THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, April 28, 1996 TAG: 9604260028
SECTION: COMMENTARY PAGE: J5 EDITION: FINAL
TYPE: Editorial
SOURCE: Margaret Edds
DATELINE: RICHMOND LENGTH: Medium: 79 lines
Public debt for bricks and mortar once caused hand-wringing. Now borrowing for everything from computers to telecommunications equipment to modular classrooms is the norm.
The trend was enough to send some lawmakers home to Grundy and Warsaw after the winter Assembly session with a warning from Sen. John Chichester of Fredericksburg about ``credit-card borrowing in one biennium to be paid off in another biennium.''
With total state debt now topping $9 billion, ``we need to change our appetites along these lines. . . . We have to be more prudent,'' said Chichester, Senate Finance co-chair.
By the standards of many state and local governments, the parsimony of former state political boss Harry F. Byrd Sr. still reigns in Virginia. Byrd served as governor in the 1920s and then ran a state political machine as a senator from Washington for more than three decades. He believed that borrowing was akin to corruption and racial integration in the pantheon of societal evils.
The offspring of ``pay-as-you-go'' is Virginia's gilt-edged rank as one of five states with a Triple A rating from the major bonding agencies. Only Maryland, North Carolina, Utah and Missouri are similarly blessed.
But now there's a new philosophy in town: Let several decades of users share in paying for public facilities and equipment through borrowing. The accompanying political slogan has been ``No New Taxes.''
The state constitution authorizes several forms of debt, and lawmakers have become increasingly creative in using those sources to avoid tax increases.
That's a trend that can't continue unabated.
The most dramatic increases in borrowing have come since the late 1980s. Roads projects such as the four-laning of Route 58 across southern Virginia, college construction and new prisons have helped increase total debt from $5.6 billion in 1989 to more than $9 billion.
Minus a recession, the $336.5 million in new debt the 1996 Assembly authorized (not counting long-range borrowing of $168 million for regional jails) probably won't jeopardize the state's AAA rank. Adding much more might.
One of the features that attracts lending agencies to Virginia is its self-imposed borrowing cap. Officials decided several years ago that no more than 5 percent of operating revenues should be spent on debt service in any given year. There are many other legitimate ways to monitor debt, viewing it as a percentage of overall wealth, for instance. Virginia's approach is, as usual, conservative.
Chichester and others warn that the state is approaching the upper limits of the amount it can borrow without risking downgrading. A November report by Moody's Investors Service fueled that conclusion.
``Very little margin remains for other capital needs which are traditionally supported with bond proceeds,'' the report stated.
Figures released last winter by Finance Secretary Paul Timmreck project that debt service will reach 4.99 percent of operating revenues in several years as the turn of the century approaches.
``There's no more wiggle room,'' concluded one state official who works closely with the budget.
While there is nothing magical about an AAA bond rating, there are reasons beyond pride for keeping it. If the rating slipped a notch, taxpayers would pay millions more for debt service, and individuals holding Virginia bonds would see their value plummet.
Slipping from a AAA to an AA bond rating would diminish by an estimated $30 million the value of outstanding Virginia bonds held by individuals. That's money for Johnny's schooling or grandmother's operation.
Virginia has a well-deserved reputation for prudent fiscal management. The advance from Harry Byrd's day is that debt is no longer shunned. But there's a point at which consumption becomes addiction. A legislature eager to spend money without raising taxes should beware. You can't always have both. MEMO: Ms. Edds is an editorial writer for The Virginian-Pilot.
by CNB