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SALT LAKE CITY — The debate surrounding federal debt policy has been long and often contentious, especially with recent federal discussions about raising the $31.4 trillion U.S. debt limit to avert an unprecedented national default.
A report released Wednesday by the University of Utah Kem C. Gardner Policy Institute compares the bonding practices (money borrowing) of the Beehive State to those of the federal government — finding a tale of two different philosophies when it comes to borrowing money over time.
Although borrowing in both the U.S. and Utah has increased over the past several decades, the report says Utah has gone about it much better.
"The state of Utah's bonding practices vary dramatically from that of the federal government. Instead of borrowing for ongoing programs as the federal government does, Utah wisely borrows for needed capital projects such as highways and buildings," the report states. "Federal government debt as a percent of the U.S. economy — currently at 124% of gross domestic product — raises serious questions, while Utah's borrowing demonstrates fiscal restraint and prudence."
In March 2022, federal debt totaled $30.2 trillion — this was made up of a public debt total of $23.8 trillion (78%) and an intragovernmental debt (held through intragovernmental transfers between two state executive branch departments) of $6.5 trillion (21%), according to the report.
Now, the accumulated federal debt has amassed to nearly $31.5 trillion.
"That the nation has debt has not been much of an issue. It is the skyrocketing of the debt in the last few decades that is alarming to many," the report states.
Most economists agree there are times when deficit financing of federal expenditures is a wise choice, according to the report. Examples of this include trying to pull the nation out of a recession, financing a war and dealing with a national (or global) crisis such as the coronavirus pandemic.
The impact of the federal debt and at what point it hurts the economy has also long been debated amongst economists. The report notes that, so far, there is little consensus among them on the effects of the burgeoning debt.
Just like the federal government, Utah borrows money through the issuance of bonds for things the state government and voters deem important. The three most prominent bond rating agencies (Fitch, Moody's, and Standard and Poors) differ slightly in how they rate governments, with the highest rating being an AAA or Aaa and the lowest being D or C, according to the report.
Utah is currently rated as AAA, a rating that signifies to bond dealers that the Beehive State is low risk when lending money.
"The state's excellent credit record, strong economy, low amortization terms and modest use of debt have earned the state high credit ratings. Utah is one of 14 states to have the highest credit rating from each of the three major bond rating agencies," according to the report.
It's important to note that while Utah has constitutional limits for what it's able to borrow, the federal government does not.
Utah's general obligation debt is capped at 1.5% of the "fair market" value of all taxable property in the state, a cap that has never been used.
"The limit seems wise for two reasons," the report reads. "First, capping state debt keeps legislatures and the governor from assuming that borrowing is unlimited. Second, limiting state debt to a small fraction of the value of all taxable property allows this cap to adjust upward based on increases in property values."
Basically, as the taxable value of property in Utah increases, so will the state's capacity to borrow.
However, history has shown that the state's debt limit is more of a guideline to influence debt decisions as opposed to strictly enforced rule.
The report gives an example in 1997, when the Utah Legislature voted to issue $600 million in general obligation bonds to reconstruct the I-15 freeway in Salt Lake County.
"This amount would have put the state beyond its statutory debt limit. So, the Legislature simply placed the bond statutorily outside of the debt limit and issued the bond for the highway project," the report says.
It also indicates Utah's debt is used exclusively for capital projects such as roads and buildings — a use that Mike Christensen, Gardner Institute Scholar-in-Residence and lead author of the report, said "serves as a valuable investment in the state's capital stock for future generations."
"Moving forward, Utah residents should not be too worried about the state's use of bonding. History has shown that the state has been responsible in borrowing funds to take care of large state projects," the report states. "With such a strong precedent now laid, it is difficult to imagine the state moving down a path of irresponsible borrowing. Governors and legislatures, past and present, have prudently invested in the state through borrowing."
The 18-page report, with a deeper look and more details into how Utah and the federal government differ in borrowing money, can be found here.
