Budget 2019: What about North Carolina’s AAA credit rating?

“We might need a rating agency to threaten [North Carolina’s AAA bond rating] for us to see both sides return to the table in earnest.” Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University, told the Winston-Salem Journal. This begs the question: What about current spending threatens North Carolina’s creditworthiness? It also leads to the question: Is the stalemate worse than either proposed budget?

Because the General Assembly has not overridden Gov. Roy Cooper’s veto and the governor has made any budget deal contingent on Medicaid Expansion, the budget is largely unchanged from last year. There is no government shutdown or debt ceiling crisis like there is at the national level. One-time cuts last year are restored and one-time increases have ended, which is why legislators unanimously passed House Bill 961 that makes it possible to receive federal block grants. A $10 million expansion for Opportunity Scholarships was written into law, so that goes into effect. Enrollment changes in education and Medicaid are easily managed, though Medicaid transformation may have to wait. The biggest unfunded changes in the budget are for higher salaries and benefits for current and retired teachers and state employees. None of this threatens the state’s credit rating.

North Carolina’s state constitution makes clear that paying bondholders come before everything else. The governor can only adjust spending “after first making adequate provision for the prompt payment of the principal of and interest on bonds and notes of the State according to their terms.” Gov. Cooper wants to add $3.5 billion in state debt and $4 billion a year to the federal deficit. None of this borrowing would happen under current spending.

The final challenge to the state’s credit rating comes from unfunded pension and health benefits for retired teachers and state employees. Legislators and the governor should address them, but the difference between what either has proposed and the current level is not enough to significantly affect the long-term sustainability of either system. Moreover, legislators have proven able to agree on priorities with their passage of House Bill 961 to keep federal block grants coming into the state.

If legislative leaders followed Sen. Andy Wells suggestion to “bang down the gavel, adjourn, and go home and leave it at that,” budget writers would start next year with a $2.6 billion cash balance, no new debt on the horizon, and a safe AAA credit rating.

Joseph Coletti / Senior Fellow

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiativ...

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