Lynch Budget relies on new debt to balance budget

By Grant Bosse on April 13, 2010
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(CONCORD) The budget plan Governor John Lynch will present to the Legislature tomorrow relies on the state borrowing $75 million to pay for operating expenses. The $220 million package also includes roughly $85 million in spending cuts, a $12 million increase in the tobacco tax, and new money from Washington.

Lynh includes $6 million in savings from refinancing $153 million in bonds issued by State Treasurer Cathy Provencher last week. Provencher says with interest rates at near-historic lows, she refinances the state’s debt whenever possible through “refunding bonds”. The lower rates apply to outstanding notes issued through 2024, but Provencher says she’s accelerated the savings into Fiscal Years 2010 and 2011.

Governor John Lynch

Lynch also recommends floating $50 million in new bonds to pay bonds due next year. Proceeds will be put in escrow to offset $39 million in FY11 General Fund debt service payments, with $11 million paying off debt outside the General Fund. Postponing next year’s debt service payments over the next ten years will cost taxpayers over $8 million. Provencher estimates the Net Present Value of that new debt at $1.3 million, which is what the future obligation would cost if paid in full today.

Provencher tells the Josiah Bartlett Center that she has the Constitutional authority to issue new debt to pay the bonds due next year, but that she is unwilling to take such an unprecedented step without Legislative approval.

“This has not been done in New Hampshire before,” Provencher explains. “And this is not something we would want to get into the habit of doing.”

Provencher says she will not recommend that lawmakers adopt or reject Lynch’s bonding plan.

State Treasurer Cathy Provencher

“My job is to provide them with good information to make an informed decision,” Provencher explains. “They have to make a potpourri of difficult decisions.”

The third component of Lynch’s bonding plan is to borrow from the University System of New Hampshire. In exchange for a $25 million transfer to the state’s General Fund, Lynch would give the University System $25 million in bonding authority under the state’s Capital Budget, which would be used to pay for deferred maintenance on University buildings.

Provencher says that adding $25 million to the state’s Capital Budget would bring total borrowing to 7.2% of the state’s unobligated General Fund spending. She calls that level “very conservative”, and says she spoke about the proposal to Moody’s Investor Services before the refunding bonds went out last week. Provencher says that any state that borrows 10% or more of its annual budget would send up red flags with bond rating agencies. Moody’s has maintained New Hampshire’s Aa2 rating for several years, despite recent increases in the Capital Budget such as transferring the state’s Building Aid program from the General Fund.

“Refinancing the state’s debt at lower rates is always a good idea, which is why we already did it,” added Charlie Arlinghaus, President of the Josiah Bartlett Center for Public Policy. “But borrowing money just to pay the state’s operating expenses is a reckless idea that merely delays and increases the cost to New Hampshire taxpayers.”

Yesterday, the Fiscal Committee unanimously approved $25 million in budget cuts for FY10. Lynch will present the rest of his budget balancing package to a joint hearing of the House and Senate Finance Committees on Thursday. Provencher presents the new bonding proposal to the Legislature tomorrow afternoon.

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