RALEIGH, N.C. — State Treasurer Janet Cowell Tuesday advised legislative budget writers of the critical factors that could affect the state’s “triple A” bond rating.

North Carolina, like many other states, faces serious financial and budgetary pressure caused by the economic recession and market volatility while juggling increased demand for social services, retiree benefits and infrastructure.

The federal stimulus package lessens some of this pressure because it helps stimulate the economy through capital projects and provides money to states for education and health care programs.

States that prudently manage stimulus money and address budget challenges head-on will be highly rated, according to a recent report from Moody’s Investors Services, a key bond-rating agency.

“Typically, no single factor is responsible for a downgrade in the state’s bond rating,” said Treasurer Cowell. “However, a combination of short-term fixes like delaying debt payments, ordering furloughs and rapidly depleting reserve funds will negatively affect the state’s bond rating.”

Moody’s has outlined six variables that factor into a state’s bond rating in an economic recession in their report entitled: Outlook Remains Negative for U.S. States.

·         Revenue Decline – The amount of revenue decline for an individual state will be a significant factor in evaluating the impact of the current environment on the state’s rating as well as the level of reserves that it has maintained to buffer the effects of recession-induced revenue shortfalls.

·         Liquidity Position – States that operate with thin reserves or are dependent on market access for cash could experience not only budgetary deficits but cash deficits as well. States which experience strained cash positions are more exposed to downward rating pressure than states that maintain healthy liquidity positions.

·         Recession-Induced Spending Pressures – All states are expected to experience higher spending pressures driven by rising unemployment and the increased demand for social services. Some states with industry or sector concentration will be more significantly impacted due to severe downturns in those industries or sectors.

·         Deficit Financing – States that rely on borrowing to close budget deficits for multiple years are more exposed to the uncertainties of the credit markets and are therefore at greater credit risk than states that can manage without deficit borrowing or states with very limited deficit borrowing needs.

·         Federal Stimulus – How states effectively manage federal stimulus money and close large projected budget gaps will affect the likelihood of negative rating actions.

·         Management – The willingness to promptly address financial problems as well as the ability to enact solutions without the constraints of state-imposed statutory or constitutional barriers will also be considered as a factor in assessing creditworthiness.

RALEIGH, N.C. — State Treasurer Janet Cowell announced Thursday a series of reforms to strengthen public trust and provide greater transparency of the state’s investment decisions.

The reforms include:

• Instituting a one-year “cooling off” period for former and future employees. Covered persons cannot lobby and/or market services to the Treasurer’s Office for a year after leaving government service.
• Establishing a request for proposal process for firms that seek to do legal work with the Department.
• Expanding the state’s Investment Advisory Committee to include more members with investment expertise.
• Posting quarterly reports on the Department’s website, www.nctreasurer.com, on the state’s investment performance to include overall fund performance and asset allocation.
• Hiring an independent consultant to evaluate the investment program’s policies and practices, including those governing: ethics, oversight and accountability; transparency; and investment decision making.

Treasurer Cowell’s announcement comes as citizen groups, government watchdogs and the media commemorate “Sunshine Week.” The annual event serves as a reminder that access to government meetings and documents is enshrined in the state’s constitution and is one of the pillars of a strong democracy.

“One of the many casualties of the current economic crisis is the erosion of public trust in government and financial institutions,” Cowell said. “We must restore that trust by making it easier for citizens to see where the state’s money is invested and how those decisions are made.”

RALEIGH, N.C. – State Treasurer Janet Cowell urged today North Carolina’s Congressional Delegation to adopt stronger accountability measures governing federal bailout funds.

Cowell called for the adoption of recommendations of the Troubled Asset Relief Program (TARP) Congressional Oversight Panel’s Special Report on Regulatory Reform issued last month.

The recommendations include: identifying and regulating financial institutions that pose systemic risk; limiting excessive leverage in American financial institutions; modernizing regulatory supervision of the “shadow financial system”; creating an executive pay structure that discourages excessive risk-taking; reforming the current credit rating system; and beginning contingency planning for future financial crises.

“It is vital to both our state and national economies to address the root causes of the financial crisis by fixing the current regulatory system,” Treasurer Cowell said. “We must restore a proper balance between free markets and a responsible, regulatory framework. Adopting the recommendations contained in the Congressional report is a critical step in doing so.”

Winston-Salem Journal
The General Assembly’s aggressive spending this decade may cost North Carolina college students important financial aid in coming years.

That is the assessment of Treasurer Janet Cowell, and her calculations look pretty sound.

After the recession early in this decade, legislators raced to catch up on all the spending they’d missed. They freed money for new spending by shifting it among accounts.

One switch took scholarship money out of the General Fund for use elsewhere. Then the scholarship programs were restored with principal from the state’s Escheats Fund, The Associated Press reported.

The Escheats Fund is a repository for money about which North Carolina residents have forgotten. Two common sources are insurance policies that were never cashed and utility deposits that were left behind.
The fund now contains $584 million, and the state constitution says its proceeds must be used to help needy students attend public colleges. But that balance will fall quickly, Cowell said recently, because the General Assembly has been using its principal.

During this fiscal year, the Escheats Fund is expected to provide $210 million in financial aid, some $60 million of that going toward the state’s new EARN Scholars initiative. Low-income students in that program get $4,000 annual grants that, along with other funding, often allow them to graduate from college debt free. It is very possible that every dime involved in the legislature’s money switch went to very worthwhile causes. EARN is a laudable program that, by helping low-income youngsters to attend college, will prove a long-term investment winner for North Carolina.

But sound long-term investments are not built upon spending plans that involve the figurative eating of one’s seed corn. That is what the state is doing here by taking principal from the Escheats Fund. If the fund drops as much as Cowell predicts, it will contain only $83 million in 2011. That will end an awful lot of financial aid.

House Speaker Joe Hackney reacted to Cowell’s warnings by telling the AP that the legislature has the entire legislative session to figure out what to do with scholarships. But “we’ll think of something” is not a reassuring answer when the numbers are so compelling.

That’s especially true when we see record numbers of families applying for financial aid, when the College Foundation of North Carolina reports that parents are withdrawing college savings for non-college reasons and when enrollment at the state’s public universities and community colleges are all rising rapidly.
When the General Assembly figures out what to do, one component should be the return to the policy of using only earnings, and not principal, from the Escheats Fund. To do otherwise is foolish.

RALEIGH, N.C. – State Treasurer Janet Cowell has new information on what the state’s public employee pension funds need to stay financially sound.

Cowell scheduled a news conference Thursday to discuss the latest study of the $60 billion retirement system and how much lawmakers should contribute to it in 2010.
 
The new treasurer said last month she’ll ask the General Assembly for $29 million above the roughly $400 million it currently gives for the coming year. But she said a steeper increase probably would be needed the following year.

That’s because the pension funds performed poorly in 2008, their value falling $17 billion during the economic crisis.

The system covers 820,000 employees and retirees. It’s been cited among the healthiest in the country.

RALEIGH, N.C. – State Treasurer Janet Cowell Friday released the 2009 Debt Affordability Study to Gov. Perdue and members of the General Assembly.

The annual analysis found that the state can authorize $50.2 million in new general fund-supported debt for each of the next five years and remain within the 4 percent debt service to tax revenues target ratio.

However, the combined debt capacity of the Highway Fund and the Highway Trust Fund has been exhausted through Fiscal Year 2011-2012 and recovers only modestly thereafter over the 10-year model horizon.

“The committee specifically recognizes that there is over $2 billion of debt already authorized that will provide a significant opportunity for economic stimulus when it is issued,” Cowell said. “In addition, increasing the amount of debt service in the budget over and above the 4 percent target could leave the state with less flexibility to address other potential budgetary challenges in the next few years.”

Treasurer Cowell and the Debt Affordability Advisory Committee continue to urge the Governor and the General Assembly to move away from issuing non-voted debt, so-called “special indebtedness”, and return to the use of general obligation debt, which requires a vote of the people and costs less.

North Carolina currently maintains a reasonable level of debt when compared with its peer group composed of the other states rated “triple A” by all three bond rating agencies. The calculation of the state’s general fund debt capacity is based on the recommendation that debt service should be targeted at no more than 4 percent of general fund tax revenues and should not exceed 4.75 percent.

Currently, all of the state’s debt ratios are at or below the median levels for the state’s peer group and are considered manageable at current levels. In the current economic climate, draw-downs of state reserves may be inevitable. However, Treasurer Cowell and the committee strongly recommend that fund balances be replenished as quickly as possible and that budgetary structural balance, a key factor in maintaining the state’s “triple A” bond rating.

The study was prepared by the staff of the State and Local Government Finance Division of the Department of State Treasurer, and approved by the Debt Affordability Advisory Committee, which was created by the General Assembly in 2004 and is chaired by Treasurer Cowell.  Debt Affordability Advisory Committee members include:  Cowell, Secretary of Revenue Kenneth Lay, State Budget Officer Charles Perusse, State Auditor Beth Wood, State Controller David McCoy and legislative appointees Christopher Henson and James Porto.

A full copy of the report is available at www.nctreasurer.com under the “State and Local Government” section.

RALEIGH, N.C.  – North Carolina’s new state treasurer wants future elections to be free of suspicion that campaign donations bought big-money contracts to manage state pension funds.

Janet Cowell said Thursday she supports a bill in the General Assembly that would add her post to the statewide offices that could receive taxpayer campaign funds. Voluntary public financing already is available to candidates for appellate judge, insurance commissioner, schools superintendent and state auditor.

State offices such as treasurer and labor commissioner are out of the public eye at election time, but draw intense interest from businesses the state officials would regulate. Investment firms that manage the state’s public pension system were big contributors to the treasurer’s race.

RALEIGH, N.C. – State Treasurer Janet Cowell will hold a press conference at 11 a.m. Friday to give an update on the North Carolina pension fund.

Facts about North Carolina’s 2009 inauguration:

WHEN & WHERE: 10 a.m. Saturday, in front of the Office of Archives & History Building, 109 E. Jones St., Raleigh. This will be the seventh time the building has been the site for the inauguration, dating back to 1981 and the second term of Gov. Jim Hunt. The event, which is open to the public, will begin with a concert, followed by the actual ceremony at 10:30 a.m. About 5,000 chairs will be set up for the event.

WHO: The ten members of the Council of State elected in November will be sworn in to office, capped by administration of the oath of office for Gov.-elect Beverly Perdue by state Supreme Court Chief Justice Sarah Parker. Incumbents getting sworn in for additional four-year terms are Attorney General Roy Cooper; Secretary of State Elaine Marshall; Labor Commissioner Cherie Berry; Superintendent of Public Instruction June Atkinson; and Agriculture Commissioner Steve Troxler.

NEWCOMERS: Four people will begin their first terms on the Council: Walter Dalton as lieutenant governor; Beth Wood, state auditor; Janet Cowell, state treasurer; and Wayne Goodwin, insurance commissioner.

CEREMONY HIGHLIGHTS: Television icon Andy Griffith, a Manteo resident, will give a special reading. William Swart, 12, of Fuquay-Varina, will lead the Pledge of Allegiance. Swart’s father is a National Guard member training to deploy to Iraq. A military flyover and 19-gun salute for Perdue also are expected. Outgoing Gov. Mike Easley, Hunt and former Gov. Jim Holshouser are scheduled to attend.

PARADE AND OPEN HOUSE: The inaugural parade will begin at 12:30 p.m. and travel up Fayetteville Street north toward the old Capitol building. The Executive Mansion, located at 200 N. Blount St., will be open to the public from 2:30-5:30 p.m.

PRAYER SERVICE: An Inaugural Service for Prayer and Worship will be held at 10:30 a.m. Friday at the historically black First Baptist Church on Capitol Square in downtown Raleigh. The event is open to the public.

HAVING A BALL: The Junior League of Raleigh again will host the Inaugural Ball on Friday night from 9 p.m.-midnight at the new Raleigh Convention Center. A Gala Presentation for ball participants begins at 8 p.m. and features performers Branford Marsalis, Eric Church and Vienna Teng, among others. Tickets for the ball and gala are $125 and can still be purchased one hour before Friday’s event. The governor-elect’s reception is sold out. For information, go to http://www.ncgovernorsball.com or call 919-783-8863.

WHO’S PAYING: The state has a $250,000 budget for putting on the inauguration, excluding events organized by the Junior League of Raleigh. The actual expenses for these events will fall well below that amount, said Tim Crowley, a spokesman for Perdue’s inauguration. The ball and other Junior League festivities are sponsored by corporations, outside groups and individuals. Net proceeds from the League events will go to the League’s new Center for Community Leadership to benefit nonprofits statewide.