A voter asked Frank Riggs a question about debt. Please read his answer.
Question: I know I have heard Frank Riggs say before that we should increase AZ debt limit from $350,000 to ?. However, I have never heard him say the state should do bonding. I don’t understand what he means by this. Robert Robb liked it (See Riggs Proposes Honest Debt.) However, I hate doing anything that causes debt. What do you know about his financial plans for the state? Please let me know. -Dianne W.
Answer: I don’t want to use debt of any kind to balance the state’s annual operating budget (the governor and state legislature are constitutionally mandated to balance the state budget annually). That’s what Gov. Brewer and the Legislature did when they issued asset-backed Certificates of Participation (COP’s) and sold the state-owned properties (including the Capitol office buildings) to investors (the transaction was a sale, leaseback and buyback when the COP’s mature, making state taxpayers pay for those properties a second time over). The state also issued revenue-backed COP’s when they pledged, and borrowed against, future State Lottery revenues which are supposed to be earmarked for K-12 education.
As I’ve said many times along the campaign trail, we “borrowed long” to pay for short-term operating costs and balance the annual state budget. I’m absolutely opposed to that practice and will not allow it on my watch. The constitutional aggregate debt limit of $350 K (real money in 1912) applies to general debt obligations of state government. However, the courts have ruled that the constitutional debt limit does not apply to asset-back and revenue-backed obligations (securities) issued by state government. Consequently, the state has incurred many billions in long-term debt while circumventing the constitutional debt limit!
I’ve proposed to separate long-term capital improvement projects from the state operating budget (a capital improvements budget) to pay for infrastructure projects like highways, roads, bridges, prisons, water and sewer systems, school facilities, etc. Those projects will have a useful life of many decades and should be paid for by the generations of taxpayers who will use, and benefit from, those projects. It’s the prudent use of leveraged debt and the same principle behind a home mortgage which enables most home buyers to buy a house with a modest down payment and pay for that home over time.
Again, the state should only borrow, and then prudently, for long-term capital improvement projects, not to pay for annual or year-to-year operating costs. Separating capital improvement (infrastructure) projects from the annual operating budget would present Arizona state government finances in a clearer and more honest light. It would help us get a better credit rating from the credit rating agencies (Moody’s, S&P and Fitch) and ultimately reduce our borrowing costs (interest or debt service) which is part of the annual operating budget.
I’m committed to maintaining a AAA credit rating for our state, the highest rating for state governments, and would not recommend any borrowing that would jeopardize that rating. (See Six States with Embarrassingly Low Credit Ratings.) Lastly, we face a projected structural operating budget deficit for FY ’15 of $923,621,800 and simply cannot meet the ongoing responsibilities of state government if we also pay for long-term, statewide public infrastructure projects, vital to the economic health and vitality of our state, from our operating budget with all cash and no debt.