August 13, 2015

State Treasurer Janet Cowell says a Constitutional Amendment limiting taxes and the ability of politicians to increase spending beyond the rate of inflation and population growth threatens North Carolina credit rating.

Huh? Preventing politicians from going on unsustainable spending binges is bad for our credit rating? That does not compute.

Instead, the real threat to our credit rating is the debt Janet Cowell has been sweeping under the rug and the state pension system.

Today, state employees and teachers contribute money to the pension plan. The taxpayers also put money into the fund. Janet Cowell is in charge of investing the money in order to pay benefits to retirees and those who will retire in the future.

She says she is going to earn a long term rate of return of 7.25% on the fund. The only problem is the 10 year government bond yields 2% and the 30 year bond 3%. To earn 7.25%, Janet Cowell has to bet big in the Wall Street casino.

In fact, the Treasurer’s office does not seem to be confident in their ability to earn 7.25%. “We acknowledge that hitting the 7.25% will become increasingly difficult in the next 15 years, but we are projecting to reach it over the 20- to 30- year horizon,“ Mr. Johnson said.’Sounds like famous last words. (Pensions & Investments)

So what happens if Janet Cowell can only earn the 2-3% available on government bonds? John Hood points readers to a study that shows North Carolina’s pension fund would be in deficit to the tune of $81 billion under more realistic assumptions about investment returns. That’s a debt the state will owe the pension fund that is not being counted on the state’s books. That debt equals $8200 for every person in North Carolina. (State Budget Solutions)

While Janet Cowell is complaining about the very idea of limiting the growth of government spending and taxing, she’s busy sweeping the pension fund debt under the rug. That hidden debt is the threat to our credit rating, not reasonable limits on the ability of politicians to tax and spend.

Maybe Treasurer Cowell should come clean about the debt in state retirement before she opposes spending limitations.