RICHMOND Virginia Gov. George Allen's proposal to finance his $820 million criminal justice reform package with tax-exempt bonds has lawmakers concerned that too much of the state's debt capacity would be tied up in one place.
Members of the public safety and human resources subcommittees of the state Senate's finance committee said at a joint hearing yesterday that the proposals could mean forgoing debt issuance for road, school, and other projects in the next decade and put the state's triple-A credit rating on thin ice.
The key elements of the legislation are abolition of parole and dramatically lengthened jail terms.
The program would require building an estimated 27 new prisons.
Paul Timmreck, Virginia's finance secretary, said at the heating that the govemor's plan calls for the Virginia Public Finance Building Authority to issue $311.4 million in lease revenue bonds to fund short-term needs under the 10-year program.
Allen would seek voter approval in a referendum to be held next year to issue an additional ,3509.2 million in general obligation bonds to finance remaining capital needs. When adjusted for inflation, the estimated cost of the program would rise to $944 million, Timmreck said.
The figures probably will be revised to take account of a proposal Allen made Monday to sell off surplus state property to finance the program, Timmreck said.
To maintain its high credit ratings, Virginia must cap debt service as a percentage of total revenue at 5% and maintain a two-year reserve, Timmreck said.
Debt issuance under the governor's proposal would bring the debt service ration from 2.91% in fiscal 1994 to 4.99% by 1999, he said.
Sen. Hunter Andrews, a Democrat, chairman of the full committee, asked whether an estimated $59 million in equipment costs would be financed with bonds, but Timmreck was not sure, saying that would depend upon the useful life of the equipment. Debt has been used to finance equipment costs in recent years, he said.
But factoring equipment into the debt finance estimates would affect the debt service ratio only "marginally," he said.
"You are talking well over $1 billion," in probable total costs when accounting for equipment and inflation, Andrews said.
Senators from the southwestern part of the state said they were surprised to learn that a planned bond issuance of $181 million to finance road improvements in their region had been deferred from 1996 to 1998. "Once we get head over heals in debt here, you won't get any more" to fund these kinds of projects, said Democratic Sen. Madison Marye.
"There is a prioritization that must take place," Timmreck said.
"There is no issue more important right now as far as the use of our debt capacity," he said.
Virginia's debt management plan now allows the state to authorize and issue $245.1 million a year on average in new tax-supported debt, Timmreck said.
That level would decrease to $176.8 million, or $166.5 million when adjusted for inflation, under the Allen proposal to issue lease revenue bonds, Timmreck said.
If voters give the go-ahead for GO bonds, the estimate would be slightly higher at $185.9 million, or an inflation-adjusted $177.4 million, he said.
Interest on lease revenue bonds is about 25 basis points higher than GO bonds, he said.
Thus, it is possible to finance the Allen program while maintaining additional debt capacity for other uses, he said.
Some subcommittee members questioned the debt capacity calculation itself. Sen. Joseph V. Gartlan Jr., a Democrat, said the state's recent five-year $340 million settlement award to illegally taxed federal retirees is "debt-like" and should be accounted for in the debt service limit.
Timmreck said the state's debt management plan does not recognize the settlement because it is an expense, not debt.
"It it walks like a duck and quacks like a duck, you ought to call it a duck, and I am afraid we have a short-term duck here," Gartlan said of the settlement.
Also yesterday, Allen held a news conference to announce the introduction of his criminal justice package in the General Assembly, which will meet in special session this month.
The legislation has 74 sponsors in the House and 31 in the Senate, an "unprecedented" level of bipartisan support, Allen said.