Iowa Governor Chet Culver has recently touted a recent report from Moody’s Investors Service which listed Iowa’s debt per capita the second lowest in the nation, but not so fast. We should be getting the whole story, and State Auditor David Vaudt says Governor Chet Culver is not giving it:
Moody’s Investors Service recently released a report on the debt load of each of the 50 states. News coverage touted that Iowa’s per capita debt is the second lowest in the nation—at $73 per capita. This number is the amount of debt paid from General Fund sources, which Moody’s referred to as “net” tax-supported debt.
There is a reason Iowa’s General Fund debt load is very low—Iowa’s constitution requires a vote of the people to issue any general obligation (“net”) debt which exceeds $250,000 and a direct, annual tax to pay the debt. Instead, Iowa sells a “specific future revenue stream”—a revenue stream that is generally accounted for outside of Iowa’s General Fund. Examples of this kind of debt are the Honey Creek bonds which are secured by revenues from the Honey Creek resort and the Tobacco Settlement bonds which are secured by settlement payments received from the tobacco companies due to a lawsuit. Most of Iowa’s debt is secured by revenue outside the General Fund and is not considered General Fund debt—simply because of the way Iowa borrows funds. Just like with the General Fund, any non-General Fund resources used for debt payments take away resources that would have been available to provide ongoing services to the taxpayers.
Moody’s combined General Fund debt with non-General Fund debt to calculate and report what it refers to as “gross” tax-supported debt. Because of Iowa’s borrowing practices, the “gross” tax-supported debt presents a more complete picture of Iowa’s debt. Moody’s reported Iowa’s “gross” tax-supported debt at $3.2 billion, which equates to over $1,050 per capita.
Interestingly, the average ratio of “gross” tax-supported debt to General Fund debt illustrates how Iowa’s borrowing practices compare to other states. The average ratio for all 50 states is only 2.24. This means for every $1.00 of General Fund debt, the average state has $1.24 of non-General Fund debt. Iowa’s ratio, however, is significantly higher at 14.54 (and substantially more than the next highest ratio of 6.41). This means for every $1.00 of Iowa’s General Fund debt, Iowa has $13.54 of non-General Fund debt. It is obvious that comparing Iowa to other states without accounting for this non-General Fund debt is very misleading.
For an apples-to-apples comparison with other states, Iowa’s “gross” tax-supported debt per capita is substantially more meaningful than the General Fund debt reported in the news. Comparing Iowa’s “gross” debt with that of other states would put Iowa closer to the middle of the pack rather than second lowest in the nation. It means the share of Iowa’s debt load belonging to a family of four is over $4,000 rather than under $300. Iowa’s families should know Iowa’s debt load is 14 times more than was originally reported. Iowans deserve complete information to put Iowa’s debt load in context. Full disclosure is essential to Iowan’s effective participation in the policy debate concerning Iowa’s debt load.
In response to the statement from the State Auditor’s office today, the Branstad/Reynolds 2010 campaign manager, Jeff Boeyink said:
Gov. Culver deliberately released a deceptive and misleading report in an attempt to hide Iowa’s true debt. Iowans are shackled with a debt load that is in reality 14 times greater than what Gov. Culver asserted it was just last week. Chet Culver should look in the mirror and decide if he will continue to mislead Iowans with just 12 weeks left in his campaign, or if he will come clean with Iowans and attempt to honestly deal with the state’s finances and this crushing generational debt. The choice is his.
I’m not going to hold my breath that he will come clean, but instead expect him to continue to spin reports such as this. Hopefully in 12 weeks Iowans will decide that we need a new Governor to deal with the mess that Culver has created.