Note: This is part of the Josiah Bartlett Center’s week-long investigative series on the New Hampshire Treasury.

Part IV: Building Aid Moratorium Won’t Solve Building Aid Problem

While elected by the Legislature and independent from both the Governor and Executive Council, the State Treasurer is part of the Executive Branch. Provencher says her job is to implement policy, not to set it. But she has weighed in on one controversial issue; Building Aid.

Beginning two years ago, the Legislature shifted the Building Aid Program, which funds local school construction projects, from the state’s Operating Budget to the Capital Budget, borrowing the $45 million in state aid that it sends to cities and towns. Provencher has repeatedly warned budget writers that they can’t keep borrowing money every year to pay for building aid.

“This is unsustainable as currently structured. New Hampshire has a low debt load, which I think really contributes to our favorable credit rating. We don’t carry a lot of debt. Some people would say, ‘You don’t think $600 million is a lot of debt?’ Of course it is. I don’t want to minimize it, but in relation to other issuers, New Hampshire carries a low amount of debt, which contributes to our healthy credit rating.”

By tacking the Building Aid Program onto the Capital Budget, New Hampshire has increased the amount it borrows annually by over 50%.

“Before Building Aid, we would normally issue about $75 to $80 million a year in General Obligation Bonds. We’ve added $45 million a year,” Provencher warns. “Is this a problem for this biennium? No. We can sustain this for this biennium. We can issue this debt. I do not believe it will affect our credit rating. But this program, as structured right now, we can’t continue to bond this ad infinitum.”

Treasury calculates that within ten years, New Hampshire would end up paying as much to service the Building Aid debt as it used to spending on Building Aid.

“The debt service on the debt will equal the $45 million that we send out in payments. That’s why it’s unsustainable,” Provencher reiterates. “If we keep the program this way, and we keep borrowing $45 million a year, and this is the way we fund Building Aid, it’s not sustainable.”

Governor John Lynch’s original budget proposal reduced the Capital Budget to make room for Building Aid. But lawmakers restored those cuts, and simply added to the total being borrowed. That results in a total of $125 million in capital projects going out to the bond market on December 15th.

Last week, a joint House and Senate Study Committee recommended suspending the Building Aid Program next year. But Provencher says that alone won’t put the program back on track.

“The Committee is talking about suspending future Building Aid. It’s not going to solve our problem on how we’re going to pay for Building Aid that’s already in the pipeline,” she explains. “I don’t think they’re talking about in FY 2011, saying ‘We’re not making any Building Aid payments.’ I think it’s no new projects voted on by districts. We still have a $45 million tail payment to make.”

Provencher testified before to the Study Committee on the long term commitment involved in Building Aid.

“If Wolfeboro builds a new high school, and we’re going to pay for 40% of it, it’s going to 40% of that bond payment for the next 20 years. The annual payments would start going like this,” she says while running her finger slowly downward through the air, “instead of like this,” while tracing an upward arc. “But you’re still going to have $45 million, $44 million, $43 million. There is still a very significant tail on that program.”

If such a moratorium is put in place after this spring’s Town Meetings, Provencher expects some districts may push to get new school construction in under the wire in order to receive the 40% state subsidy before it dries up.

“This is purely speculative on my part but certainly I think that could be an unintended consequence.”

Part 1: New Hampshire Looking to Borrow $125 Million Next Week

Part 2: Living in a Cash Flow World

Part 3: Checking New Hampshire’s Credit Report

Part 5: New Hampshire’s Investment Strategy