creditworthiness. In Virginia's case, that is top-drawer and likely to remain so.
Under its Constitution, the state now has legal authority to issue about $16 billion in bonds - half in the category of full faith and credit approved by the voters, half in agency debt. It has issued - or has pending - about $9.3 billion. That would appear to leave sufficient authority to finance much of the governor's program with enough left over for future requirements.
The debt limits placed by the Constitution are not fixed, but rise with increased receipts from the state's income and sales tax. But a debt spree would certainly raise a red flag on the state's bond rating, and interest payments would certainly crowd operating budgets, as we've seen with the federal government.
But Virginia's reputation for sound fiscal management is secure, and there's no danger of a credit downgrade in the foreseeable future. Even without the abolition of parole, etc., it seems clear the state got behind the curve in creating new prison space. If not a crisis, the overcrowding is the next thing to it, fully justifying immediate approval of the $367 million.
Beyond that, there's no good reason why part of the remaining $718 million shouldn't be financed with general-obligation bonds subject to voter approval, as the governor has suggested. When you deal with physical plant having a useful life over several generations, it isn't unreasonable to spread the cost.
Ray L. Garland is a Roanoke Times & World-News columnist.
by CNB