As the final state budget decisions are being made this week, there is an interesting power struggle taking place between Utah House and Senate Republicans.
Sen. Lyle Hillyard, R-Logan, the Senate’s budget chairman, wants to take two steps that would lower the bonded indebtedness from 91 percent of a constitutional budget cap to 85 percent and at the same time not spend an estimated $185 million on new roads.
Down the second floor hallway, however, House Majority Leader Brad Dee, R-Washington Terrace, says now is the time to get great deals on needed road work while at the same time keep some construction workers on the job – all while spending less on roads than has previously been approved by the Legislature and Gov. Gary Herbert.
Before adjournment at midnight Thursday the two sides will come to some agreement. Or will they?
“Actually,” says Hillyard. “If we don’t do anything on bonding for roads, the money won’t be spent. And I’m OK with that.
“The burden of proof is on those who want to spend more on roads, they need to make their case.”
What!? Says Dee.
“My (road bonding) bill actually will save $130 million” over what has already been authorized, Dee told UtahPolicy. “We’ve already approved” a new $185 million bond issuance that would take place in July of this year.
The roads listed in HB173 have been approved by the Utah Transportation Commission as needy; all that remains is finding the money to pay for them.
The budgeting issues are complicated.
The politics less so.
Several GOP senators are saying that the House GOP leadership wants to go on a borrowing/spending spree that isn’t wise.
The House Republicans say that is nuts, and that GOP senators are just overreacting and being penny wise and pound foolish to not spend money on roads that have already been planned for.
Dee has HB173, a bill that would issue millions in new road bonds. Starting on line 178 is a list of nearly two dozen new road projects and the spending on each. You can read those road projects here: http://le.utah.gov/~2012/bills/hbillint/hb0173s01.htm.
“It is a Christmas Tree of road building,” said Hillyard.
If one wants to build something, it is always smart to include a number of projects in many different legislative districts – and so get political support for the hometown work.
Dee says all the projects are currently on UDOT’s construction list – issuing the bonds just gets them built earlier and at less money, since the economic climate is so good for such projects now.
“Do we want to push our road construction off a cliff?” asks Dee, by stopping all road building and major repair.
The House Republicans say “we should slow down” the state construction process, not stop it dead, said Dee.
“That would be a soft landing” for major Utah construction companies and line workers.
“Are we to lose all those construction jobs at once? Have our jobs go to Nevada or some other” western state that is still building needed roads? Asks Dee.
Hillyard doesn’t argue that the state hasn’t gotten great, low rates on its bonds or that road construction bids have come in lower than expected.
There have been great savings on the Utah County I-15 reconstruction, Hillyard said. Basically, the billion-dollar freeway work has been done for $185 million less than originally expected.
“We first thought we could only rebuild (with the money allowed) from American Fork to Provo, but we’ve gotten all the way to Spanish Fork,” says Hillyard.
In fact, it is part of Hillyard’s plan to not issue $185 million in bonds this July for I-15 construction in Utah County to be finished from Spanish Fork to Payson “with around $30 million” that the state has now in a special road fund account.
(That special $71 million road fund was created last year when lawmakers earmarked a small part of the sales tax for roads.)
It’s been a general understanding in recent years that legislators wouldn’t issue bonds that would indebt the state to over 85 percent of the constitutional cap.
But lawmakers had to go over that 85 percent indebtedness to get the more than $1 billion it takes to reconstruct I-15 in Utah County.
Unfortunately, at the same time the state was borrowing so much, the housing crisis hit.
And housing values fell dramatically in the state.
The spending cap is based on the amount of borrowing issued compared to the value of all real property in the state. That property guarantees those general obligation bonds. When housing prices fell, the indebtedness percent went up.
Today, state economists estimate that the state is at 91 percent of the cap.
“If we don’t issue bonds for the next year,” says Hillyard, “we can get below the 85 percent level.”
Dee counters that “we can get into the 80th percentile” of indebtedness even with his HB173.
Hillyard says the state is on a cliff – as far as indebtedness is concerned.
“If we don’t bond for two years, then the need” for more bonds drops off. By 2019, as bonds are paid off, state government could be at 40 percent of the indebtedness cap. “That’s a place we can reach and we should,” he says.
Dee finds those arguments a bit odd. “It was the House (GOP) caucus who first took the position” at the first of the 2012 Legislature “to reduce the indebtedness.”
If Hillyard and other GOP senators have a problem with bonding this year to buy more roads at lower prices, they should have not agreed to the I-15 bonding authority several years ago.
“We aren’t bonding for more. We’re cutting the bond (in July) that has already been approved,” said Dee.
“We’re slowing down our bonding” over what it would have been otherwise, he added.
Hillyard has another fiscal goal: Increase by 2 percentage points the limit caps of the state’s General Fund Rainy Day Fund and the Education Fund Rainy Day Fund.
That is separate from the borrowing issue. But if lawmakers will raise those caps, then state government should be in pretty good shape in a few years as those funds naturally fill back up again.
“We lost about $1 billion like that!” says Hillyard, snapping his fingers, when the Great Recession came to Utah several years ago and state tax revenues fell.
The rainy day funds dropped by half as lawmakers and the governor took money out to feed state programs – which still had to be trimmed back.
Hillyard says GOP senators would like to put around $30 million from the current one-time tax surpluses of around $130 million into the rainy day funds.
That comes on top of the automatic payments that went into the funds when the 2011-2-12 surpluses were first identified when the last fiscal year ended last June.
“The rainy day funds’ caps should go to 8 percent in the General Fund and 9 percent in the Education Fund,” said Hillyard.
Then, if there is another terrorist attack like 9-11, and the national economy is harmed, or a major earthquake in Utah, and the state has to spend billions to repair public infrastructure damage, the state would have money to get over some hard economic times, he added.
“If we had a major earthquake today, with us at 91 percent of our debt limit cap and the Rainy Day funds both half of what they were, we would have boxed ourselves into two alternatives: Raise taxes and/or drive on broken roads or bridges.”
Hillyard said GOP senators don’t like those two options, and want to stop borrowing and start saving more.