Policy Savants Panel: Is now the time to bond for infrastructure?


In our latest query to the Utah Policy Savant Panel, we asked the question:

Given the need for stimulus, and the state’s healthy debt balance, should the next legislature approve a large bonding program for state infrastructure? If so, should part of the bond proceeds be used to expand public transit?


Natalie Gochnour, Director, Kem C. Gardner Policy Institute, University of Utah

The first economic stimulus priority for Utah should be federal stimulus to help those most severely impacted by the pandemic. I encourage the Utah congressional delegation to act with pace.

Utah state government leaders should also consider up to $2 billion in accelerated bonding for infrastructure. This investment can achieve a triple bottom line – job creation, positive social impact, and long-term capital improvements. Today’s extremely low interest rates and the wind-down over the next two years of major construction projects (Salt Lake City International Airport, Facebook data center, Proctor and Gamble facility, convention headquarters hotel, higher education buildings, and more) provide even more reason to invest in Utah’s capital stock now.

For the greatest impact, bonding should be targeted to projects that can be started in the next six to twelve months. Worthy “construction-ready” projects include new highway capacity, infrastructure for electric vehicles, active transportation (trails, state parks, canyon transportation, etc.), dam safety projects, broadband expansion that closes the digital divide, and affordable housing projects.

Public transit should definitely be on the list, focusing on investments that increase throughput, improve air quality, and enhance tourism mobility. My list includes bus rapid transit projects, Front Runner double tracking, and capital facilities that speed up fleet transition from diesel to natural gas and electric.

Peter Reichard, President, Utah Foundation

Interest rates are at historic lows, Utah’s AAA bond rating is still going strong, and we have significant bonding capacity, even within the state’s tight statutory and constitutional constraints. Under normal circumstances, these factors alone would make this an advantageous time to consider a bonding program for infrastructure.

But with Utah and its local governments exploring options for economic stimulus, a strong case can be made for focusing efforts on infrastructure. Investments in infrastructure protect and encourage employment in fields ranging from architecture and engineering to construction and aggregates. They also have long-term impacts as the economic benefits associated with newly constructed assets unfold over the course of many years. This is particularly true of transportation, water, and other infrastructure that allows for the movement of goods and people or opens the way for new development.

Local governments could benefit from the state’s strong position through a recapitalization of the State Infrastructure Bank, which provides local governments with loans at the state’s low rate plus 0.5%. Many shovel-ready projects are already sitting on local capital project to-do lists. That said, policymakers should explore whether infrastructure investments are well-calibrated to the capacity of Utah’s construction and related industries. If such investments go to out-of-state firms due to inadequate in-state capacity, the economic benefits could to some extent decrease.

Rick B. Larsen, President & CEO, Sutherland Institute

Because it commits future taxpayers to obligations regardless of fiscal or economic circumstances, creating state debt should be approached with thoughtfulness. Utah’s current level of general obligation bond debt is 29% higher than it was last year and sits at just under 50% of the constitutional debt limit according to the Utah Legislature’s Fiscal Health Dashboard. This suggests that the state can add some new bond debt (around $1 billion) for economic, transportation and/or other infrastructure projects while maintaining a healthy fiscal outlook. The real question is whether now is the right time?

Based on past experience, large bonding programs are smart policy when economic circumstances maximize the taxpayer investment. For example, a decade ago the State of Utah was able to make bonding for I-15 reconstruction in Utah County stretch further than expected, as construction firms hungry for the project after the Great Recession were willing to extend the project further north and south for the amount of money allocated. Is the current state of the construction industry such that it will generate this kind of ROI? Given positive indicators and significant year-over-year growth in construction industry employment, it seems unlikely.

Similarly, new bonding for public transit seems like a poor decision right now. Reforms intended to correct years of fiscal mismanagement and questionable operational decision by past Utah Transit Authority leadership have not yet been rigorously tested – something which ought to be required before significantly growing taxpayer debt for public transit. Additionally, in its tentative 2021 budget, UTA projects that its debt service costs will be $143.8 million – nearly 30% of its assumed 2021 revenue sources. Adding additional debt to the portfolio seems financially irresponsible until current debt service costs are brought under control.

There may come a time in which a large bonding program for infrastructure generally, and public transit specifically, is a smart move for taxpayers. But the evidence does not seem to support the idea that now is that time.

Matt Sandgren, Executive Director, Orrin G. Hatch Foundation
For years, Congress has failed to move on meaningful infrastructure reform — and now we’re all paying the price. State lawmakers are rightly concerned about the condition of our infrastructure. But as the legislature weighs its options, it should also consider what is happening on the federal level — specifically, growing support for a national infrastructure bill in 2021. 

Revitalizing our nation’s infrastructure is one of the few areas of bipartisan consensus in today’s polarized Washington. And in today’s digital economy, infrastructure also includes not only roads and bridges, but broadband and critical IT infrastructure. That’s good news for our Silicon Slopes companies.

In the coming year, there’s a real possibility that a Republican Senate could work with a Democratic White House and House to rebuild the physical platform of our economy. There’s even talk that Congress could bring back earmarks (or “congressionally directed spending,” if you will) to help make this happen. That’s why, in crafting an infrastructure package for Utah, state legislators should consider the potential for additional funding options coming from the federal government.

Ari Bruening, Chief Executive Officer, Envision Utah

Today’s remarkably low interest rates mean we should be discussing bonding for infrastructure. We’ll need to consider the quality of life and economic stimulus effects of infrastructure investments while staying true to our conservative fiscal principles. At the same time, there’s talk of infrastructure investment at the federal level, and we need to be prepared with projects in hand that are ready for funding.

As we do this, public transportation absolutely deserves deep consideration. Utahns want convenient options for getting around—not just by car, but by bike, foot, bus, or train. The more we build convenient transit options and surround the stations with housing, jobs, shopping, and other destinations, the more feasible it is for many people to save time and money they would otherwise have spent on their cars. Even those who don’t ride transit benefit from it because it takes cars off the road, particularly at peak hour.

Perhaps the most underappreciated impact of public transportation investments is the effect they have on development patterns. High-paying “innovation economy” employers are attracted to sites that offer public transportation, and developers build communities around stations that offer an increased ability to walk, bike, or drive short distances, which provides traffic-reduction benefits beyond the transit ridership itself. But public transportation can’t have this effect on development patterns if it’s not planned to be built for decades. At the Point of the Mountain, for example, the promise of light rail sometime in the 2040s won’t attract employers, nor will it lead to vibrant, mixed-use development patterns. For this reason, bonding to accelerate construction has definite benefits, with a return that could well exceed the interest costs on the bonds.