STATE FISCALLY SOUND IN TROUBLES TIMES
Delaware State News
By Jack Markell
March 12, 2003
Delaware's recent successful sale of $100 million in new bonds reflects Wall Street's confidence in the handling of our budget by Governor Minner and the General Assembly. For the third year in a row, all three ratings agencies awarded Delaware AAA ratings. We're one of only a few states in the country to be so highly regarded for our fiscal prudence. The ratings agencies especially respect our commitment to maintaining financial reserves as well as method of forecasting revenues and expenses and the way we work together during difficult economic times. They also value our consistent approach to fiscal management and the fact that we haven't resorted to gimmicks when money is tight.
As a result of their confidence and our ratings, we're able to achieve low interest rates on our bond sales, saving taxpayers millions. Proceeds from our bond sales are used to fund important capital projects like schools, public buildings, land and equipment. Most of these projects have projected useful lives of 20 to 50 years or more and represent critical investments in the state's future and in our quality of life
The clamor for public capital dollars is intense, as it is for money from our operating general fund. The public is well aware of the significant challenges facing the Governor and the legislature as they develop an operating budget for the next fiscal year. Governor Minner indicated in her recent budget address to the General Assembly that the state faces a $300 million structural problem for the fiscal year beginning July 1, absent the mix of spending cuts and new revenues that she proposed.
The Governor's budget speech primarily addressed the operating budget. The state's capital budget, largely funded from borrowing, poses additional challenges which the public may not understand as clearly. The good news is that our state law incorporates three separate tests to keep the state's total debt within certain guidelines.
With each year's new budget, the state authorizes additional projects to be funded, even though we're not even close to paying for old projects. In other words, when a new capital project is approved in the budget, it does not mean there are funds available to pay for it.
During the good years of the 1990s, the state had hundreds of millions of dollars of surplus operating cash available for capital projects. Borrowing made available additional funds. Now, there is no surplus cash, so our ability to fund capital projects is limited to our borrowing ability. The net result is that we have only a fraction of the money available for infrastructure compared to what we had just a few years ago. In addition, over the last three years, the value of projects authorized but unfunded has grown from $74.4 million to about $230 million. In other words, even if the state did not authorize a single additional project, we would have to sell an additional $230 million in bonds just to fund what is on the books.
Without question, the large majority of projects authorized are worthy. Moreover, capital spending by the state represents an important stimulus for our economy, particularly for the construction industry which employs thousands of Delawareans in high-paying jobs. But the source of funds for these projects is a real issue.
So what does all this mean? Over the years, through several governors of both political parties, Delaware's state government has done a very good job of managing its borrowing and its financial practices generally. These efforts have been well rewarded by the ratings agencies with their AAA seals of approval.
We greatly value that approval and the associated savings to taxpayers, so we must maintain prudent fiscal practices. The Administration and General Assembly have a significant challenge as they find a way to continue to prudently invest in needed infrastructure for Delaware's future.
