Branstad hypocrisy watch: State debt edition

During Tuesday night’s debate, Republican gubernatorial candidate Terry Branstad bashed the “ill-fated” I-JOBS infrastructure bonding program as a “huge” mistake. Bleeding Heartland has noted before that Iowa’s debt load is still low by national standards, and Branstad grudgingly acknowledged that fact. At the same time, he argued that Iowa’s debt load is moving in the wrong direction and had tripled since he left office.

As usual, Branstad exaggerated the I-JOBS repayment costs and failed to explain how he would have financed rebuilding after the worst floods in Iowa history on a “pay as you go” basis during a severe recession. I was intrigued to see a couple of new angles in the Republican’s case against I-JOBS, though.  

Branstad gave Iowans a new reason to discount the gold-star bond rating Governor Chet Culver keeps bragging about. For the past year, Iowa Republicans have discounted the importance of the AAA rating, saying Culver is like a person who spends way beyond his means but rationalizes, “Don’t worry, I can still put more on my credit card.” (That’s not accurate, because Iowa would have a lower rating if we didn’t have balanced budgets.)

Now Branstad suggests that the Wall Street ratings agencies don’t know what they are doing, because their analysts didn’t warn investors before Enron and Lehman Brothers collapsed. That strikes me as an effective bit of rhetoric. In politics, “Wall Street” always has negative connotations.

But it’s laughable to compare Iowa’s strong fiscal condition with Enron’s house of cards. Iowa has a transparent budgeting process, so the relevant information about our finances is all in the public domain. Outside analysts don’t casually give states AAA ratings; only a handful of state have the higest rating from all three agencies. Culver needs to come up with a good way to communicate those facts, and to explain why anyone should care about our bond rating. In practical terms, it means Iowa was able to borrow at a lower rate, saving a lot of money on the I-JOBS projects. More generally, it reflects professional analysts’ best judgment that Iowa is on solid ground and has budgeted wisely.

Branstad knows all this, by the way; that’s why his administration wanted to spread the news when a ratings agency upgraded Iowa’s rating in the mid-1990s:

The Des Moines Register reported in April 1994 that “[Branstad Press Secretary Christina] Martin said that an independent rating agency, Standard and Poors, recently raised the state’s bond rating. She said they did so because of the state’s “conservative budgeting practices and financial reforms.” The agency raised the rating from “A minus” to “A,” which is in about the mid-range of ratings.” [Des Moines Register, 4/1/1994]

It took Branstad more than a decade as governor to bring Iowa to a bond rating several steps below what we have today.

During the gubernatorial debate, Culver mentioned Branstad’s record of bonding for billions of dollars as governor. Jason Clayworth’s fact check for the Des Moines Register was quite generous to the Republican in my view:

Culver said Branstad took on as governor “more than $3 billion in short-term bonds just to keep the lights on. Just to pay the bills during the time when he was cooking the books, keeping two sets of books, according to Richard Johnson, the former Republican auditor.”

Facts: Culver’s billions-of-dollars-in-debt assertion is true but it is not a true comparison. Most of the debt he attributes to Branstad is short-term debt, as he noted. Branstad took out $4.363 billion in debt, but most of that was to cover deficits, or – more accurately – to serve as a bridge loan to get the state from one year to another. Those short-term loans were typically paid within a year.

Branstad’s campaign argues that’s a huge difference compared with the hundreds of millions of dollars in long-term debt created by Culver’s I-JOBS programs.

Culver’s campaign argues it’s a sign of poor fiscal management to have such bridge loans in more than half of Branstad’s 16 years as governor.

Republicans falsely accuse Culver of running deficits already. Can you imagine what they would say if he had repeatedly borrowed hundreds of millions of dollars just to make it to the next fiscal year?

In effect, Branstad’s campaign is saying that long-term borrowing to expand your business or to buy a home is worse than taking out payday loans every month. If Culver were taking on long-term debt just to pay the state’s bills, Republicans might have a case. But I-JOBS is 100 percent dedicated to capital investments.

I want to go back to another point Branstad made during the debate: even though Iowa’s debt load is low, it shouldn’t be rising at all. Branstad has a lot of chutzpah to take that position when he’s going to welcome New Jersey Governor Chris Christie to Iowa in a couple of weeks. Christie is only in his first year as governor, but he’s already presided over more state borrowing than the whole I-JOBS package. Here’s a report from in April:

Faced with a rocky and uncooperative financial market, New Jersey last June borrowed $400 million in short-term debt to build schools, with the understanding it would be paid off with an additional round of borrowing this year.

Today, the state took a step toward that goal when the Economic Development Authority approved up to $2 billion in bond sales in April and May. The size of the eventual bond sale, however, will likely be somewhere around $1.6 billion, Assistant Treasurer Steve Petrecca said.

The bonds will include $500 million in new borrowing for school construction projects already approved, and about $665 million in debt payments pushed into the future.

The governor’s office did not identify which projects would be funded.

“It is important for these school projects to move forward with state financial support,” Gov. Chris Christie said in a statement. “The sale of these bonds is a fiscally responsible way to continue to address the school-construction needs of New Jersey’s public schools.” […]

The state expects to sell $850 million in bonds on April 22 and another $750 million in bonds on May 11, according to a memo from the treasurer’s office.

So, Christie has borrowed hundreds of millions of dollars to build schools on top of hundreds of millions of dollars to push old debt payments into the future. Imagine the outcry from Republicans if Culver’s administration had proposed anything like this scheme.

New Jersey already had one of the highest debt loads in the country. In August, Moody’s published this report on state debt (pdf file). As of June 30, 2009, just before Iowa sold the first $600 million of I-JOBS bonds, Iowa’s gross tax supported debt was about $3.19 billion (40th in the country); New Jersey’s was $37.7 billion (third place). Iowa’s net tax supported state debt was 0.2 percent of personal income (48th place); New Jersey’s was 36 times times higher at 7.2 percent (fourth place). Iowa’s net tax-supported state debt as a percentage of GDP was 0.16 percent (48th place); New Jersey’s was 37 times higher at 6.82 percent (fourth place). Iowa’s total net tax supported state debt was about $219 million (46th place); New Jersey’s was $31.9 billion (third place). Iowa’s net tax-supported state debt per capita was $73 (49th place); New Jersey’s was $3,669 (fourth place).

Even including the I-JOBS borrowing in 2009, Iowa’s state debt per capita is around $275, way below New Jersey’s level. And remember, the Moody’s charts don’t include the large state bonding package Christie approved in 2010.

To sum up, Branstad claims it was irresponsible for Culver to borrow $810 million for flood recovery and capital investment in Iowa’s infrastructure. But according to Branstad, Chris Christie “has been a pioneering leader in New Jersey with regard to cleaning up the state’s budget and again putting his state on the right track.”

Here’s what conservative columnist Paul Mulshine of The Star Ledger had to say about Christie’s borrowing policy:

It should be no secret to anyone who reads my column that I consider Chris Christie’s pose as a conservative to be completely fraudulent. […]

Now consider that this governor named Christie made the exact same promise. Yet he’s already borrowed $750 million without voter approval, and for the exact same purpose – to build schools in areas controlled almost entirely by the urban Democratic machines.

Worse, this Gov. Christie intends to borrow close to $4 billion more – all without voter approval – to complete the work of the prior governor named Christie [Whitman].

Mulshine pointed out that in his interview with the Star-Legder editorial board before New Jersey’s 2009 gubernatorial election, Christie said: “The School Development Authority continues to waste hundreds of millions of dollars in a non-competitive bidding process that artificially inflates construction costs. We should not be borrowing any more money without voter approval….”

Branstad is either uninformed about Christie’s record or just doesn’t believe his own campaign’s propaganda about state borrowing. A Republican who promised one thing and did another, leading his state more deeply into debt, gets a pass.

It’s bad enough for Iowa Republicans to embrace Minnesota Governor Tim Pawlenty while slamming Culver’s budget and borrowing policies. Minnesota sold more than $850 million in state general obligation bonds this year alone, mostly for infrastructure projects. But Minnesota’s debt load, while much higher than Iowa’s, is small compared to New Jersey’s.

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