There is some discussion in the current Utah legislative session about bonding to accelerate important transportation projects. That would be a welcome and important step, because Utah’s population is growing rapidly and little is more critical to economic development and quality of life than a good transportation system.
This year’s transportation funding, and possibly even a bonding program, could have an important difference compared to previous years. Gov. Gary Herbert has proposed investing state money to support public transit, and particularly improvements to the FrontRunner commuter rail system.
This is an important breakthrough, and it follows visionary legislative action in the last few years to look at transportation needs holistically, so that highways, public transit and active transportation, such as biking and walking, are all considered when making transportation investments.
As Utah’s population continues to grow, our investment strategy should provide transportation choices for its residents and visitors. This legislative approach and investment strategy are consistent with the recommendations contained in Utah’s Unified Transportation Plan, which identifies priority investments across all modes of transportation, from now until 2050. Utah’s process of prioritizing investments has recently been updated by the State Transportation Commission, to incorporate land use and economic development considerations along with traditional transportation metrics such as congestion and safety.
These plans and processes are nationally regarded as models for collaboration, transparency, and professionalism, and help to ensure that any bond proceeds will be prudently invested in the most important projects that will meet Utah’s mobility, air quality, and life quality goals.
My firm designs, plans and manages major infrastructure projects all over the country, and we are very familiar with transportation funding practices in different jurisdictions. While we have seen poorly managed bonding programs for transportation projects in other states, Utah’s leaders have demonstrated fiscal prudence in their use of bonding. Utah bonds only for long-term projects that will be used by generations of Utahns now and well into the future, helping to maintain good mobility as Utah’s population grows quickly.
We have seen that it is actually more financially sound to use an appropriate amount of on-going state revenue to bond for transportation projects than it is to spend every dime of on-going revenue building the base budgets of state programs. Once bonds are paid off, that money is available for other state needs, like education, healthcare, tax cuts, or for further bonding. In effect, by bonding, lawmakers have been wisely stockpiling money that will be available, if needed, for critical state needs in future years. That’s conservative budgeting.
In fact, the state’s borrowing is governed by constitutional and statutory guidelines that maintain conservative debt levels compared to most other states. Bonds are generally paid off relatively quickly and the state has ample revenue to make the payments with little or no danger of default. That’s why the rating agencies love Utah and why the state enjoys AAA bond ratings. It’s one reason why Utah has been named the nation’s best-managed state.
Rep. Kay Christofferson, R-Lehi, has noted that Utah’s Constitution allows bonding up to 1.5 percent of the value of the state’s capital assets. The Legislature has statutorily limited that bonding capacity to 85 percent of the 1.5 percent. The state’s current bonding level is around half of its bonding capacity. He also notes that construction inflation currently runs about 7 percent a year, while bond interest rates are just under 2 percent annually.
In some cases, by bonding, the state can save money even while accelerating much-needed projects to cope with rapid population growth.
Certainly, a state can borrow too much (and many have). The right balance between bonding and other state needs must be found. But Utah strikes that balance well. State and local officials deserve commendation for using debt wisely and judiciously for infrastructure projects crucial to Utah’s future.
Without safe, functional infrastructure, the wheels of commerce simply won’t turn, and once we fall behind, we may never catch up. If we hope to maintain a strong economy and enviable quality of life, now and in the years ahead, we must support reasonable measures to fund these critical projects.