Raleigh News & Observer
Future grants would back bonds
By MATTHEW EISLEY, Staff Writer
With North Carolina falling behind in building highways, the state House on Wednesday approved a new way to pay for them: borrowing against future federal highway grants.
The plan would provide a jolt of more than $900 million for highways — and possibly railroads.
No projects have been identified for the funding, said Ashley Memory, spokeswoman for the Department of Transportation.
The House passed the measure 112-2 with no debate. It goes next to the Senate, where approval is all but certain.
Gov. Mike Easley already has endorsed the borrowing plan.
"Transportation is critical to supporting an economy that provides quality jobs for our citizens," Easley said in a statement. "We cannot afford to get caught behind the curve on transportation infrastructure. Those states that have fallen behind have never successfully recovered."
More than a dozen other states already use the procedure, which Congress authorized in 1995. It allows states to issue special bonds to pay for federally approved transportation projects.
Because the bonds are repaid with future federal money, they don’t affect the state’s credit or impose an ordinary state debt.
As bonds are paid off, new projects can be financed as long as the total debt stays below the previous year’s federal highway allocation to the state and payments stay under a cap of 15 percent of average federal highway grants expected for the next seven years.
The financing method is called GARVEE, short for Grant Anticipation Revenue Vehicles.
It amounts to a Visa card to buy highways on sale that Uncle Sam promises to pay off later.
Supporters say it makes sense to spend future money now, when road-building costs are cheaper, especially for big highway or rail projects with economic benefit. They note that the cost of construction is rising faster than the cost to borrow money to build roads.
"It’s a tool to try to get highways built ahead of time, to beat inflation," said Rep. Jim Crawford, an Oxford Democrat who sponsored the House bill. "If you can build three miles of road today instead of a mile and a half later, you’re ahead of the game."
The proposal’s few opponents worry that spending tomorrow’s money today could leave the state in an even tighter pinch on projects down the line.
And they question the wisdom of relying on future revenue that is expected but not guaranteed.
"I view it as an unstable source of income," said Rep. Edgar Starnes, a Granite Falls Republican and investment broker who was one of two representatives to vote against it.
Supporters note that federal highway spending has increased steadily. They say that GARVEE bonds typically draw an AA credit rating, reflecting investors’ confidence in the repayment.
Mark Foster, the DOT’s chief financial officer, said it is a prudent and useful financial tool at a time when the state is trying to get ahead on transportation.
"There is a cost of debt, but the cost of waiting is greater," he said. "You’re getting more value for the dollar than you would in waiting."
Staff writer Matthew Eisley can be reached at 829-4538 or [email protected].
Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.
