Gov. Gary Herbert’s Economic Response Task Force has recommended a bonding program of up to $2 billion to help Utah’s economy rebound and position the state for long-term growth and prosperity.
- Bonding is an important arrow in the state’s economic recovery quiver. The Legislature should consider a significant infrastructure bonding program for two important reasons: 1. With available shovel-ready infrastructure projects, bonding will quickly inject money into the economy, create jobs, and produce a significant multiplier effect in many economic sectors.
- Bonding will provide immense long-term value to the state. A thriving economy requires good mobility (provided by efficient highways and public transit), along with broadband networks, low-income housing, and reliable water, wastewater and other basic services and facilities.
A prudent and effective bonding program can help improve air quality and quality of life. Rural economies can be boosted with accessible broadband and other infrastructure needed to attract residents and tourism.
Utah has plenty of bonding capacity because Utah’s leaders have been judicious and sensible in their use of debt, as reflected in the state’s AAA bond rating by all three credit rating agencies. The state recently issued bonds with a remarkable interest rate just above 1%.
Fitch, Moody’s and S&P Global Ratings recently stated that Utah is well-positioned to deal with the pandemic economic downturn because of its “strong conservative fiscal governance” its “structurally balanced budgets,” “ample reserves,” and “strong credit fundamentals.”
The state’s bonding practices are very prudent. Utah pays off its bonds quickly and invests proceeds in long-term projects that will be assets for future generations. The state constitution restricts bonding levels to 1.5% of the value of Utah’s taxable property, and the Legislature has further limited bonding to 85% of that amount. The state’s current bond debt is only about half of the amount allowed.
With the state able to borrow money at under 2% interest, and with construction inflation currently running about 7% a year, large amounts of money can be saved by building now rather than later.
It’s important to remember that the state’s wise use of debt is very different than the federal government’s deficit spending. Utah’s bond investments in long-term capital projects increase the state’s net worth and principal and interest are rapidly retired. That is vastly unlike the federal government borrowing heavily for day-to-day operations with no ability to pay down the ever-increasing national debt.
To further leverage Utah’s enviable fiscal position, policymakers should investigate whether a “century bond” makes sense. With borrowing costs at historic lows, a number of countries, higher education institutions and blue-chip businesses are issuing hundred-year bonds, sometimes at interest rates below 1%.
In some cases, a portion of century bond proceeds can be invested in revenue-generating public projects such as student housing, low-income housing, water projects or toll roads. Those operations produce enough revenue to pay principal and interest while serving important public needs. The balance of century bond proceeds is then available for other infrastructure projects.
This innovative bonding approach might require statutory or constitutional changes in Utah, but would be worth investigating. Entities as varied as Austria, Israel, Belgium, South Korea, Bayer, Disney, Ohio State University, Rutgers, Georgetown, Massachusetts Institute of Technology, and others have issued century bonds.
It is a credit to Utah’s policymakers and their long-term prudent fiscal management that Utah is in such an enviable position to bolster Utah’s economy with sensible bonding at historically low interest costs. A wise bonding program can help Utah recover faster than most other states. It can also help ensure Utah’s long-term growth and prosperity with excellent infrastructure.
A. Scott Anderson is CEO and president of Zions Bank.