Utah is in a bit of a catch-22 right now. The state has taken on a lot of debt recently through bonding to pay for capital projects. But, there are some high-profile needs coming down the pike which could push the state's debt level beyond the comfort level of lawmakers and officials.
Specifically, transportation, water development and other construction projects are dire needs. If the state issues more bonds to pay for them, it could jeopardize Utah's AAA credit rating.
"We have a funny sort of conflice that we're thought of as a fiscally prudent state, but we've run up a lot of debt over the past few years," says Steve Kroes, President of the Utah Foundation. "This is debt for capital projects, which is a good use of debt. But, we've used up a lot of our capacity in recent years."
The Utah Foundation recently completed a study looking at Utah's use of bonding. They found that Utah bonds for a shorter term than many other states (10 years vs. 15 or more), which contributes to the state's AAA credit rating.
"We have some artificial constraints on our debt levels. The State Treasurer has an amount that he feels is prudent and the Legislature has a cap based on statewide property values," says Kroes. "We found that if we were to go beyond those levels and drop to the next level of credit rating, AA+, it would only cost about $1.5 million per year in interest. In the context of a $5 billion state budget, that's not much."
Kroes says even though the financial risk for losing the AAA bond rating would be minimal, the political risk is very high.
"How would you like to be the treasurer or governor who presided over that decline?"
Utah is just one of a handful of states that has a AAA bond rating.
"We love being first in the nation on all sorts of things. Every time Governor Herbert gives a speech, he mentions we are ranked #1 on a number of lists. We should get him a giant foam finger that says 'we're #1'."
Wednesday morning, the Utah Foundation is hosting a debate/discussion about the state's debt levels.
"If we decide we can wait a couple of years, there's a whole bunch of debt that's being retired," says Kroes. "But, if we decide to finance more projects over the long term, we can get more in the pipeline. The problem is, that pipeline will eventually get full."
The debate takes place at 7 am at the State Office Building Auditorium. Presenters include State Treasurer Richard Ellis, Sens. Wayne Harper and Jerry Stevenson and Rep. Lowry Snow.