Harry Davis thinks too much of the stimulus spending is next year.

The Appalachian State University finance professor, who is the economist for the N.C. Bankers Association, said only 30 percent of the $789 billion stimulus package signed by President Obama will be spent this year.

He said that creates several problems:

NOT STIMULATING. Money spent next year will likely be after the economy has start to recover, so it won't be stimulus, by definition.

TOO MUCH DEBT. The additional spending and ongoing federal budget deficits are pushing debt too high, leading to a risk of inflation that could hurt the recovery.

NOT ONGOING. He said the infrastructure spending is necessary, but it ought to be included in the annual budget because it is an ongoing need.

"We need to spend money on infrastructure five years from now, so we need to get this spending in the regular budget, as opposed to this one-time shot in the arm," he said.

More after the jump.

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The variable interest rates on some of North Carolina's state debt have started to return to lower levels.

Sara Lang, spokeswoman for the State Treasurer's Office, said the average rate has dropped about two percentage points since last week. The state has $855 million in variable-rate debt, about 12 percent of the total state debt.

The rates adjust weekly.

For about $500 million, the new weekly rate is an average of 5.66 percent. A week ago it was 7.58 percent. For about $355 million, the new weekly rate is an average of 5.36 percent. A week ago it was 7.49 percent.

The state was paying a rate of under 2 percent three weeks ago. Lang said the state budget assumes a 4 percent interest rate, blunting any immediate impact on taxpayers.

From August to September, the state's monthly payment on the $855 million in debt more than doubled from $1.2 million to $2.5 million.

The credit shortage is having an impact on the state's monthly debt payment.

Sara Lang, spokeswoman for the State Treasurer's Office, said Wednesday that the variable interest rates on about $855 million in state debt have gone up the last two weeks. Those rates are now almost five-fold what they were two weeks ago.

For about $500 million, the rate was 1.68 percent two weeks ago. It went up to 4.57 percent a week ago and to 7.58 percent this week.

For about $355 million, the rate was 1.58 percent two weeks ago. It went up to 4.46 percent a week ago and to 7.49 percent this week.

Lang said the difference in the monthly debt payment will be about $1.4 million more than it would have been if the rates had stayed the same. The state budget assumes a 4 percent interest rate, she said, blunting any immediate impact on taxpayers.

"We continue to be hopeful that, if a federal solution presents itself, the markets will settle down and these rates will settle down," Lang said. "We'll continue to watch the situation very closely."

The $855 million in variable-rate debt is about 12 percent of the state's total debt.

Lang said there has been no impact yet on the sale of any state bonds. The last sale was Aug. 12 for $200 million to finance various state construction projects. Lang said another sale is not expected until the spring.

The National Republican Senatorial Committee has released a new TV ad attacking Democratic Senate candidate Kay Hagan's record on taxes.

What the ad says: A narrator with a British accent reads a Dr. Seuss-ish rhyme as cartoons of Hagan are shown. "One tax, two tax, three tax, four. Vote for Kay Hagan if you want to pay more. Ten years in office and she's raised tax high. Income tax, sales tax, Coke tax ... Oh my. Doubling state debt? Hagan's foot on the pedal. Taxing working families? She gets a gold medal. The National Republican Senatorial Committee is responsible for the content of this ad. High taxes and spending. Hagan's record's real sad."

The background: The ad makes several claims about taxes and debt.

INCOME AND SALES TAXES: Facing a budget shortfall in 2001, the legislature increased the state sales tax by a half penny and the income tax on households making more than $200,000 a year by a half percent.

The taxes were billed as temporary fixes and were set to expire in two years.

In 2003, Hagan became a cochairwoman of the Senate Appropriations committee, which helps write the annual budget. That year, the legislature extended the temporary taxes two more years.

The taxes were extended again in 2005, but in 2006 the legislature phased out half of each tax increase. In 2007, the legislature phased out the remainder of the income tax hike and made the quarter-cent sales tax increase permanent.

Hagan voted for the temporary taxes, both extensions, the phase outs and the move to make half of the sales tax hike permanent. As a budget writer in 2005 and 2007, she pushed to reduce or end the temporary taxes, but she supported the final versions of the budget, which did not.

COKE TAX: In the late 1990s, a multi-state effort was started to make the sales tax more uniform in the hopes of getting online and catalog retailers to charge it.

At the time, North Carolina treated candy and soda differently based on where they were sold.

If you bought a bag of M&Ms at the 7-Eleven to eat immediately, you paid state and local sales tax since it was basically considered junk food. If you bought a larger bag to portion out in your kid's lunchbox, you only paid a local sales tax, since it was considered a grocery item.

To streamline the tax, legislators had to choose whether to charge the state sales tax on all candy and soda, or leave it all at the local rate.

The final 2003 budget included a higher tax rate on soda. At the request of the soft drink industry, it also included a separate provision that dropped the tax rate by half on cans and bottles sold through vending machines.

The streamlined sales tax, which included soda, prepared food and modified software, was estimated to bring in an extra $44.1 million in revenue, while the vending machine loophole was projected to cost the state $4.1 million.

STATE DEBT: The state constitution requires the legislature to balance the budget, so North Carolina's debt does not come from annual budget deficits.

Instead, the debt comes from bonds issued by the state to pave highways, build jails and college buildings and pay for other projects. The bonds are backed by the state's expected tax revenue.

During the five years Hagan was a budget writer, the state's overall debt went from $3.5 billion to $6.9 billion — nearly doubling.

However, the increased debt has not hurt North Carolina's credit rating. The three agencies that rate government bonds — Moody's, Fitch and Standard & Poor's — each give it a top-tier ranking.

North Carolina is one of only seven states to have top rankings from all three.

Is it accurate? Yes. Hagan voted for the temporary taxes, although she also voted to end or reduce them. She voted to raise the tax rate on soft drinks and cut a separate tax slightly. State debt doubled when she was a budget writer.

U.S. debt has increased $3.3 trillion since 2003.

According to the U.S. Department of the Treasury's daily calculation history, the national debt has increased from $6.4 trillion to $9.7 trillion since U.S. Sen. Elizabeth Dole took office.

That's an increase of 51.4 percent.

A recent TV ad by Democratic Senate candidate Kay Hagan attacks Dole over Washington being "$9 trillion in debt."

After the jump, the complete numbers.

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The National Republican Senatorial Committee has a new ad attacking Democratic candidate Kay Hagan's record as a state senator.

What it says: The ad shows images of Kay Hagan with graphics similar to the Olympics. Narrator: "What if they gave gold medals for financial irresponsibility?" Announcer: "The gold medal goes to Kay Hagan." Narrator: "Budget writer Kay Hagan helped double state debt. The gold for government waste?" Sports announcer: "Kay Hagan." Narrator: "Hagan's budgets pushed North Carolina to the highest taxes in the Southeast. And the gold for twisting the truth?" Sports announcer: "Kay Hagan." Narrator: "The press said Hagan’s TV ad was 'overstated, inaccurate.'" Sports announcer: "Kay Hagan." Narrator: "The National Republican Senatorial Committee is responsible for the content of this ad." The ad says "Highest Taxes in Southeast 2006."

The background: The ad raises three issues: high taxes, state debt and a previous Hagan ad.

TAXES: Every year, the Tax Foundation, a Washington-based think tank, analyzes the combined state and local tax burden in all 50 states.

According to its overall ranking, North Carolina had the 17th highest burden in 2006.

The think tank does not break out the rankings by region, but the John Locke Foundation, a conservative think tank in Raleigh, has compared those numbers to other states in the region.

The Locke Foundation defines the Southeast as Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia.

The U.S. Bureau of Economic Analysis, the only federal agency to define the Southeast, includes those states as well as Alabama, Arkansas, Kentucky, Louisiana, Mississippi and West Virginia.

If those states were included, North Carolina would have been second highest in 2006, after Arkansas.

DEBT: The state constitution requires the legislature to balance the budget, so North Carolina's debt does not come from annual budget deficits.

Instead, the debt comes from bonds issued by the state to pave highways, build jails and college buildings and pay for other projects. The bonds are backed by the state's expected tax revenue.

From 2002 to 2007, Hagan was a co-chairwoman of the Senate Appropriations committee.

During those five years, the state's overall debt went from $3.5 billion to $6.9 billion — nearly doubling.

However, the increased debt has not hurt North Carolina's credit rating. The three agencies that rate government bonds — Moody's, Fitch and Standard & Poor's — each give it a top-tier ranking.

North Carolina is one of only seven states to have top rankings from all three.

HAGAN'S ADS: In an ad run in August, Hagan's campaign claimed that she "reach(ed) across party lines to ban driver's licenses for illegal immigrants."

A previous Claims Department by the N&O found that claim overstated the supporting role she played in that bill and the Senate Democrats' previous opposition to stronger proposals from Republicans.

The ad's "account of Hagan's role on the driver's license bill is overstated and inaccurate," the article noted.

Is it accurate? Yes and no. The claims about state debt and Hagan's previous ad are true. But the definition of the Southeast used by the John Locke Foundation is bizarre. Though the ad correctly cites the foundation's research, the claim is misleading.

— Ryan Teague Beckwith

Kay Hagan says U.S. Sen. Elizabeth Dole has raised the federal debt.

In response to a recent ad by the National Republican Senatorial Campaign about state debt doubling while Hagan was a budget writer, a Hagan spokeswoman noted that debt had risen under Dole as well.

"It's odd that the Republicans would choose to go after Kay's record of fiscal responsibility and stewardship when Elizabeth Dole's record is pitiful at best," wrote spokeswoman Colleen Flanagan in an e-mail to Dome. "Since 2003, the Bush-Dole team has increased our nation's debt by 50 percent to $9.67 trillion, while our debt owed to foreigners increased to record levels at the same time."

She said that Dole was "maxing out our nation's credit cards" with "financial recklessness."

From 2002 to 2007, when Hagan was a co-chairwoman of the state Senate Appropriations committee, state debt nearly doubled from $3.5 million to $6.9 million.

How much has state debt gone up in the last eight years?

According to the state treasurer's office, debt supported by the general fund and the highway trust fund has increased from $2.5 billion to $6.7 billion since 2000.

Democratic state Sen. Kay Hagan was a budget co-chairwoman from 2002 to 2007. 

During those years, debt went from $3.5 billion to $6.9 billion — nearly doubling. (The debt in 2002 was $3,458,244,986 and in 2007 was $6,872,210,272 — an increase of $3,413,965,286.)

A complete list after the jump.

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Richard Moore doesn't like the budget's debt.

The state treasurer, who is seeking the Democratic nomination for governor, said in a statement that he does not approve of the nearly $670 million in certificates of participation in the budget, which unlike regular bonds do not have to be approved by voters.

"Our constitution clearly envisioned a vote of the people on major debt projects," he said. "This trend, if unchecked, could have a negative impact on our state's credit ratings."

With the new debt, Moore projected that the ratio of non-voted to voted debt will be 35 percent in 2012, above the median ratio of 26 percent for states given the highest AAA rating.

Moore called for a legislative cap on non-approved debt.