Thursday, May 24, 2012
State Sen. Alberta Darling Co-Chair,
Joint Committee on Finance
State Capitol – Room 317 East
State Rep. Robin Vos Co-Chair,
Joint Committee on Finance
State Capitol – Room 309 East
Dear Sen. Darling and Rep. Vos,
There is a conflict between the popular wisdom the state budget is balanced and the bills are paid and the reality that the state has not paid over a half billion dollars in debt payments due.
Review of recent actions taken to restructure a sizable amount of debt raises serious concerns about how to manage future budgets. It is critical for the Legislature to clearly understand the implications of these actions.
I am calling on you, as Co-Chairs of the Joint Committee on Finance, to convene an informational hearing addressing the speed and size of recently delayed debt payments.
Specifically I am asking you to address the following questions:
How does avoiding these payments affect the structural deficit in the coming budget years?
How will these actions affect the long term financial health of the state?
Why is the administration delaying debt payments at a time when they claim revenue numbers are improving?
I have been working with Legislative Fiscal Bureau staff to better understand the implications of pushing debt payment off into future budgets. I am most concerned with the speed and size of the delayed debt payments in the past year.
Please find attached two memos prepared by the Legislative Fiscal Bureau at my request. The first memo describes actions authorized in Act 13 and Act 32 that allowed the administration to restructure more than a half billion dollars of debt from May 2011 to May 2012.
The state took three actions in the past year to avoid making debt payments coming due. The first, in May 2011, restructured $190.1 million in debt payments that, as the memo indicates, “would have otherwise been repaid in May 2011.”
In the second action during September of 2011 the state delayed paying $45.4 million in principal payments coming due in November of 2012. The third action in March of 2012 restructured debt to delay approximately $218 million in debt payments that were coming due in May of 2012.
The memo also indicates the state will restructure $104.8 million in commercial paper principal payments coming due in May 2012.
In the past year, the administration has issued additional debt to avoid payments on approximately $558.3 million in principal that would have otherwise been paid off.
Refinancing these debt payments to simply avoid making the payments has added $714,398,748 additional principal and interest to the debt load in coming years. This new debt is not expected to be paid off until 2030-31.
The second memo details the recent history of debt restructuring. You will note during the severe economic downturn associated with the recession, restructuring debt was used as part of the state’s financial strategy to maintain state operations. But even during the crisis of the recession, debt was not delayed at the speed or volume of the past year.
Secretary Huebsch recently declared that revenue collections are ahead of schedule. One would expect when revenue collections are behind, the state would need to delay payments. But debt delayed has increased at a time when the administration claims revenue collections are improving.
I am most concerned about the future financial health of the state if debt continues to be delayed at this pace.
If we want to have an honest discussion about how to move our state forward and cure our financial woes, we must have an honest discussion of what’s happening right now and how these actions will affect our state’s future financial health.
Kathleen Vinehout, State Senator
31st Senate District
cc: All members of the Joint Committee on Finance