By Katy Hansen, PhD Candidate, Environmental Policy

Estimates suggest repairing and expanding water, wastewater, and stormwater systems in North Carolina will cost $26 billion over the next 20 years. But can local governments issue sufficient debt to meet their capital needs? My summer work at the Environmental Finance Center at UNC focused on characterizing water debt in North Carolina to help identify discrepancies between need, capacity, and investment.

I analyzed data on all local government debt issuances from 1951 to 2017 from the Division of State and Local Government in the Local Government Commission of the State of North Carolina Treasurer to characterizes the (1) historical issuance of debt, (2) current outstanding debt, (3) projected annual debt service, and (4) future capacity of local governments toissue new water debt in North Carolina.

My analysis shows that water and wastewater utilities in North Carolina have approximately $8.55 billion in outstanding debt: $3.65 billion in water; $4.67 billion in wastewater; and $220 million in stormwater debt. Ten large cities hold over half of the total debt. The average debt per capita is $716.

I also calculated projections about annual debt service projections by utility, which helps utility managers with their financial planning. The projected debt service payment for Durham is shown in the figure below. Most utilities have capacity to issue additional debt every year. Water debt capacity is approximately $84 million in 2019. 

In addition to forecasting needs, local governments must understand their debt capacity prior to issuance. This study facilitates effective capital planning by providing decision makers with an estimate of how much water and wastewater debt could be issued annually. It also serves as an example for other states, which could collect data similar to those of the State of North Carolina Treasurer Local Government Commission and conduct their own debt capacity studies.