Living within the state’s means

Released September 2003

If you’re like me, you can only live with so much debt.

On a household level, we have ordinary bills we can expect to pay – utilities, groceries and clothing – and there are long-term debts that we enter into with the trust and hope that we can pay them off.

Most of us don’t have the cash upfront to buy a home, for instance. Likewise, a new car or the means to start a new business are also out of the cash-available reach of most of us.

And with the way college tuitions are skyrocketing, funding our children’s college educations is becoming a long-term debt – a problem this office has helped to alleviate, by the way, with our Smart529 savings plan.

State government finances are similar, or at least the principles that guide them. We can only borrow so much, through the sale of bonds, or risk the chance of defaulting on the payments and going bankrupt.

So how does the state stack up, you might be wondering, when it comes to how much we’ve borrowed and our capacity to pay it back?

We can get a glimpse by scanning the “Annual Debt Position Report,” prepared by my office and encompassing the 2002-2003 fiscal year.

To sum things up, the financial firms of Fitch, Moody’s and Standard & Poor’s rate West Virginia’s capacity to sell bonds – or borrow money – at the lower “AA” level. A “Triple-A” rating is the best.

Bonds, by the way, are sold for any number of projects, including state roads and the construction of regional jails.

“AA,” even at the lower level, designates very high credit quality. That means that when the state sells bonds -- which are a promise to pay back an investor with interest – it is a good bet to honor that agreement.

Think of it as going to a bank for a personal loan with an excellent credit history, a circumstance to which we all aspire.

The more “A’s” a state gets, the better. A “B” designates a weaker designation.

For instance, financially troubled California rated only an “A” from Fitch’s, an “A2” from Moody’s and a “BBB” from Standard & Poor’s.

So what does this all mean? It means that right now, you – the hard-working taxpayer – are able to pay off the state’s debts in a relatively comfortable manner.

Currently before the Kanawha County Circuit Court, however, is a request to sell $4.2 billion worth of bonds, $4 billion of which would be used to plug a hole in the state employees’ pension plan.

I am not necessarily saying if it’s right or wrong to sell those bonds, but it will cause the debt shouldered by each individual taxpayer in this state to nearly quadruple.

As your state treasurer and sworn steward of your money, I believe such an action should require a constitutional amendment approved by a majority vote of the state’s residents.

This money will come out of the general revenue fund. That means that if revenues lag behind in a certain year, you could be taxed additionally. Other bonds have revenue sources separate from the general fund and aren’t as sensitive to economic changes.

To me, it’s only fair that you should be able to vote on a measure that could affect your personal finances. That’s why I and state Auditor Glen Gainer have filed suit -- not to stop the bonds but to put the matter up for popular vote.

As we established early on, it is sometimes necessary to borrow money. But I believe that particularly in this case, you, the taxpayer, should be able to decide whether to take the plunge.