Raleigh

State Treasurer Janet Cowell believes the state doesn't need to be borrowing any more money the next two years.

Good luck on that one.

Cowell and a nine-member committee that she heads recently released an annual study of the state's debt, concluding that North Carolina, for the next two years, has "substantially exhausted" its ability to borrow money repaid from the state's general operating budget.

Unlike the federal government, state government doesn't borrow money to run its day-to-day operations. It borrows primarily to build, be it university and school buildings, prisons or roads.

The state keeps its highway money separate from its general operating budget, with dedicated taxes that go to road building. Other state construction is supported by general taxes that flow into the state's general operating fund. Each year, between 3 and 4 percent of that fund goes to repay the borrowed money.

Right now, legislators have authorized about $6 billion to be borrowed. About $1.9 billion has been approved but not yet sold to bond holders.

To put those numbers in perspective, the state's annual general operating budget is $19 billion, and its budgeted debt payments $644 million.

Starting with Cowell's predecessor, Richard Moore, the state treasurer began issuing a debt report to remind legislators that ratcheting up the state's borrowing could imperil the state's credit rating. If that sterling credit rating goes down, the cost of borrowing goes up.

Prior to Moore's tenure, North Carolina didn't really need a report. For years, the state was among the most fiscally conservative in the country. Today, its borrowing, whether measured against overall tax revenue or personal income, is much closer to the national average.

Cowell's report - in reaching its conclusion that the state should put away the credit card for a while - assumes a debt payment of no more than 4 percent of the state's general operating fund.

But given the state's current budget woes, legislators may be tempted to exceed that mark. Bringing new buildings back to the district is one way that state lawmakers like to demonstrate their effectiveness to the folks back home. Also, borrowing to pay for building repairs, and then raiding that borrowed money to make up for shortfalls, is a slick budgeting trick reserved for tough times.

Limiting borrowing, though, isn't the report's most important recommendation.

The most meaningful finding: Legislators need to kick a recent habit of avoiding general obligation bonds in favor of special indebtedness like certificates of participation.

It's been 2000 since state voters last approved additional debt. Yet debt authorized has more than doubled, from $2.8 billion in 2001. The report concludes that North Carolina will soon be out of line with other states enjoying a top credit rating if it continues to borrow money with the certificates rather than general obligation bonds.

Those bonds, by the way, carry lower interest rates.

More importantly, they require the voter approval that the writers of the state constitution envisioned when it came to borrowing money.

Scott Mooneyham writes for Capitol Press Association in Raleigh. Contact him at smooneyh@ncinsider.com.