Wednesday, February 18, 2009

Another day older and deeper in debt

It’s common, but usually not advisable, to want to max out your credit cards when times get tough.

The Hawaii Legislature is no exception, but the House Finance Committee is taking a cautious approach to bond debt at its hearing this afternoon.

A full slate of debt-related bills are being considered following last week’s grim financial news during a briefing by William Pound, executive director of the National Conference of State Legislatures.

The Legislature has no choice but to be cautious. The state constitution limits the amount of debt the state can undertake so that annual payments of principle and interest can’t exceed 18.5 percent of the average net General Fund revenues for the preceding three fiscal years.

The House, in HB 34, plans to set the stage to borrow $1.8 billion in general obligation bonds over the next three years – coincidentally the same amount economists have predicted the state will fall short in its General Fund budget over that period.

That amount will raise the state’s annual principle and interest payment just 10 percent, from $589.3 million to $648.7 million, between now and 2012, if the state borrows no more money in the meantime. Hawaii generally borrows using 20-year serial bonds, with payments on principle not kicking in until the fifth year.

Hawaii was ranked 11th in the nation in per capita debt in 2007 – with each man, woman and child in the state shouldering $4,665 in debt on the state’s behalf. That compares to $10,504 in Massachusetts, the highest state, and $674 in Tennessee, the lowest.

Hawaii ranks 13th in state debt as a percent of personal income, with debt representing 11.89 percent in 2007. Alaska, the highest state, has debt at 24.01 percent of personal income and Tennessee, the lowest state, has 2.02 percent.

Lawmakers hope borrowing more money for infrastructure will mean more federal stimulus money will come to Hawaii for needed projects.