The state's $1.6 billion debt load — the amount the state has borrowed to build new buildings and highways — has jumped 40 percent in the past two years, from $500 per person in 2001 to $700 this year.
And that has the state's chief financial officer, Treasurer Ed Alter, cautioning Gov. Olene Walker the state must be careful or risk losing its coveted AAA bond rating that allows the state to borrow at low interest rates.
"We have gone further into debt buying the bigger house and the bigger car," Alter said. "We are closer to the edge than ever before. That's not to say we are at the edge, just closer than we were before."
Lynne Ward, Walker's deputy chief of staff and former Gov. Mike Leavitt's budget director, said no decisions have been made on the bond. But some legislators are speculating that Walker will try to redirect tens of millions of dollars for transportation and building projects into public and higher education. To continue those promised building projects, Walker would have to increase bonding.
"I can say (Walker) won't endanger our bond rating — it has saved us millions over the years," said Ward.
Alter met with Walker earlier this week to explain what the state must do to retain its bond rating. Utah is one of only a handful of states to earn the AAA rating and keep it through tough economic times. The rating on bonds saves the state millions of dollars every year in interest.
The state's formal fiscal review by the bond rating agencies won't happen until next spring. But what the governor and Legislature do during the upcoming legislative session will have direct bearing on that rating.
House Majority Whip Jeff Alexander, R-Orem, said it is too early to tell whether lawmakers will push for another big bond for highways and buildings or if they will pull back. "I know I will be conservative with the bond," he said.
Ward said Walker is "very serious" about keeping the AAA rating.
But she noted that Utah is currently well under borrowing caps, set in the Utah Constitution and in law. "We will pay off $110 million in bonds this fiscal year. And certainly we could bond for another $110 million" and not endanger the AAA bond rating, Ward said.
The debt load has exploded in recent years because the need for new state buildings continues unabated, but the downturn in the economy has erased budget surpluses. In the past, those surpluses allowed the state to use a combination of cash and borrowing to meet building needs, while keeping the debt load low.
But without the cash, the only way the buildings can be built is by borrowing.
The state continues to have critical building needs, and the AAA rating is key to avoiding the higher interest payments that have saddled other states, he said. But Alter said bond rating agencies consider more than borrowing limits. He advised the governor that the state must not touch its $26 million Rainy Day Fund to balance the budget. To further draw on those reserves "will not make the rating agencies very happy."
"We should be putting money back into the (Rainy Day) fund, not taking it out," Alexander agreed. The second thing, Alter said, is the state must not use "one-time" money to balance the budget. In other words, the money spent next year had better be an ongoing source of revenue that will fund the programs down the road. "The temptation is to cut corners and take the easy way out," he said. "We have to maintain our exemplary practices. We have always said we are the best of the best."
There is little risk the state won't be able to make its $110 million bond payment next year.
Rather, a reduced bond rating will depend on "if we do a lot of dumb budget things," he said. If that happens, "We may already have enough debt to jeopardize the AAA rating."
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