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Wall Street offers sweet deals, but Georgia has created alternatives to long-term debt

Gwinnett County schools Mills Creek High School opened in 2004 in Hoschton, in north Gwinnett County. It now serves nearly 4,000 students and ranks among the nation's top schools. Credit: hamiltonmill.com

By David Pendered

Georgia’s method of paying for school facilities is one reason Georgia’s state and local governments are among those that aren’t accepting Wall Street’s offers of low interest loans to build big public projects.

Gwinnett County schools

Mills Creek High School opened in 2004 in Hoschton, in north Gwinnett County. It now serves nearly 4,000 students and ranks among the nation’s top schools. Credit: hamiltonmill.com

Wall Street financiers are pressing hard for governments to raise cash for projects by selling debt, according to an account in the Aug. 8 digital edition of The Wall Street Journal. One reason for the push is that there simply isn’t enough debt available to drive up rates:

  • “Wall Street executives are calling for investments in infrastructure. J.P. Morgan Chase & Co. CEO James Dimon cited a ‘need for good, long-term infrastructure plans’ in a letter to shareholders this year, echoing economists’ sentiments.
  • “Asset managers that invest in municipal bonds too would like to see increased issuance, because the additional supply could force governments to pay more to entice purchasers, driving up yields.”

Georgia got off this train 20 years ago, at least in terms of financing for school facilities.

Since 1996, Georgia has raised $22 billion for school facilities projects. The figure includes revenues from the education sales tax and state and local resources, according to a 2012 report from Georgia State University’s Fiscal Research Center at GSU’s Andrew Young School of Policy Studies.

Counties collecting esplost

Georgia voters have resoundingly endorsed the notion of a pay-as-you-go program to fund school facilities. Credit: gsu.edu

In 1996, Georgia voters amended the state Constitution. The change enabled local boards of education to present voters with referendums on a special purpose local options sales tax for education, or ESPLOST. Voters approved the concept.

Since then, voters have raced to pass the tax for their local projects. Of the referendums held between 1997 and 2011, 530 were approved and 32 were defeated. The approval rate was 94 percent, according to figures in the GSU report.

The ESPLOST has reduced the demand for long-term debt. That’s the type of debt that typically is paid off with property taxes. School boards still can take on short-term debt to start construction, but the ESPLOST is to retire that debt quickly.

As the GSU report determined, Georgia’s ESPLOST program:

  • “[R]epresents a dramatic shift in financing strategy for capital construction from long-term debt toward ‘pay-as-you-go’ financing from current revenues or short-term bonded debt.”

This isn’t what the capital markets have in mind. Lenders are urging state and local governments to borrow money, but for any number of reasons can’t close a sale.

According to the report in wsj.com:

  • “Wall Street is urging governments to invest in big-ticket infrastructure projects. Voters and public officials have a different message: not so fast.
  • “Plunging global interest rates have made borrowing cheaper than ever. But instead of spending on aging roads, bridges and buildings, many state and local governments are scaling back.”
Counties collecting esplost

Georgia voters have resoundingly endorsed the notion of a pay-as-you-go program to fund school facilities. Credit: gsu.edu

The wsj.com report dealt largely with transportation projects. It noted, for instance, cutbacks in road programs in Hawaii and California.

This month, Hawaii trimmed new highway construction after lawmakers turned down a gas-tax hike. In May, California announced a 28 percent cut to construction plans through 2021 as the state’s public-sector borrowing last year dropped almost 40 percent compared to 2009, according to the report in wsj.com.

Georgia, too, has restructured transportation funding in order to build projects without taking on tremendous debt. For instance, Georgia turned to public-private partnerships for the work along I-75 north of I-285, and for the make-over of the intersection of I-285 and Ga. 400.

Indeed, when Georgia went to the market in July for a $1.4 billion general obligation bond, analysts with Moody’s Investors Service gave it the top credit rating and observed of the Peach State:

  • “The highest rating is supported by Georgia’s conservative fiscal management, demonstrated by the rapid replenishment of budgetary reserves after the last recession, as well as the state’s moderate debt burden and diverse economy.”

The report by the GSU revealed that Georgia has been able to provide school facilities at a lower cost than other states with rising enrollments.

In 1996, long-term debt per pupil averaged $3,900 in states other than Georgia. In Georgia, the average was $3,200.

The picture changed dramatically after the education sales tax was implemented.

In 2008, long-term debt outside Georgia averaged nearly $8,000. In Georgia, the average was $3,560, according to the GSU report.

The report was co-authored by Eric Brunner, an associate professor in GSU’s economics department, and Nicholas Warner, a research associate as the Fiscal Research Center.


David Pendered

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow.


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  1. mike dobbins August 26, 2016 10:34 am

    brilliant and useful report. thanks.Report

  2. Real World August 30, 2016 4:37 pm

    Pay as you go instead of debt is generally a good thing. Unfortunately, it appears that the flood of money coming in from a 1% sales tax leads to profligate spending on lavish facilities and a shift over time of operating expenses that become SPLOST or ESPLOST projects.  I think it is likely that total spending for local governments and school boards is greater with SPLOST and ESPLOST than with bonded debt.  In Cobb County government we are seeing increasing use of debt in addition to SPLOST, a dangerous trend.Report


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