Friday, September 22, 2023

NCtrend: Bonding authority

Lee Roberts, 46, left Wall Street for North Carolina in 2006 and later worked on multimillion dollar deals with private-equity investors Tom Darden and Adam Abram. After replacing Art Pope as state budget director last September, he’s overseeing annual spending of $50 billion. Disputes between his boss — ­Gov. Pat McCrory  — and GOP lawmakers has made it a trial by fire for the Duke University graduate. He talked with Business North Carolina in Southern Pines. Comments are edited for brevity.

Why favor the governor’s bond plan?

The governor proposed a $2.85 billion bond package that covers highways, infrastructure across the state, UNC [system], community colleges, medical examiner facilities, National Guard, parks, historic sites. That’s well within our existing debt affordability. There are only 10 states that have AAA credit ratings from all three ratings agencies, and no one wants to do anything that comes anywhere near jeopardizing that credit rating. It’s been 15 years since our last general obligation bond issue. We’ve added 2 million people since that time. The governor believes it’s a key priority. Everywhere you look, you see significant infrastructure needs around the state. And we’ve been pushing to get it on the ballot this fall, simply for the interest rate cost rationale. Every quarter-point increase in interest rates costs us $7.5 million a year.

What is the governor’s position on distributing sales tax from wealthier urban counties to rural ones?
The governor is firmly against the sales-tax redistribution. He issued a veto threat with respect to the entire budget on the basis of sales-tax redistribution. That’s the only policy item on which we’ve drawn that kind of line in the sand. First, it’s a tax increase. The proposal that the Senate has out there [as of mid-August] on sales-tax redistribution assumes that most counties will raise taxes. About 8.5 million North Carolinians would pay higher sales taxes. The governor believes middle-class families are already taxed enough. Second, it’s redistribution, which does not have a strong track record anywhere it’s been tried.Third, you’re substituting Raleigh judgment for local control. We spend a lot of time in Raleigh talking about how Washington doesn’t know what they’re talking about. They’ve got one-size-fits-all solutions. We’re better placed to know what’s best for North Carolina. Yet there are folks in the General Assembly who think we’re better off dictating to Moore County and Montgomery County and Lee County,  when the folks here know what’s best in terms of setting their own sales taxes and deciding how to use them.

If the state has a good reputation, why are incentives still needed?
Texas is a great example of how you can have a strong fundamental product but still need an aggressive toolbox. The state has no corporate or personal income tax and has four of the 25 fastest-growing cities in the U.S. Yet they still have one of the largest war chests for inducing companies such as Apple and Toyota. As attractive as the underlying story is, Texas feels they need to use incentives.

Can the $400 million-plus annual surplus be repeated?
The factors that drive tax revenue are pretty well known. Even after comprehensive tax reform, what really drives tax revenue at the margin is employment and personal income. And we’ve had a very strong economic recovery. The governor realizes that it’s not complete. There are plenty of people who are out there struggling, but as a state, economically, we are significantly better off than we were when the governor took office. And so we believe that the thing to do with any extra money is have prudence on a year-to-year basis. But because you don’t know how much is recurring or nonrecurring, the reserves should be the first priority. Right now, we’re about 3.5% reserves. We recommend as a state that municipalities carry 8% reserves.

Did tax cuts help create the surplus?
We’re wary of drawing direct cause-and-effect relationships, and I don’t think you can do that with most things in economics and tax policy. I do think, though, there was a lot of doom and gloom over the course of the year about how the tax cuts had destroyed the state’s revenue profile, and we were going to be facing a significant shortfall: Universities would close, all sorts of dire things would happen, because the Republicans had cut taxes too much. And you can say for sure that clearly did not happen. At a minimum, tax reform did not harm the state’s overall revenue profile.

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