Leader Blues

Wednesday, September 27, 2006

EDITORIAL>>Reduce debt, Beebe argues

A treasury surplus of between $700 million and $800 million supplies candidates for governor with a cornucopia of opportunities to indulge large blocs of voters, and Mike Beebe and Asa Hutchinson have not been timid. Beebe offered a new wrinkle this week that will not have much gut appeal to voters but deserves some inspection.

Beebe would take $250 million to $300 million of the surplus and pay off that amount of the state’s debt, which was accumulated by long-term bond issues for this or that construction program. By retiring the principal on bonds and preventing the future accumulation of interest, Beebe explained, a sizable part of the future revenue stream from the collection of taxes would be freed, and that would allow him to phase out the sales tax on groceries without jeopardizing other state services.

That makes good sense. We all do that (or want to do it) with our credit-card debt. But there are pitfalls, and General Beebe did not carry the thought far enough.

Richard Weiss, the director of the state Finance and Administration Department for many years and almost certainly the director under a Gov. Beebe, said it was a good idea and he gave an example. If Beebe were to pay off the state’s $100 million or so of outstanding college savings bonds, $24 million a year of taxes that are used to retire those bonds would be freed. It would offset part of the revenue loss from repealing the grocery tax.

But that’s not such a good idea. Those bond indentures were written to protect the investors from just such an economical impulse by the state. If the state retires those bonds early it must pay the investors all the interest that they would receive in the future if the bonds remained outstanding to the end. So the state would be saving no future interest by retiring the bonds now. But it would be a bonanza for the bondhbolders.

But here’s the better point: If protecting the state from future debt interest is a good thing, why not prevent it at the outset? Gov. Huckabee has directed that the voters be asked again in November to approve a $250 million bond issue that will retire those college bonds along with all the future accumulated interest and then issue new ones to consume Mr. Weiss’ $24 million a year for another 25 years or so. Beebe, like Huckabee, supported the issue a year ago when voters turned it down.
Now Beebe could recommend that voters defeat that measure, and then he could see that the legislature this winter met the colleges’ construction needs from the surplus. There is plenty there to do that and to meet the other vital capital needs, such as public school improvements. It would achieve precisely what Beebe proposes, and those savings would be real.