Utah enjoys great financial trust on Wall Street, but that could change if the tax rollback initiatives pass in November. Passage could result in a downgrading of the state's bond rating and an increase in interest paid every time bonds are sold, according to D. Kent Michie, vice president of Smith Capital Markets.
Michie, who spoke to the Board of Governors of the Salt Lake Area Chamber of Commerce Tuesday, said Standard and Poors and Moody's Investors Services have placed Utah on "credit watch" pending the outcome of the voting on the People's Tax Reduction Act and the People's Tax and Spending Limitation Amendments. "That is like waving a yellow flag to warn investors about Utah's credit rating," he said.His comments were echoed by Kimball Young of Boettcher & Co., who said that since Moodys placed the state on credit watch, the impact already is being felt in the investment community. Young said the state could be downgraded to an AA rating from AAA and such a move would cause further difficulties to the already financially-strapped education system in the state.
Wm. James Mortimer, Deseret News publisher and board chairman, noted that several weeks ago the board passed a resolution opposing the three initiatives.
In a related matter, Orville D. Carnahan, president of Salt Lake Community College, gave a briefing on the college and said passage of the initiatives will have a negative impact on the school, since it already is bulging at the seams with an increase in students.
Carnahan said that for every engineer graduating from the University of Utah, 10 engineering technicians are needed so the college's funding must keep coming to accommodate the large number of students who want to attend.
W. Mack Lawrence, vice president and chief executive officer of U.S. West Communications in Utah (formerly Mountain Bell) and vice chairman of the board, said passage of the proposals will have a negative impact on SLCC so the board should work had to defeat the initiatives.
Michie said that when a bond rating agency assigns alphabetical designations to those selling the bonds, it tells investors what risk to expect from the bond seller. Utah, Salt Lake County, Salt Lake City and the Salt Lake School District have a AAA rating, the highest possible.
He said Utah is the only state west of the Mississippi River to have a AAA rating from both rating agencies and it tells investors the people are trustworthy, they pay their bills and they balance their budgets.
All of the financial talk on rating means simply, Michie said, the bond sellers will pay less interest over the life of the bonds. For example, on some bonds the state sold in 1987 to finance construction of several buildings, the state will pay $1.5 million less in interest over the life of the bonds because of the AAA rating than if the state had a AA rating.
Another example is a recent Jordan School District bond issue that saved the district $2 million in interest because of the high bond rating.
Michie said that in 1980 the Utah Taxpayers Association correctly opposed Proposition B, another tax limitation act, because if was nearly identical to Proposition 13 that passed in California. But, now the same association is favoring two of the three tax initiatives that have a great number of similarities to Proposition 13.
With Utah facing several major projects in the future including a light rail system, road construction and sewage and water systems, for which bonding probably will be required, the initiatives must be defeated because in the long run it will save Utah taxpayers higher interest payments on the borrowed money, he said.