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House | August 4, 2015 | Committee Room | Finance Committee

Full MP3 Audio File

Good morning, welcome to finance, for finance, put the fun back in the finance, we have one bill before us this morning but I want to recognize our house Sergeant at Arms we have Reggie Sills, Marvin Lee, Terry McRoll and David Linthicum. Do we have page? pages are not here yet, pages are not here yet, so we'll recognize them later maybe, you have had some materials passed out by the Seragent at arms said before you pass the bill we have  some technical amendments that will come up. We're going to do this first now? real quick. Because they're very simple, recognising staff, well, I'm sorry need a motion to have the bill before us we have a motion it is before us. It passes out. We're going to pass put some technical amendments just get those out of the way we waiting for some [xx] for Representative [xx] and those presentations so we'll take care of business first. Alright, there's a single technical amendment with two components to it, currently the bill provides that if a majority in the election vote for the issuance of the bonds of upon issue of majority vote against issuance of the bonds, they don't issue that doesn't take into account a situation where there's a tie, so the first technical correction is to say, if a majority vote in favor of it, they issue. If a majority do not vote in favor of it they do not issue that takes into account time. The second component of the technical undernet cracks, the reference to a committee and gives it the proper committee name. So let's take up the first amendment other than the same one? Okay, great. We have a motion on, I'm sorry. Representative Hall did you have a question? Sorry. A motion by Representative Martin to move for adoption. All those in favor seeing the purpose, any discussion? seeing none all those in favor [xx] aye, those opposed say nein. We have adopted the amendment. Representative it's right there. Do you like to present or would you like staff to present? If you'll go through the general. Yes sir. You're recognized. Thank you. Sorry about that. What you see on the board there is a comprehensive look at what this plan does. I believe this plan is a fiscally conservative and sound plan that will provide for our necessary capital and infrastructure needs for over at least the next six years, and looking ahead. What you see on the board is a plan. This plan comprehends work in the budget as well as the bond request, and by doing so this plan can actually out a minimum of $4.2 billion, ending the highway transfer and paying cash for certain roads, that's because it has a revenue source associated with that, and then we provide a bond that's similar to what the governor's amount is in order of $2.8 billion. That provides us with almost 46% more of resources that we do in terms of pay as you go in order to meet the necessary needs of the state, and to do that debt free, and so this first slide shows how we would accomplish that. Again, the amount that we would finance would be $2.85 billion, and the remainder, almost 1.3 billion, would be in cash and in the form of pay go or pay as you go to provide for the transportation. We do provide $400 million on the financing request for a total of about $1.7 billion, slightly more than what the governor had proposed but about above in the same range about $1.7 billion total going to transportation needs. here we go I will stand at

the mic, am sorry. This this kind of place exactl what in essence what we are doing we are braking the bond and the proposal in two passes we have got 1.3 in cash over 10 years we're putting at least $2.2 billion into transportation alone, the rest is the finance mechanism of 2.85 billion it's a six year plan that looked out and captured projects that are on the six year horizon in order to be included in this proposal, this came from the Treasure and basically what this does is we looked at ability to issue all bonds now that scenario won if we $2.84 billion now we've a present value cost of that's about 3.36 these are relative terms if we looked at a second scenario when you issued half of that 3.8 billion now which is, so we would issue 1.43 billion dollar now and then 1.42 billion dollars later, you can see what the present value cost is there. If you do not issue any thing now in terms of bond, new issue at all, 2.85 billion dollar is the same bond in six years you can see what the present value is there, again the idea of this chart is to show you the relative increase and it goes with what we all intuitively know. How many of you believe that construction cost are going to be less in the future than they are right now? How many of you believe that the cost to borrow money, the cost of money, will be less than it is right now over this six-year time period? And what this shows is a relative, present value analysis, shows a relative effort that basically differing these needs and not utilizing the great timing in terms of low interest rates and data affordability that the state has that it actually is more un-conservative, more fiscally, unsound to differ this than acting on this ban right now. To the tune of almost 500 million dollars, half of a billion dollars by differing this and this ban decision this is, we got this from our fiscal research and what it shows is cash flow in this bond over the life, of the projects. And what you see here are in the red what the data affordability recommended ratios are in terms of debt services or percentage of general fund revenue. The data affordability advisory committee recommends a limit of 4.75%, and it does so with the calculation of interest rates at 5 3/4%. We believe that we will get a fixed interest rate on borrowing and financing this at a much lower rate, green line that you see there at 3.5%. But even using the 5.75% number, you can see that we're well underneath the recommended ratios of our Debt Affordability Advisory Committee, we're well below that in fact we are almost 75%, 25% less than what they recommend as a maximum. So we're well within affordability in terms of a percentage of our debt, debt service as a percent of our General Fund revenue, and I think this is the right number. In other words we could borrow more money but this plan even though the timing is right and a case could be made that the bond should actually be bigger to do more things I think this proposal aligns with the Governor's proposal of only borrowing 2.85 billion and we have comfortable metrics. North Carolina shares the distinction of only 10 other States in that we have a Triple A bond rating from all three credit agencies. That's an incredible thing, it didn't happen overnight, that's been a long standing policy and I'm very proud of that. What this does is make sure that we still stay within those guidelines so that we maintain a high credit worthiness and a high credit ready which translates into real dollars in terms of lower cost of borrowing and you can see that we

have very, very lot of pressure here, that shows a sign and then the last time we've had 15 years since the last bond referendum, our population is growing and continue to grow, I think the time time is right to do a fiscally sound and very fiscally right policy to look at this proposal that would borrow the necessary financing and paid cash for those other things that revenue sources and provide a sound plan to put before the voters in North Carolina to see if they want to do this, as we said here the value of money is never been, the cost of money has never been lower we have all indications from the federal reserve that interest rates will be rising and we see here that a 1/4% increase in interest rates can cause $7 1/2 million alone on the first year. This chart indicates if we issue and this plan doesn't do that, but this plan, this chart indicates if we issue all of the debt all of the financing in the first year, 2016, our present debt supported bond is about, debt is about $5.8 billion. If we issue it all in the first year which our plan does't anticipate doing that, but this is very, very conservative. If you issue it all in the first year you can see that we bumped up to about $8.2 billion and that the rate of payoff in five years we were paid off an amount equivalent to what the debt is that we took out. We have a very aggressive payoff schedule in North Carolina in terms of paying off our debts that's fantastic, but each year we payoff more debt we actually have more capacity now let me equate it to our finances personally something that I can relate to, I love and my goal with my wife is to be pay out for a house we're working to do that and once we do that we don't want to incur any more debt I don't think I want to finance another car I think I want to drive my car until the wheel fall off, but here is a different perspective for the state While we look at finances in terms of a finite period the state is perpetual and we've to provide for these things so as soon we get through the years more capital needs are common across the state and it's slightly different in the way we look at our personal finances. In our lifetime you may buy your asset, and one thing is your house and be dept free and to pay that off of these good, but we've got to do is make sure we use money as a tool make sure we use money as a tool to properly finance the need of the state and to pay cash to those things that we can pay cash for and we use tools of money wisely. And you can see from this chart that in five years we would have paid off the equivalent of about what the amount is that we are borrowing in five years and I think that is phenomenal. How we look at the life. First of all in the list of the plant, one of the things we looked at were those projects that we can extend the useful life or state's assets. In order rather than in building something new, we looked at how can we renovate and repair and extend the useful life of the current state asset, it's cheaper to do so. Until it gets to a point where the buildings are functionally obsolete or that they don't make sense. Then next we wanted to do is align asses with financing with lifespan of the asset. What we mean by that is those in things in capital repairs that we need to pay cash  for instance if you are going to paint a room in your house you may not want to take a 20 year mortgage out in order to do so. Yo pay cash for those things I budget anticipated paying cash for those chronically[SP?] experience capital needs and financing those things to add value around, a room to your house actual you add value to that, that's what this furnace does and this bond packet we pay for bricks and mortar we don't pay for people, we don't pay for things in here and so we look at running the finance with assets like. The other thing we focus on spending money that boost the state economic activity. If we had a choice between where we want to spend our capital we want to spend it in the based that encourages and engross our state economic activity. Finally we partner with our industries and provide leverage payment we got [XX] in

the game from them, all of these are things that we propose have matches so that we are participating in a collaborative effort with those. Hear how they break out we provide a significant effort in terms of capital repairs and rennovations as we said earlier, this amount of money provides long term capital asset I think we define the turn of 10 years and more to be qualified, agriculture being  our greatest industry in the State we provide significant effort there in terms of helping the industry achieve greater success and boost the industry in North Carolina public safety we continue this, this was the land with a budget proposal. We put a significant effort in to our public safety and national guard the transition into a plan that have a haven spoke this gives them way down the road into achieving their plan we find two reasons right in the senate for the guard plus several additions in renovations to be armories and helping them transition to a 21st century and beyond mobile readiness force. Finally we get into education we know that education is the cornerstone of the economic activity and drive that this state prides itself on. We have significant effort in this behind proposal that provides for the needs of this K12, these are the ones that will provide the necessary workers to feel the job required for this new economy, this hitech economy and if you can look on the screen, we provide the funny for health-sciences, engineering, highlights health centers, school science and math, engineering this team related buildings these are not office buildings for growing government downtown rally these are actual buildings that will provide workforce that are educated to meet our growing demand for a high tech economy in North Carolina. These are additional projects that provide major renovations and renewals, so you can see how we've been able to meet the needs even at campuses that are not growing as fast. And then finally, this bond proposal encompasses a significant effort. We put $300 million, 100 million more than the original proposal, and then we add $500 million to Public Schools Capital Assistance Program. This program, the Public Schools K-12 Public Schools Capital Assistance Program would be able to be used for new schools additions and renovations. It would not be able to be used for furnishing and equipment, they typically have a, we pay cash for those or land, which will be the responsibility of the county. What it does is assists the counties in their requirements for their citizens in their area, for their citizens in their community. We're just coming out of recessions and as the success of the counties and municipality increase, so does the state as a whole. And I think it's worth partnering. All of this have a certain match that goes to them for low wealth, that matches a quarter to one, a quarter cent on the dollar, for those that have non real wealth that matches are one to one. And then finally we put in a lot of money towards our park resource. We've included what the governor has in terms of the zoo, we have a matching local parks grant for children and handicapped, children and veterans with handicapped and disabilities of $10 million, and the point of that is to help distribute greater opportunities across the state by partnering with local parks to provide not only excess ability but the experiential nature that any citizen can enjoy. So we can look at putting in a [xx] feels especially designed to help increase there enjoyment of parks. This bond and $100 million towards the state parks. One aspect that we've been able to hence the Governor's proposal is water and sewer. I wish if we could put more money in the water and sewer. This is creates the fabric that our business look at when they look at North Carolina. To help grow we're putting $75 million dollars in the water and sewer to help our

local counties and municipalities deal with there water and sewer needs and finally we put forth the UNC North Carolina state battleship. This is our flagship, this is our and this provides $10.8 million to the visitors center. On the transfer station side we've got $400 million here, is to provide supplemental on target of finding alignment with the Governor's proposal of jump starting our transportation projects, and we increase the efforts to provide for the transportation needs. I just want to thank the Governor for outlining a great vision and what this bond package does. The house's proposal aligns that vision and even enhances it with some creative ways that we can look at, paying cash for those things so that we minimize the amount of debt that we have incur, but takes on financing in a responsible fiscal way and at that point I'd like to turn in it over to the Chairman and staff possibly address the penance  of the bill.  Thank you Representative [xx] the staff have anything to add to that it's pretty thorough, thank you questions from the committee. Representative Hastings Thank you Mr Chairman and how please handle this how ever you need to refer it to staff or whatever is the easiest of course it would be great if if our federal government wouldn't spend so much money in foreign aid and  we can handle this without this process but we are where we are, so now that we got the bill before us I need to clarify something on page 16 and that would be H1 and that regards the environmental impact statement if required by law was completed prior to January 1, 2015 and so as I try to get clear legislative intent and I need to figure out how the word completed would apply if the environmental impact statement is being challenged in federal court in other words the environmental impact statement technically could have been completed but it hasn't run it full course in the appeals process for instance back in our MPO we've got an environmental impact statement that's been challenged in the US district court US district judge sided with the challenge now there has been a motion to the judge to reconsider so it's still pending so in that case I'm not sure exactly how the word completed would I'm not sure exactly what the legislative intend would be in other words would that environmental impact statements be complete and qualify, or would we have to wait for the full appeal process and so I'm assuming that's something the staff might want to answer for me. Representative [xx] thank you, I'm going to assume that a well. I'm just glad you're not going to ask me foreign policy question when you started. Nevertheless. I'm dressed for the occasion. I believe that Mrs. Cameron I'm sorry Representative Bradford OK, this is not on the queue, Miss Cameron do you have maybe some answers to that question or at least some insight. I'm the Camrin fiscal research I think that what Representative Hastings is talking about is a grey area within the law, obviously the EIS is completed will the court rule it invalid, this legislation before you does not address such a thing and therefore it will be open to interpretation as to whether the fact that it was initially completed is enough to qualify for the bond. Thank you Representative Hastings let's transfer you [xx] Out of respect for everybody's time I'll follow up with the staff later and see if we need to run an amendment so we've got clear legislative intent Representative Brawley. Yeah Miss Cameron perhaps I'd like to ask some qualifying questions if I could, if an EIS is challenged in court and the court rules it invalid construction would not be able to proceed at that point, is that correct? RepresentativeBrawley I guess it, it is law invalid than the one what is in there and also the law will be pulled and therefore the second criteria of this law in that contraction has to

begin by 2017 could not be met. Follow ups. Follow up.   If a court refuses to act on the EIS then the EIS is violent in the department of transportation could proceed with construction immediately on receipt of that order, is that correct? Again [xx] Cameron that is correct. Mr. Chairman I would submit I think we've got the answers to our questions, if the court overturns it we're done, court upholds it we continue tomorrow. Representative Heisick. So, I guess it would be directed to Mrs. Cameron so my question really was, what happens when the full appeal process has not been completed, in other words the court ruled against the process of the EIS let the full appeal process has not been completed, so does that mean the EIS is completed as the bill states or does that mean we would have to wait for the full appeal process to carry out to run its course? representative Karen   Thank you sir, again I do think that section of the law is vague but I think and Representative Brownlie's point is fifine and that it, there are multiple criteria that has to be met and if the courts stop that project then they cannot be ready for construction and thererefore we are not qualified so  thank you Mr. Chairman in fact you got exactly into the statutory interpretation part that I needed to clarify when you said vague as you and I know that is exactly how a statute can be overturned as unconstitutional because of vague language, and that's the reason I just wanted to get this clarified, and understand exactly what the legislative intent is. Thank you for your time Mr. Chair. Thank you. Representative Bradford.   Thank you Mr. Chairman. I just have a question regarding the transportation portion. Is there any plan out on detail as to what that $400 million, just says supplement on highway funding, but are there any further breakout available? Question for staff or maybe Bill's sponsor. Miss [xx]   Upon request I can have duty when the list of which projects would qualify. It is the, it is my understanding that it is the intent to expand the STI with a cash flow equivalent of 1.3 billion on top of the existing steep limits, and therefore I would ask for projects that would come after that, 1.3 billion is added and then I will send it to the full committee. Thank you. Hold on a second is that on this same question Representative Bishop? I'll put you in the queue. Chairman Brawley. Thank you Mr Chairman, Miss Cameron is it true understanding that the projects that would be funded under these are projects that have already been scored included in the infrastructure program under STI and this is not a pool of money that could be delved out to new projects or projects that have not yet been approved before funding. Miss Cameron. Thank you your Senator Cameron again, one of the qualifiers to be eligible for the [xx] package is that it be within the project list and for ICSTIP as it currently exist. Follow up? Follow up. So this will not create a new politically oriented list of projects that aren't already anticipated for construction? You need to say it. Miss [xx] shaking her head though correct [xx]. Yeah Representative Blust. Well their I'm not doubting it a bit, but the response that I'm just wondering if there can be a difference between what's just said in the committee and what actually happens and practice. How do we know for sure that, that's is not going to happen. Thank you for your question sir, I don't if anyone here is qualified to answer Representative [xx] the intended the bill and the way it was drafted it to not get in

expansion those deep we've gone through a fantastic process in creating a new tool to have an objective is possible funding of our transportation needs in the state, what this does it enhance the funding of that current system, it is not intended to go around circumvent and do anything else related to that, it's drafted in order to just as Miss Cameron said here to provide cash or really literally keep the cash in the highway fund to provide additional resources to continue [xx] the efforts related to this [xx]. This piece of the bond does not stipulate any projects it just provides an additional resources to jump start there. And I believe what you're saying but all the bill say, all the law's going to say is supplemental highway funding. Where do I get the meat on the bounds of what you're saying where do I see the language that makes certain?   Sure and if I may have You have the line item, on page I believe. But if you go over to page 16 you'll see the additional criteria, it's on line 11-21 and it deals with the proceeds of public improvement bonds for state wide supplemental highway which is the actual line item, then it gets the criteria. Thank you. Channing Brawley[sp?] You have an exhibit. I do Mr. chairman, I have a copy, this was the drafts fiscal year 2015-2025 they'll be on this list. This is what's already been stored and out there and most of which is not yet funded so the purpose is to move up things on this list. Thank you sir. In way of representatives permission to speak, we have Representative Lubki[sp?] Martins, Bishop Collins, Chita[sp?] and then [xx] thank you Mr. Chairman and let me first thank representative Holb for coming to the house democratic [xx] today and briefing us in a lot of issues in the package. Two questions are related to what we talked about in the democratic office and then a third one that didn't come up if I may. The first one is is that you indicated in your remarks to the democratic office that there would be an end to the transfer of $216 million dollars form the general fund to the transportation budget and my question there is so what are we doing in terms of the general fund? Are we cutting the budget by #216 million or are you looking for a revenue source to make that up to $216 million. Well as you know we actually more funds availability to us because of the great fiscal sees that we've put in place over the last several years. Yeah. Upon that are you saying that of the 445 million I think it is the number you're referencing, that you're committing 216 million to the general fund because of the 216 that's not being transferred? And if that's the case where is it in the bill? This is, that's why I was saying, this is the financing piece of that. This plan envisions to pay in a fiscally conservative way cash where we can pay cash so we don't incur debt unwisely, and by keeping the monies that the citizens of North Carolina expect when they go to pay their gas tax, when they go to pay their fees. This money goes into the Highway Fund and I think the citizens expect that to be used for road construction. What this plan envisions is working both the budget and the proposal to maximize the financial package that we present to the voters, and it allows the money to stay in the Highway Fund to fund roads and construction that I think the citizens of North Carolina expect. But on that briefly then, you are saying there will be $216 million less in the General Fund than would have otherwise been there without this proposal? Yes, and what we've got to do is to do the hard work and like I

pointed out to you earlier I think it's worth the effort to examine how much of that can we do and what can we do in terms of of the great news that we heard in terms of the budget surplus we can develop a plan that is fiscally responsible that uses as much cash as possible so that we don't go in debt. Right, but I hear you saying there that there will be $216 less in the General Fund. It could be more, it could. Well, no there'll be $216 million less in the General Fund. What I'm saying there are some other parts where that 216 could grow to $250 million and which provides even more transportation availability almost to the tune of $1.6 billion in transportation costs. That has to be worked out through the normal budget process. The plan that's before you now coordinates the budget and this bond package to provide a significant investment in North Carolina's future. Second topic you mentioned. I recon that's for a follow up. Thank your Sir, you mentioned in your presentation to us in the democratic caucus that there was a plan to assist the counties with school construction and you also mentioned that briefly here. Where is that in the bill? How do we know if we were to vote for this bond issue, how would the citizens know there is a commitment to public school construction? Okay, fantastic question. Let me go over generally what the plan envelops and then and then we can have bond, bill drafting pointing to the specific aspect of that. Representative [xx] thank you, just to interrupt you one moment, as a reminder we've got some and other folks who want to ask questions I want to make sure you all get a chance. $1.5 billion to the counties as the base, the rest is split between low wealth and growth counties that is 80 between 20% growing for the counties    Exactly you have small chemical information True you like with the transport you have the line Adam we have additional specifics given in the bill. If you look at page 13 of the bill, beginning with Sub E, Sub E deals with the allocation of the proceeds of improvement bonds of K12 and there's basically three pots of money. There's 150 million divided equally among counties, $1.5 million per county. You have an additional $280 million that's allocated among the [xx] who receive supplemental low wealth funding, and then you have an additional $70 million, that is allocated among LEAs that exhibit, I believe, ten year growth in proportion to their ATM growth. Follow up on this topic? Yes. You're asking, in this section of the Bill, you're asking a local government to contribute to public school construction. Why is that the case when the rest of the Bill does not require local matches in any way? It seems to me unfair to local government that they have to, why is this not covered a 100% in the bond as opposed to having the local government opt obligation to public school construction? Representative [xx]. Well, quite frankly, you're incorrect, everything in here requires a match, except for, even the UNC project has skin in the game in what they've developed. In fact, from my personal experience, I think people value that which they participate in, if something is free, there is no value and so what this does is provided to assist the counties in meeting their needs for the school system because we belief that's a valuable thing, at the same time, we do not want to come in and take that responsibility that has always been the counties to do this so quite frankly I think it's better to work in a partnership with the locals and I just say that I think that this is so important on public education that the state ought to take this on 100% given the needs of so many counties and the tightness of their budgets just very quickly Mr. Chairman, one other topic that you did not discuss in our coccus, and that is, when you talk about transportation it sounds to me like you really highways. I didn't see anything here that wasn't highway, is that correct? It means all the transportation envisions all the projects and scored and that's a well vetted process, a whole transportation system, I don't know why you have that thought.  Well, I have that thought because one of the areas of infrastructures that could help our state a great deal is rail road infrastructure, so we could expend the amount of passenger service and also. So is it possible that

rent and infrastructures can be added to the [xx] representative Mark we appreciate your honesty and more famous. I appreciate that but that gives me great [xx] does the 16 million lost in general funds, thank you Sir. Thank you, representative Martin thank you Mr chair, I have two questions, one I think I've kind of answered myself is that had a little time to keep reading the details and that was the timing of this and it looks like on page page 18 it does specifically say that it'll be this November I just wanted to know if you could clarify I've heard questions about the cost, if it's going to at additional cost by having it in November which this does state, the state would reimburse the county I wanted to clarify that and your thoughts on, is it not more as effective to do later and then I'll go ahead and give my second question now to save time, is there anything in here that addresses the ports [xx] transportation or is that specifically laid out? anywhere. Rep. [xx]. Thank you Rep. Martin that is great question in terms of timing we follow the governor's plan and terms of the timing, as you can see from this chart I don't know where it is, it's anywhere we got a couple of charts in here. Time is money and what we can see is that every take up in interest rate cause $7.5 million every [xx] on this thing. What this does is to provide the most fiscally responsible, so it allows the citizens to save the most money. There are questions about that date, I think that's what I would ask you to do is look at the proposal of the bond itself, and if we can put this before the people, | think when we ask the people to take on the debt, it rightly resides with the people, and what this all does is put a referendum on the ballot so that people can vote on it your question about the ports. What we've done here is to maximize our breadth and depth of projects the ports are currently funded in both our house budget as well as the senates budget and that upon review meets your current needs with cash without taking on additional debt so what we've done in this plan is off load those things that we can pay for, in cash those things that we can pay pay for in the budget with cash without incurring additional debt and only finance those projects that have a lot longer life so we met ports need with cash than you Representative Bishop thank you Mr Chairman I have a couple of questions. The very first one is very specific that in the very first category of agriculture items, the items there that says veterinary, food, drug, motor fuels, lab, can you tell me more specifically what that is? Let me give you a general overview of what happened, and currently we have five labs that Department of Agriculture is involved with. Those labs are substandard to the point that they can't effectively carry out the States mission for food safety and those things.commissioner Troxler has proposed that this plan be consolidated, and provide new facilities in order for them to met the mission that we've taxed them with, and what this does is renovate and combine, and hopefully this plan makes them more effective in carrying out their mission, and that's what this is for. May I follow up? Follow up. Is there any specific facilities that is contemplated as it is at State? It is. More general what interest me when I look at this and am curious what [xx] airport is when you look at micro-search by category they proportion of the total that goes to each area, and there are a couple of things in particular that strike interesting about it, first of all transportation is [xx] tempted to teach me things on the way, on the way I told him repeat the [xx] that they are 4 billion I think the number, it's a number that starts with a 4 but it's not 400 million, it's 4 billion of pressing transportation needs I think that's the number I keep hearing is that right [xx] so I do want yield answer the question but assuming I've got that roughly right, the 400 million that is devoted out of this 2.8 million dollars looks like it's about 14% of the total there are three categorise here schools, gate well

schools construction funding, community college facility construction, water and sewer financing aid to local localities. Those seem to me to be projects that are more traditionally local funded projects now I may have something that my perspective has been County Commissioner McBurge[sp?] may not be correct about. I know that McBurge[sp?] has been funded their is essentially all those things, school construction, community college facility construction and water and sewer. So I assume those are basically local responsibilities. About 30% of this total goes to that, so double the proportion that we are talking about going to transportation needs. And then other things proceeding from there, if you take the UNC system which is [**], and I agree completely is critical to economic development and growth. If you add, take the 900 million that is under the UNC category, but if you add and I know this isn't exactly right but those two facilities the act facilities their own state campus one of them is act building I think we have a plan of building age egg as your partnership I need to understand more about better, but if you add the number gets to be for UNC system 40% of the total. So my main question then and throws long winded, but the main questions become are we given transportation shrift[sp?] in this priotization and is it not sort of the core functions that across supportable spectrum people agree is the means by which we can promote economic development? Representative [xx].   Actually I understood your question, but let me respond and ask you to consider this, the whole purpose of this was to responsibly look at the transportation and building in infrastructure needs and what I would ask you to consider is the fact that we're actually putting 1.3 at a minimum of $1.3 billion in cash, and ongoing effort to those projects. Now this depending on what we do with budget transfer that can grow to $1.6 billion in cash a lone that infused into the existing funding that is already in place to enhance that and so I will just ask you to consider the great effort that we are doing we are not doing it with financing we are actually doing it with cash. Now can you imagine in 10 years under the minimal amount that this proposes of $2.2 billion debt free going to our transportation needs so I would ask you to look at it in that line, and say what we try to do is pay cash for those things that have a revenue source and so that we have maximum flexibility to pay for those things like university buildings that don't have a revenue income, and wisely use the debt that we have available in the most maximum way. A follow-up Mr. Chairman. Followup. So would it be accurate than to restate the way my question what I'm missing is that to say that transportation is $400 milliom in the bond misses the bigger picture that is a combined bond [xx] pipe program and so when you put the two together it's more like a third of the total problem And in fact what I would go further is to say we have a continuing source that would provide funding for our needs debt free that if the huge piece of this whole plan. Right answer thank you very much. Representative Collins Just the Representative of Orange thank you for that presentation I appreciate your work and just got a couple of questions about the financing piece of it I guess work using the 3.5 that we can borrow money for, for the General Fund 3.75 for transportation I guess that's based pretty closely on what we would be borrowing right now, of we did it right now, is that correct? I believe so I think the general rate would be around 3.5% but the debt affordability which we base our ratios on is at 5.75. Do you mind if I follow-up? If I'm understanding the top table correctly on this finance payslip I think it's tell me whether if I'm correct or not we won't borrow all the $2.8 billion at one time, we'll borrow 600 million next year, and another 659 the next year and another 550 the next year and another in the next few years is that correct?  That is correct. This is the cash flow and if I could go to psychical staff with Mr. Bundle Mr. Bundle yes Mark

Bondo fiscal research, so what the representative is referring to is a panned out label house bill 943 services requirements. So the state normally issues debt on cash requirement so when the project need the cash the state will go to the market to borrow to finance them to make that requirements Make sure they couldn't pay money cash for the needs are projects or an aggregate that leads us to basely what we asked to be four issuances now it might go longer than that but on basicall year 2016 2017 which is the second year of this the first issuance will be about 581 million dollars, and then on the table too, is the general fund debt service requirements and in house bill 97 which is the appropriations act and the fifth edition that passed the house of representatives that has been conferenced. They have sort of different scenarios based on those four issuances above and house bill 97 and the house version there were 60.9 million dollars for general fund debt service for the second year of the biennium, and looking at either scenario under the 5.75% interest which is what the state budget should start service at, or the 3.5% scenario which maybe more realistic with current market conditions. The state has sufficient money for debt service in the budget. Just a comment Mr. Chair. Representative Collen I think it's good the that we showed a higher interest rate as well as the current one because I thank you [xx]. I understood what has been discraped and we're going to be borrowing money over the next four years and we really don't have any idea what the interest rate would be during the four years, I guess and I do not anticipate this happening but I didn't anticipate it happening back when Jimmy Carter was president either, I wonder if we have any kind of stock gap or fail safe provision of something to stop us from borrowing money of certainly interest rates spike up to 14% or something like that Representative [xx] Look at this chart explains what the cash flow is from a fiscal research and anticipates both revenue growth and the debt affordability as so forth, so this is cushion the 4.75 is a there is a hard limit recommended by the delta affordability bursary committee. The 4% is the actual limit that we have as historically held in the general assembly and even with this ratios you can see we're below that in fact we're percent below that. Follow up. So I guess my question is as long as we are staying there below that 4.75% we'll borrow money at 12% that is what it is years from now that's what I'm hearing. Well the great thing about this is that we ca walk in with fixed rates for this bond term 20, 30 years or something like that and so once we do that unlike bond issuance is in he past that may have been on a variable ate because rates were higher and so forth we believe that we are toward the bottom of recession in fact we all believe that the rates are going to continue to go up, so you would get actually a blended rate coming across as you issues the debt but in order to be prudent we don't want all the debt in the first year and have it sitting around not being used and so we balance that against the upward pressure of the interest rates but that's reflected in this chart and if you look at even going up through 5.75% which is the red line were comfortable below the recommendations. Representative Martin follow up on take the question Thank you Mr. Chair just to clarify so you're saying that you're going to get a fixed rate are you going to get a bond then when this is approved that says each year how much you're going to issue and it will have a committed rate now so that we won't really be subject to that increase because I'm kind of confused by that conversation. Representative [xx] That fixed rates and correct me if I'm wrong fiscal staff but that fixed rate is at the time of issuance and you lock in piece of the issuance at that rate. The rate may go up or down, it might go up but then you lock at the next segment at whatever rate is there and so you have a blended rate basically [xx] Representative Adams on the same subject. If the rate goes to how you simply don't borrow correct that mean right? Representative [xx] I got get to the please get back to the

microphone thank you all of this place here. What we're doing here with that is the maximum flexibility to typically that's held between the council state and Treasury to make that decision about the magnitude of debt and all the financial pieces with that, this bond continues that practice for good fiscal management. Follow up? Follow up. The 4.75 cap we've got here is recommended limit. If we start seeing generally interest rates going up, would that limit also go up? If you can just imagine, that, I don't know that over the light because we are going to be paying down as this chart shows we can pay off in a [xx]. We have a very aggressive debt payment schedule on the principle. What this envisions is paying off an amount equal to the debt that we borrowed in five years, so our horizon is maybe around five years on that and you can see, could we really drop 2, almost 2.25/2.5% in five years? I mean you could but I think we would all want to take look at that, but I don't know that that's very possible. Representative Bishop did you have a follow up on that same subject?   I do Mr. Chairman and I just want to clarify based on representative Collins questions and representative [xx] answers and maybe even staff, exactly in Mecklenburg county when I was the board of county commissioners, the board decided that the judgement will call for dispensing with debt limits and we blew though them over the objections of some and then when the wheels came off the bus in 2008 there was great mashing of teeth an the concern we actually might lose our triple a debt rating. Under those circumstances I was no longer on that board when that came to pass, but what the board stopped issuing any debts so went from $300 million or so for a school construction annually of issuing nothing and so the question that have had but it was critically important to do it and had important salutary benefits. Who would have the power to decide not to proceed with the debt issuance? Under the circumstances Representative Collins laid out if the rates and if the economy ever does come start really growing in a good clip and suddenly there's a big spike in interest rates, who would have that power? Representative comment in that. Steph can you comment that Mr. Bondo.  Yes, Mark Bondo, fiscal research again if you go to the last page of the bill page 22, section three line 15. There is language not dealing with interest rates but dealing with affordability study, so the state should not issue bonds or notes otherwise authorized by section one of this act any amount if year with the issuance of bonds or notes with the debt affordability advisory committees recommendations on debt capacities. So what that means is that currently the debt affordability study recommends a target of 4% of general fund, that service to general fund revenue and a limit of 4.75%. So if there was time when that issuing bonds under that scenario would violate those scenarios then the State Treasurer could not issue those bonds the State Treasurer and the Council of States could also look at not issuing bonds in general if it would put the state in bad financial conditions, and then also the General Assembly could de-authorize that as well. So I'm not sure if that general obligation bar might be different. They might weigh in on that, but in 2011 with non general obligation debt, the General Assembly cancelled debt in order to not pay debt service on it. To that last point, the bill does provide in terms of reallocations on page 16, that the General Assembly may at the sessions or subsequent sessions decrease the allocations for the proceeds. Thank you. Next up, I've got Representative Bass, Representative Stan, Representative Adams Representative Brawley, Representative Jeter and just trying to look at our clock management, I'll be recognizing Representative Jeter for a motion thank you Mr. Chairman I'm just wondering given the allocations per year that Representative Collins has pointed at out doesn't that undercut somewhat the need for a quick vote because if you put it on this fall if you really affecting the 581000000 that's projected to be issued in the 2016, 17 fiscal year and there is no guarantee of the interest rates rising for the vast majority of the projected total bond issuance. So that in mind couldn't be more prudent to wait until a state

wide vote, I state wide election to have the vote on this particular bond issue. Representative Arp. Well. I respect your judgement on that I'm not trying to do anything by giving some information to consider and I ask you to consider this the natural process of this if we have the votes in November and lets assume that has passed the bond markets are closed over the holidays and through January and it could be realistically about possibly March before the [xx] happen even haven't vote in March so what we are saying is there is about six month time period just in a general aspect of trying to issue this and so if you add that on to the distance, the wider this will be distributed back into that up, puts a significance until next year and in which actualy we believe has some outside risk of cost, and therefore we believe the plan is presented trying to save money by by issuing this we're going to the voter with the referendum in November. Representative Blust for follow up. But looking at this it doesn't look like anything is going to be issued until after July 1st, 2016. So we're not looking at actually borrowing money until almost well 11 months from now. Representative Arp. One of the things again I would ask you to consider we're working the budget and the bond together, we actually have in a budget some actual cash to get some projects started in order to maximize the draw on that and so that anticipates some cash available in order to get some of the NC State project going, I believe it's the Engineering Building, the ASU is ready to go. Some of these project are ready to go and the longer we wait you've got escalation in the construction car. Another question.   Representative Blust. that brought up another question I had the pay go push according to this graph in the back is large even the month Ocean the perger wont be affected by this bill will it? That's great, the wide it is, this is the point And overall somebody would say why are you putting transportation on the board. We feel like we got a better plan that actually pays cash for what we can pay cash for and I spare sometime looking at the overall picture so that this integrated look between budget and the amount of financing can be clearly seen. Another question. Rep. Brose. You may ask charging for the arms order, I think today. Is there underlined data for all the individual lines for all the projects in here in the first half of the bill for example some of this armory[sp?] look like they have the exact same need and it looks to me like with the final three digits all being 334, that looks more like a pot of money that was divided rather than responding to someone whose looked at the armory[sp?] and decided here's what we need to do here, this needs to be repaired this needs to be added, it just has more of a feel of a divided pot of money and even the community colleges and I'm wondering if there is some sort of data we can get as to what's going to be done in each of these community colleges because that adds up to exactly 300 million, I want to help fund need but sometimes I wonder about need when it comes out to round figure like this. And that's a great question, so here's how we did that, we worked a very closely with the guard to understand their plan ad they coordinated in terms of what they can draw down from federal, this coordinates the guards efforts in terms of their construction for the Havork[sp?] system that is coordinated on their cash flow system based on the renovation times frame and schedules as well as their budgets and what they can maximize in terms of draw down and possibly [xx] match or other issues. The community college is $300 million because that's what this bond appropriates and then over a formula that the community college themselves have developed capital needs much like

the board of governors and so they have a whole host of range. What we've done in this bill, is we said that we're providing money like we do on a one to one match, county effort, the state effort to provide this. Their needs list, what they have proposed is far greater than the 300 million, but what we've done is appropriate 300 million to that and scheduled in accordance with this the distribution of that. So it does add up to 300 million exactly because that's the amount that this bond thank you. Representative Stam, if you could quickly. I'm in favor of this have some of the grand children that I think are the older future generations [xx] and what I drive here to work common roads that were built 40 years ago, I drink clean water, I have a reservoir that was built 40 years ago, and I think it is fair to ask people who move here 10, 20 years from now to contribute on the infrastructure that they'll be using will be used I think its very fair Proverbs a good man leaves an inheritance for his children children so this is things they'll be using I think it's appropriate what I don't like is for example our Federal Government at net borrowing from China in the last four years like $2 or $300 billion that prove going up and and I like this about the playing you are not spending, you are financing 20 year money to pay for current expenses so, good Speaking of our youth our pages we need to recognize you as you first came in I do want to recognize you quickly. We have Caitlin Bird from Cleveland County sponsored by Speaker Moore. Marie Carol from Forsyth County sponsored by Rep. Donnie Lambeth and Lincoln Way from Pate county sponsored by Representative George Gram and Colly Conwave from Pate county Sponsored by Representative George Gram and thank you for being with us today.   Thank you Mr. Chairman, one quick request and I want just to let Representative [xx] I'm not trying to cause a problem on this environment impact I''m trying. you're recognized. So, we danced all around that and I just wanted to ask the chair as long as it's in order to ask the staff to respond to me to what miss Cameron referred to as vague language and I would appreciate it and thank you for your service sir. Thank you. Representative Adams Thank you Mr. Chairman, as a freshman I'm beginning to wonder which makes me more nervous, taking peoples money or spending it. Looking at the first couple yeah both, page four, five and six everything is around to a thousand and then beginning on page 7, 8 to 9 things resolve down to the dollars, so kind made me wonder, what is the source of this numbers, where did we get this?, and running in the background behind the numbers are there any priorities, about which expenditures occur in what order?. What are the priorities behind this individual items? and I guess the thing that occurs to me is [xx] county could still use a state park or may be a battle ship. Certainly, I think what we've try to do is to utilize the project sheet to come up, UNC system has is a very robust planning and is vetted through with the staff and board of governors and those are the source of the data we've used, in fact we had some questions on this about rounding the numbers up to a bond amount invisible by 5000 because of bond issues on that, we did do that we let the numbers fall where they may when we review the project sheets and look at the escalations and so forth, and so we let the numbers fall where they may, others are just appropriation that figure out the distribution of cummunity colleges and those things of K12 are formulaic and how they go, but each these that are with UNC system for instance are based upon actual project data sheets that we've are well developed. And community colleges same thing? The community colleges again, they're put out there on request, their capital needs is huge, a lot more than these in terms of billion of dollars but this appropriate an effort towards that amount, recognize that we can't fund all of it thank you. Representative Bishop.

Thank you Mr chairman, if one supports for the bond was conditioned upon the rest which you pointed the [xx] what I'd call pay [xx] transportation project, and this vehicle only enacts the bond, I assume is the budget appropriation or budget provision that would enact the rest of it and and how can one be assured that that would occur if one is going to vote for this? Great question, I think if you like the plan, vote for this plan and I work really hard for the budget. Seeing the time, we've ran out the clock here today, representative Jeter recognize you for a motion. Thank you Chairman Sain my motion is to roll the amendment into a PCS for house bill 943 allows staff to make technical changes and to remove the blank page for a favorable report to the new PCS unfavorable to the original bill you've heard the motion. All those in favor say aye,  aye  those opposed like turn[sp?]  No The ayes have it, the ayes do have it [xx] passes, we stand adjourned.