The Impact on State Debt
The uncertainty in the credit market is affecting both state and local debt. Interest rates have been up over the past several weeks, increasing the debt service payments on variable rate debt. The State has about $855 million in variable rate debt, less than 12 percent of its total debt. Local governments have also been impacted, but the Local Government Commission (LGC) works to ensure that variable rate debt makes up only a small percentage of those governments’ debt load. These rates have already come down significantly, and analysts hope that the progress of federal government intervention will further help to stabilize rates. It is also important to know that debt service payments at the state level are budgeted at a rate of 4 percent. Prior to the economic downturn, variable rates were consistently lower than this for quite some time, banking savings for the State.
Local governments that are planning to issue publicly traded debt are also feeling the pinch of the current credit crisis. In addition to the rise in interest rates, credit in the marketplace continues to be tight across the board, making it difficult to sell debt regardless of the rating. Analysts are hopeful that the work at the federal level will help ease rates and inject liquidity back into the market, helping these local units.
Learn more about State debt:
Current Conditions in the Debt Market - Memo from the Local Government Commission
State Interest Rates Coming Down - News & Observer, October 2
State and Local Government Finance Division
2008 Debt Affordability Study
North Carolina Banking Operations
Due to the recent financial environment, there have been a lot of questions regarding the safety and soundness of the funds of public depositors. The Department of State Treasurer monitors these funds and the pledged collateral and stays in close contact with the banks. Most of the banks report quarterly on their collateral position, but we do require some to report monthly.
Frequently Asked Questions About the Funds of Public Depositers
Collaterization of Public Deposits Program
Current Issues in Deposits and Investments for North Carolina Local Governments - Memo from the Local Government Commission
News Center
Stay up-to-date on news about the financial crisis. Below are links to the most recent news stories about the economic impact and current events of the crisis.
Fed Weighs Debt Sales of Its Own - The Wall Street Journal, December 10
Deciding on Who to Bail Out - CNBC's Squawk Box interview with Treasurer Moore, November 12
U.S. Steps Up Help for Homeowners - The Wall Street Journal, November 12
Stocks Climb With Fed in Focus - The Wall Street Journal, October 29
Consumers Feel the Next Crisis: It’s Credit Cards - The New York Times, October 29