(The Center Square) – When North Carolina recently discovered $170 million of unspent and unbudgeted funds last summer, the question then became what that money should be used for, State Treasurer Brad Briner told The Center Square.
“The $170 million always showed up in the state’s financial statements, but it never showed up in all the accounting for the reserves that we have in the state,” Briner said.
State officials, consulting with legislative leaders, decided that reducing the state’s debt was the best way to use the funds, Briner said.
But even paying down the debt posed different options for state officials. The simple solution was to pay off state-issued bonds early, the treasurer said.
“Where it gets complicated is that sometimes you issue bonds at really low interest rates, and then interest rates go up after you issue them,” Briner said.
When that happens, the market value of the bonds on the secondary market drops below the face value of the bond at redemption. A $100 bond might only sell on the secondary market for $80 for example, Briner said.
“We have a series of bonds that were issued in 2019, 2020, 2021 that were trading in the market at $82 to $86,” Briner said.
The state decided a better use of the unspent $170 million would be to buy those bonds at a discount, Briner said. It would be a way to reduce the state’s debt at a discount.
The state issued a “tender offer” for some of the bonds, offering to purchase the bonds at slightly above the current market price.
“That’s the first tender offer that has been done in the history of the state, as far as we can tell,” Briner said.
The state paid about $120 million to redeem $160 million in bonds, reducing the state’s debt.
“Before we did this transaction, there was about $1.45 billion total of general obligation debt for the state,” Briner said. “So this is well over 10% of total general obligation debt that was reduced through funds that we didn’t really know we had.”
In another move, the state saved about $11 million in interest charges by issuing new bonds that paid 2.65% to replace older bonds with an average interest rate of 3.18%, Briner’s office said.
There is still $50 million of the $170 million in unspent funds in the state coffers, Briner said.
“There might be another transaction in 2026 around this,” the treasurer said. “The money that is left is encumbered at the moment and we need a little bit of help to make it freely available.”
