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State Treasurer: Stop new bonds, debt

September 28, 2010

Treasurer Wheeler says General Fund debt capacity reduced as a result of recession, urges caution
— Oregon’s strong credit rating has been maintained because of fiscal discipline, Treasurer says

SALEM – The global recession is hurting the state’s General Fund debt capacity, and State Treasurer Ted Wheeler has recommended a temporary halt to future General Fund-backed public borrowing until the financial situation improves. In a special meeting Thursday of the State Debt Policy Advisory Commission, the five-member panel reviewed the latest figures related to General Fund-backed debt and unanimously endorsed the Treasurer’s recommendation.

In addition, the commission also agreed to ask the Department of Administrative Services to reconsider the timing of certain new bond-financed projects that have already been authorized but for which bonds have not yet been sold.

“We have a responsibility to Oregon taxpayers to protect the state’s strong credit rating and to avoid the mistakes of other state governments that have tried to borrow their way out of deficits,” said Wheeler, who is the commission chairman and who oversees the state’s debt issuance activities. “Oregon’s current leaders have a strong record of discipline when it comes to debt.”

Public borrowing is a powerful tool that can create jobs in the short-term while improving infrastructure such as roads and universities for the future. But debt must be used judiciously because it needs to be repaid, with interest.

Public debt is traditionally used to pay for projects that have long useful lives. However, in 2003, the Legislature borrowed $431 million to pay for operating expenses – and that loan has not yet been fully repaid. The state is paying roughly $70 million a year through fiscal year 2013 to retire that loan, which means the money is not available for other purposes, such as schools or other vital programs.

To keep Oregon’s General Fund debt payments at a manageable level, the state relies on the State Debt Policy Advisory Commission to recommend a responsible debt capacity. The commission is made up of the Treasurer, two appointed legislators, the director of the Department of Administrative Services, and a citizen at-large.

The state’s credit rating, which helps to determine the interest rates at which Oregon can sell its bonds, now stands at AA/Aa1/AA+ by Standard & Poor’s, Moody’s Investors Service, and Fitch Investors Service, respectively.

Adherence to the General Fund debt capacity limit has helped to reinforce the rating. Oregon’s credit rating determines the interest rates that the state pays for all of its General Obligation bonds and a downgrade would cost Oregonians millions in additional interest costs.

To calculate the recommended capacity, the Commission considers the economic climate and current revenue forecasts, existing debt obligations and also the ability to repay additional bonds.
The panel does not recommend limits on public debt that is backed by a dedicated, non-General Fund source, such as transportation bonds that are repaid with gas taxes or General Obligation bonds for university construction that are repaid with tuition, rent, and other fees for service.

The Oregon State Treasury protects public assets and saves Oregonians money through its investment, banking, and debt management functions. The office also promotes public outreach and education to help Oregonians learn strategies to save money, invest for college and make smart financial choices.

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