Utah has been recognized nationally as a model of fiscal conservatism. And so it’s more than a bit ironic that the state now stands at 91 percent of its constitutional debt limit.
In short, conservative GOP lawmakers have gone on a borrowing spree in recent years, mainly to rebuild I-15 in Utah County.
With that high borrowing level, if there were a natural disaster, like a major earthquake, Utah may be hard pressed to pay for much-needed infrastructure repairs.
There are now at least two ideas on how to “pay down” some of that debt.
Senate Majority Leader Scott Jenkins, R-Plain City, says GOP senators are sympathetic to House Republicans’ wish to take millions of dollars in one-time cash surpluses to buy down the debt.
“We are looking at between $85 million and $100 million” to be allocated to debt reduction, said Jenkins. “We discussed this in (Thursday’s) GOP joint leadership. It is something we want to do.”
“We are in strong negotiations about how to do this,” counters Sen. Lyly Hillyard, R-Logan, the Senate’s budget chairman.
Hillyard has another idea: Don’t issue $185 million in bonds scheduled to be sold later this year.
Those monies were earmarked to finish the I-15 project.
But so much savings have been made in the construction – ahead of schedule and under budget – that Utah Department of Transportation officials say those monies may either not be spent or could be used to extend the rebuild further south down the Utah County freeway corridor.
In rather a complicated financial scheme, explains Hillyard, in addition UDOT would forgo issuing operating bonds next year. Instead, said Hillyard, state government would “loan” UDOT operating funds.
“We would be paying ourselves interest, in effect,” he said, “instead of UDOT borrowing those operating funds and paying someone else interest.”
While not a number found in law, it’s tradition that Utah state government not go over 85 percent of its debt limit cap.
Legislators knew they were going above that 85 percent when they approved more than $1 billion in borrowing to rebuild I-15 in Utah County.
The state’s bonding limit is based on a formula grounded in the value of all the real property in Utah. That’s done because citizens’ property backs general obligation bonds the state issues.
But real property – mainly housing – values have dropped lower than expected. So, the combination of higher road bonding with a drop in real property values, has pushed the state’s debt to 91 percent of the constitutional limit, Hillyard explains.
GOP legislators don’t like that and have pledged to find ways to draw the 91 percent figure closer to 85 percent.
Considering that the state’s AAA bond rating is not in danger, who cares whether the debt level is 85 percent of limit or 91 percent?
Well, says Hillyard, such a high debt ratio means in case of a really big problem, like a major earthquake that downs bridges and destroys roadways, “we would be in the position of either raising taxes after a disaster or not fixing damaged infrastructure. We don’t want those as our only options. We want to have some” borrowing capacity.
If Utah doesn’t bond for several years, by 2019 the state’s bonding level could drop to 40 percent of the debt limit.
“I don’t think the 85 percent level is good; I want us to go down to 40 percent and stay there,” said Hillyard.
But there are still needs.
The University of Utah, for example, has crumbling water and heat facilities (a steam pipe broke last year shooting steam and hot water into the air).
“I think we have to do something to help them,” said Hillyard. “And there are other needs.”
“I’m glad we did bond like we did for I-15” in Utah County, said Hillyard.
UDOT officials thought the freeway could be rebuilt and expanded within the original budget from American Fork south through Provo. But because of the low bids and cost of materials, the freeway was actually been rebuilt from American Fork through Spanish Fork.
“And with a little more funding, we may get all the way (south) to Payson – it was a great buy,” said Hillyard.
But buying down state debt has other costs, said Jenkins.
Various state programs and special interest groups are asking for part of the $133 million in one-time cash surpluses identified in the budgets now being set before adjournment March 8.
“People are lined up for these one-time funds. There are real needs,” said Jenkins.