Analysis of Rhode Island’s Debt Position and 2010 Bond Referenda

On November 2nd, voters will consider three bond questions that would authorize $177.4 million in new general obligation debt, which will ultimately cost the state $309.3 million with interest included. RIPEC today released an explanation of the state’s debt position as well as summaries of the proposed referenda in its Comments newsletter. The report also compares Rhode Island’s debt level and bond ratings to those in other states.

Rhode Island has made significant progress in managing its debt over the past 20 years and the state has maintained debt levels within the guidelines adopted by the Rhode Island Public Finance Management Board (PMFB). However, the Ocean State’s debt per capita ranks 9th highest in the nation. Further, all three major rating agencies have a negative outlook for Rhode Island general obligation bonds, in large part due to the unfunded pension liability and continued budgetary stress.

The FY 2011-2011 Capital Budget includes nearly $2.5 billion in revenue from current financing streams and $1.0 billion in debt issuance over the five year period. The financing plan includes approximately $494.1 million in general obligation debt during the five year period, including the referenda proposed this November (assuming all referenda are approved).As of June 30, 2010, Rhode Island had a net tax-supported debt of $1.866 billion, representing a 13.0 percent increase from two years prior. State debt is all debt in the state that requires an appropriation.  Rhode Island ranks 9th in the nation in state debt per capita according to Moody’s, but behind Connecticut and Massachusetts, which ranked 1st and 2nd respectively. Rhode Island’s 2010 net tax-supported debt per capita was $2,127, which is over double the US median of $936.
RIPEC has traditionally not taken positions on bond referenda questions. However, RIPEC encourages taxpayers to consider the following questions when deciding whether to authorize new debt in November:

  • Which projects will result in investments that will strengthen the state’s economy and help grow and retain jobs?
  • Do some of the proposed projects represent higher priorities than others given finite resources?
  • What is the “opportunity cost” of these projects if they are not approved?
  • Do the benefits outweigh the costs of the project when interest costs are taken into account?
  • Will these projects help the state achieve its policy goals?
  • What impact will new capital projects have on the cost of operating state government?
  • What will be the impact of the current credit situation on the availability and cost of borrowing?
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