Commentary: What if a Utah family borrowed like Utah state government? Or like the federal government?

The Utah Legislature is debating whether to bond (borrow) $1.4 billion for infrastructure, mostly for big transportation and building projects. Meanwhile, the U.S. Congress is debating whether to approve a nearly $2 trillion pandemic relief package that will add that $2 trillion to the national debt.

It’s worth considering how these two big proposed expenditures, one at the state level, the other at the federal level, differ. And what if a family emulated these borrowing/spending practices?

First, the state borrows to build large infrastructure projects, including transportation and buildings, that will have value (and increase in value) over many years. These projects will boost commerce and wealth for current and future generations. Those who benefit from these projects in future years will help pay off the bonds through their taxes.

By contrast, the $2 trillion federal expenditure/borrowing will go to current and new programs providing direct cash to individuals, businesses and state/local governments, along with myriad other programs, including accelerating vaccinations and measures to deal with the pandemic. Certainly, some of this borrowing/spending will go to good causes. But essentially none of the money will go to long-term physical projects that will increase in value and build the nation’s long-term wealth.

In other words, state bonding is like a family borrowing to build or buy a home. That home will have value over many decades and will increase in value. Such borrowing makes great sense. The family enjoys their home while paying it off.

But federal spending/borrowing would be like a family borrowing money to pay for day-to-day living expenses like food, utilities and rent payments. The family doesn’t bring in sufficient income to pay for daily expenses and racks up charges on credit cards. Such borrowing is not sustainable and results in a financial death spiral.

Second, state borrowing is modest and responsible. It is paid off quickly and the state has plenty of money to make interest and principal payments without hurting other programs. Utah’s constitution and statutes place conservative limits on borrowing. Utah’s current debt is far below those limits and is dropping rapidly as bonds are completely paid off. The state has plenty of capacity for the proposed $1.4 billion bond program.

By contrast, the federal government borrows recklessly, far beyond reason, with no ability to slow the borrowing, let alone pay down the principal. The national debt today is $28 trillion, not counting the proposed new $2 trillion in spending and borrowing. Each day, the federal government spends nearly $1 billion on interest payments alone (and pays nothing on the principal, which only rises, never drops). In 2019, the federal government spent $4.45 trillion, and had total revenues of $3.46 trillion. That means it borrowed $1 trillion, or about $2.7 billion a day, on average. This was before the pandemic spending/borrowing blowouts of 2020.

If state government was a family, it would be a responsible, well-off family with a good income, a mortgage debt being easily paid off, and no borrowing for day-to-day needs.

If the federal government was a family, it would be a family spending far more than it takes in, in desperate financial straits, in deep bankruptcy, with no hope of extricating itself.

The difference, of course, is that the federal government has the ability to print money. It has the ability (for now) to borrow and borrow and borrow, and it still enjoys enough credibility that people and organizations are willing to lend it money. For now, it is paying relatively low interest rates.

But if any of those conditions change, if lenders become concerned about the country’s ability to meet its obligations, or if interest rates significantly rise, this immense house of cards could come crashing down.