PROVIDENCE, R.I. (WPRI) – Rhode Island state government’s total debt dipped slightly to $9.4 billion during 2013-14, though taxpayers shouldn’t have to pay off a sizable chunk of that borrowing, according to a new report.
The annual report to the R.I. Public Finance Management Board by the general treasurer’s office has been required since the early 1990s, when lawmakers became alarmed by the state’s rising debt burden. It provides an X-ray into the various types of debt issued by state government and its assortment of quasi-public agencies – not all of which have the same impact on taxpayers.
“Rhode Island’s debt levels are still relatively high,” the report said, though it also noted that the state’s position is similar to its peer states in the Northeast.
It also warned: “High debt levels can lead to lower credit ratings, which result in higher borrowing costs, and a diminished financial capacity to respond to needed infrastructure improvements to support economic development.”
General Treasurer Seth Magaziner is scheduled to testify about Rhode Island’s state debt on Tuesday at a Senate Oversight Committee hearing, part of a series of sessions state legislators are holding to examine what went wrong in the state’s deal with 38 Studios, the failed video-game company that went bust in 2012 after receiving a $75-million state-backed loan.
The annual report to the board breaks down Rhode Island’s total state debt into four categories: net tax-supported debt; state-supported revenue debt; agency revenue debt; and conduit debt. (It does not account for billions of dollars in unfunded liabilities for retiree pension and health benefits.)
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Among those categories, the type of borrowing most closely monitored by credit-rating agencies is net tax-supported debt – which includes the general-obligation bonds approved by voters every other November – because in those cases the state has explicitly agreed to pay the debt with tax revenue.
Rhode Island’s net tax-supported debt decreased by about 4% from 2013 to 2014, declining from $1.89 billion to $1.82 billion as of June 30, according to the report. That figure excludes interest on the debt, which the report pegged at an additional $635 million.
The various transactions in the net tax-supported debt category break down as $1.1 billion for general-obligation bonds; $289 million approved by the R.I. Commerce Corp. (formerly the R.I. Economic Development Corp.); $227 million approved by the R.I. Convention Center Authority; and $208 million for capital leases.
Out of those examples, the Commerce Corp. debt includes what’s left of the 38 Studios bonds, as well as money for historic tax credits, a Division of Motor Vehicles system, a power plant at URI, and subsidies to Fidelity Investments and what was then Fleet Bank (now Bank of America).
Both the Commerce Corp. and the Convention Center Authority are so-called quasi-public agencies – arms of state government that state lawmakers set up and, among other things, give the authority to borrow money without voter approval.
“Rhode Island’s tax-supported debt is a greater burden on the state’s economy than is typical of most states,” the report said. Rhode Island ranked 12th-highest among all states in net tax-supported debt as a share of personal income, at 4.2%, and 10th-highest in net tax-supported debt per capita, at $1,985.
Under the Public Finance Management Board’s debt guidelines, Rhode Island’s tax-supported debt should not exceed the range of 5% to 6% of state residents’ personal income, and annual debt service for tax-supported debt should not exceed 7.5% of the state’s general revenue. The current level of debt meets both those guidelines and is forecast to remain that way through 2019, the report said.
The second category of state debt is state-supported revenue debt, where taxpayers may be asked to make bondholders whole if a designated source of revenue is insufficient to pay them what they’re owed. Debt in that category has been issued by three entities: Rhode Island Housing; the Commerce Corp. to get the Providence Place mall built; and the Industrial Recreational Building Authority, which provides loans to businesses.
Rhode Island’s state-supported revenue debt decreased by about 18% from 2013 to 2014, declining from $203 million to $167 million as of June 30, largely due to a decreasing debt load at Rhode Island Housing. Total remaining debt for Providence Place stood at $20 million.
The third category of state debt is agency revenue debt, which is similar to state-supported revenue debt in that quasi-public agencies issue it, but different in that there is no explicit pledge that taxpayers would make bondholders whole. (In practice, though, state leaders are highly unlikely to let bondholders seize an asset such as the Pell Bridge rather than pay off the debt with taxpayer money if it was necessary.)
Agency revenue debt was nearly flat between 2013 to 2014, falling from $1.69 billion to $1.67 billion as of June 30. The Narragansett Bay Commission is the largest borrower in this category, with its debt load jumping from $489 million in 2012 to $620 million in 2014.
Also on the list are the R.I. Airport Corporation, which had $316 billion in agency revenue debt as of June 30, 2014; the Commerce Corp., due to $279 million in federally funded transportation bonds; and the state’s universities and colleges, whose agency revenue debt totaled $248 million.
The final category of state debt is also the largest: conduit debt, where the state acts as a “conduit” so some other entity can borrow money more cheaply but does not pledge any scenario in which taxpayers would pay it. Total conduit debt on the state’s balance sheet has jumped by $1.6 billion over the past eight years.
By far the largest issuer of conduit debt is the R.I. Health and Educational Building Corp., a quasi-public agency used by organizations such as private colleges and hospitals, which had total debt of $2.9 billion as of June 30. Rhode Island Housing came next, at $1.3 billion, followed by the R.I. Clean Water Finance Agency (recently renamed the Rhode Island Infrastructure Bank), at $774 million; the R.I. Student Loan Authority, at $699 million; and the R.I. Industrial Facilities Corp., at $58 million.
Separately, the report said debt issued by Rhode Island’s 39 cities and towns also decreased between 2013 and 2014, from $1.72 billion to $1.65 billion. Those figures do not include debt issued by some municipal and regional agencies, however, including the Providence Public Building Authority, the Foster-Gloceseter Regional School District and the Bristol County Water Authority.