12 for ’12 #9: Curbing excessive local government debt
(NASHVILLE, TN) December 7, 2011 – State Senator Brian Kelsey (R-Germantown) introduced a bill today to help reduce local government debt. Senate Bill 2158 requires counties and cities carrying debt in an amount larger than 10 percent of their taxable assessed value to submit all future issuances of debt to the Tennessee State Funding Board for approval. The legislation is the ninth in a series of announcements by Kelsey in his “12 for ’12” initiative for the next legislative session, which is set to reconvene January 10, 2012.
“Too much debt leads to economic ruin,” said Sen. Kelsey. “Just look at Greece and even at Birmingham, Alabama for examples of what not to do.”
Currently, there are no limits on the amount of debt a local government may hold in Tennessee. The Comptroller counsels local governments to adopt fiscally responsible debt policies. The Comptroller’s Office of State and Local Finance recently distributed model debt guidelines to local government entities that borrow money and directed them to draft binding debt management policies by January 1, 2012. Local governments are also directed to provide for public accountability and transparency which must be included in their debt policies.
Senate Bill 2158 would, in addition, require local entities with excessive debt to submit proposed debt issuances for approval by the state Funding Board. Current members of the Funding Board are Governor Bill Haslam, Comptroller Justin Wilson, Secretary of State Tre Hargett, Treasurer David Lillard, and Commissioner of Finance and Administration Mark Emkes.
“Local government debt is killing our taxpayers,” said Sen. Kelsey. “It leads to higher property taxes and leaves our children and grandchildren with bills they cannot pay. If Shelby County paid off its debt today, it could reduce your property taxes by 16 percent.”
At $1.6 billion, Shelby County’s debt load rivals that of the entire state of Tennessee, which owes $1.7 billion. In contrast, according to the Wall Street Journal, Tennessee state government is ranked among the best in the nation for lowest debt per capita.
Several states regulate the amount local governments may borrow. The Kelsey bill proposes a system similar to one successfully used by North Carolina. Under North Carolina state law, local government debt is capped at 8 percent of the entity’s assessed taxable property value and all local debt issues are contingent on approval by the state Local Government Commission.
Many other states, including Georgia, West Virginia, Virginia, Oregon, and Utah set a strict debt ceiling for local governments, ranging from 3 percent to 10 percent of assessed or real market value.