Treasurer: Bonding ‘appropriate, necessary’ during time of crisis

To Rhode Island GeneralTreasurer Seth Magaziner, the question is not whether Rhode Island can afford $400 million in state bonding that will be voted on during a special election on Tuesday, March 2, but whether the state – in the early stages of its recovery from the unprecedented economic damage caused by COVID-19 – can afford
not to approve the package.

“During times of crisis, it is appropriate and often necessary to go big,” Magaziner said during a recent interview via Zoom. “It’s when we’re in times of crisis that we need to be bold and have a big policy response to the challenges the state is facing. That is why I’m advocating in favor of all seven bonds, because we need to stimulate the economy in Rhode Island and put people back to work. We need to make investments that will help us have a strong and broad-based recovery.”

The seven questions going before Rhode Islanders in span a wide range of sectors and could have farreaching impacts if approved, or not approved. Bonds could infuse money into early childhood learning and higher educational facilities, affordable housing and historic preservation, transportation infrastructure and statewide economic
development initiatives.

All of these areas, Magaziner argues, are crucial to supporting an economy during normal times, but are even more essential in light of the pandemic, which continues to sicken thousands of Rhode Islanders and millions across the world.

Although it’s difficult to predict exactly how much economic impact each of these measures would have, Magaziner said that a general rule of thumb to follow is that every million dollars spent on a construction project generates the equivalent of 20 jobs that last at least one year.

To varying degrees, most of the seven questions do contain elements that tie directly into construction projects.

Question 1 includes the construction of new and renovation of existing collegiate facilities; Question 2 would fund environmental infrastructure renovations; Question 3 would seek to build additional affordable housing units; Question 4 would continue to rebuild
roads and bridges; Question 6 would fund renovations to artistic institutions and fund historic preservation projects; and Question 7 would fund new developmental projects and the renovation of infrastructure at Quonset’s port.

But it’s not only construction jobs that bolster economic activity, as Magaziner points out. Question 5, which would approve $15 million to expand early childhood learning facilities throughout the state, would be investing in the future workforce of Rhode Island – something that’s difficult to quantify in today’s dollars and cents but cannot be discounted, either. Question 1 would keep Rhode Island’s higher educational institutes competitive as students enter competitive workforces in areas such as health care and STEM.

“I think it’s safe to say it would create thousands of upfront construction jobs,” Magaziner said. “But then also a lot of these bonds will improve our economic competitiveness
in the long run.”

But can Rhode Island afford this?

It is understandable to be skeptical of Rhode Island’s ability to borrow more money – especially in light of concerning reports released by entities such as the Rhode Island Public Expenditure Council (RIPEC), which warned recently that the state could be facing a budget deficit of more than $500 million in fiscal year 2022 if federal aid for COVID-19 doesn’t come through. Eyes may also pop at the estimated figures for interest over the course of this bond, which the Secretary of State’s office posted as nearing $242 million over the life of 20-year loans at a 5-percent interest rate.

However, Magaziner says without hesitation that Rhode Island can handle this borrowing, and much more beyond it, due to the simple means by which debt is accrued and paid off by the state. He said the state paid off $170 million in principal debt payments and $77 million in interest in fiscal year 2020 alone.

Magaziner, who authored a comprehensive state debt affordability study in 2019, said that the state’s goal is to not allow debt to reach more than 7 percent of the state’s budget, and that even if all $400 million in bonds are approved, that threshold would not be exceeded.

A further metric utilized is to examine the state’s total debt load relative to average residential income – basically a metric set to evaluate the affordability of taxfunded debt. Even if all bonds are approved, Magaziner said, debt would not exceed the acceptable threshold set as a standard in this metric – which is set by bond agencies and independent third parties, not the state.

“Even if all these are approved, we could still do more than $2 billion in additional bonding across 2022, 2024 and 2026 and stay below
those limits,” he continued. He added that the Secretary of State’s estimates of 5 percent interest for the loans was also far above what the state has paid in recent history – and would likely be the case for these loans as well, given the historically low interest rates seen today. He said getting a 1.5 to 2 percent interest rate on borrowing at this time would be realistic.

Of course, pending a worst-case scenario where the state does not receive federal funding to aid in its recovery, Magaziner said this would likely “necessitate cutting services or raising taxes – neither of which is a desirable path to go down,” he said. However, to him, this serves as another reason to support bonding to pay for such initiatives, “because the cost of the bonding does not fall in the current budget year.”

While opinion pieces have already begun to sprout up denouncing or supporting the individual pieces within the $400 million bond initiative, for Magaziner, each of the questions could be a key piece in the puzzle of Rhode Island’s recovery, and he advocates the passage of each item. “Big challenges call for bold action, and every Rhode Islander has the opportunity to be a part of our economic recovery by voting ‘yes’ on all seven bonds,” he said. “So, I encourage everyone to vote and vote ‘yes.’ Let’s get our state back to work.”