clock menu more-arrow no yes

Filed under:

Borrowing binge? Burgeoning debt worries legislators

Some conservatives in the Utah House and Senate can't believe it. How did they get to the point of looking at $1.5 billion in new debt over a two-year span?

But when you count all the transportation bonds, general obligation bonds, lease/revenue bonds and special bonds for Utah's colleges and universities, that's what's facing legislators this session.How much borrowing is enough? When do you endanger the state's top AAA bond rating? Is borrowing a lot now better than paying cash for part of the bill and putting off, again, needed construction and repairs?

Utah has a law limiting how much borrowing the state can do. That law had to be amended to allow for the huge borrowing.

"We changed our own law on bonding limitation last year - exempting transportation bonds from our bonding cap - because we wanted to borrow so much," says Rep. Evan Olsen, R-Young Ward. "We're like the federal government, the way we spend."

Three national firms rate states for the likelihood they will pay off debt. The AAA rate is the best a state can receive. Only six - including Utah - have earned the AAA rating from all three companies. The others are: Maryland, Missouri, North Carolina, South Carolina and Virginia.

But the AAA rating isn't enough to sweep some lawmakers' worries under the rug.

"Am I concerned? Yes, I'm very concerned," says Rep. Bill Hickman, a Republican banker from St. George. "We're increasing the debt of every citizen in this state. We're not at risk now of (not being able) to service our debt. But what happens if we have an emergency?"

Forget an emergency, like an earthquake, says Olsen. What happens when there is just a natural downturn in the state's economy?

"I've been around here long enough to remember when we had to open budgets midyear and cut spending because revenues fell short. But most of the legislators don't remember that. We've been on an economic roll for five or six years. Programs and spending have grown tremendously. Now we borrow more?"

Each resident carries a hefty debt liability now.

In 1996, Utah's state debt per capita was $811. This compared with the higher $1,033 national average.

Utah state government owes $363 million in general obligation bonds. (See chart). Leavitt wants to borrow $70 million more next year. Republican lawmakers say $20 million in general obligation bonds is enough, pay cash for the rest.

In 1997, lawmakers borrowed $600 million for I-15 construction and other road projects and believed that would be enough.

But now they have to come up with an estimated $230 million more; the first installment is $125 million in road bonds for 1998-99. (Leavitt suggests a new $140 million road bond).

Leavitt also wants to issue nearly $40 million in so-called lease/revenue bonds. The mortgages on state buildings constructed with those monies would be paid back by "leases" charged the state departments occupying the space. GOP leaders are skeptical.

House GOP leaders met Friday morning to discuss bonding. House Speaker Mel Brown, R-Midvale, said nothing is final. "But we question (Leavitt's) use of lease-revenue bonds. They are really obligation bonds, and we should step up to that fact. When state agencies are repaying revenue bonds with rents that are tax dollars, then that gives a false integrity to the process."

In addition to that borrowing, Leavitt wants to give colleges and universities authority to issue $208 million in revenue bonds. Those bonds wouldn't technically be backed by state taxpayers. The bonds would be paid off with non-state funds like student fees, rents, grants and other university income.

But GOP leaders say the Legislature would never allow a college to default on a bond, so the state would step in and help out monetarily in some manner.

Add road bonds, the current general obligation debt, proposed increases in general, lease/

revenue and higher education borrowing and you get $1.5 billion in debt if everything is done.

"When people argue against bonding they're taking a good principle to an unrealistic extreme," said Vicki Varela, speaking for Leavitt, who is in Nagano.

Leavitt's proposals are consistent with his conservative approach to budget and bonding. "That we should bond only for short-term, limited projects that enable us to capitalize on remarkably low interest rates. It also enables us to do projects on a fast track . . . and so we make infrastructure improvements with minimum inconvenience to citizens," she said.

It's like a mortgage for a house, she said. No one likes to be in debt, but a mortgage is a reality of the American dream.

Some of Utah's neighbor states have taken a different approach to big projects: they're truly paying as they go, said Arturo Perez, of the National Council of State Legislators in Denver.

It is against the law to issue general obligation bonds in Idaho, Wyoming, Colorado and Arizona. Six other states do not use that form of borrowing, he said.

"So in Colorado, it may take years to fix some by-passes around Denver. We do five miles here, get more money, and do another six-mile piece there," he said.

Per capita indebtedness rates, consequently are much lower in these states, according to Standard & Poor's 1996 index. Per capita rates for some of Utah's neighbors include:

- Wyoming - $380.

- Colorado - $46.

- Idaho - $228.

- Arizona - $580.

- Nevada - $2,177.

- Utah - $811.

House Minority Leader Dave Jones isn't worried about the borrowing. "Sometimes it is much wiser to borrow when you have low interest rates and great needs. Almost every homeowner has a mortgage and credit cards. Every business I know has borrowed money. You just can't get too far out on the (borrowing) limb; you can't exceed your ability to pay it back," he said.

Jones says now is a smart time to borrow, to cut into the backlog of needed projects and deteriorating state buildings.

"Remember, there is the other side of the equation. If you pay cash for something, or don't fix something at all, there's what's called lost opportunity cost," Jones said. It will cost more to build it or repair it later on.

"I'm not paranoid about bonding like some radical right-wing (legislators) are," he said.

Olsen said he doesn't predict a collapse of the Utah economy. "But after the 2002 Winter Games go, our revenues will soften greatly. What do we do then when we have to pay off all these bonds?" he asks.

"I won't be here (in the Legislature) then and many of these guys (voting for the borrowing today) won't be here then, either."

*****

Additional Information

State debt

1997 Total bonds outstanding

Transportation $600 million

General obligation $363 million

1998 Plans GOP lawmakers Gov. Mike Leavitt

General obligation bonds $ 20 million $ 70 million

Lease/revenue bonds Not yet decided $ 40 million

Higher ed. revenue bonds Not yet decided $208 million

Transportation $125 million $140 million

TOTAL $145 million plus $458 million