PRESS RELEASE

December 30, 2003

Contact: Stephen Kroes, Executive Director
(801) 272-8824, ext. 5
(801) 573-8824 (cell)
steve@utahfoundation.org

State Debt Quadrupled Since 1997, But Credit Rating Still Strong

Utah Foundation today released its December research report analyzing the growth in Utah State debt levels in the past decade. This report, entitled, "State Government Debt in Utah: Rapid Growth in Recent Years" should be attached to this release. If not, it may be accessed at www.utahfoundation.org/reports.html. This is the final installment of a three-part series published in 2003 on state government finances. The first report, estimating how tax revenue is redistributed geographically around the state, was released in May, while the second report chronicled state government spending growth and was released earlier this month. Each of these reports is available on our website at www.utahfoundation.org.

This report examined Utah's bonded indebtedness from 1990 through 2003, with a primary focus on general obligation bonds, which are typically paid for through general tax revenues. The report also provides a framework for readers to understand the purposes of debt financing, the kinds of debt states typically incur, and describes generally accepted principles of public debt management. Major findings of the report include:

• Utah general obligation (G.O.) debt grew from $367 million in 1990 to $1.7 billion in 2003, with most of that growth coming after 1997.
• This debt growth has nearly doubled the amount of budget dedicated to debt repayment from 1.48% of total state spending to 2.82% of total spending.
• Almost two-thirds of Utah G.O. bonds issued after 1995 were for transportation projects, with the biggest portion, $661 million, authorized in 1998 for I-15 expansion.
• Utah remains well under its constitutional debt limit, at 66.9% of the limit; however, in the early and mid-1990s, policymakers kept G.O. debt at generally about one-third of the limit.
• Compared to other states, Utah's G.O. debt level per $1,000 of personal income is fairly high, ranking 14th highest in the nation.
• Utah's use of revenue bonds (which are usually paid for with specific non-tax revenues) is slightly below average compared to other states.
• Utah is one of only seven states with triple-A bond ratings from both major credit rating agencies.
• This high credit rating is largely the result of extreme thriftiness in the past, when G.O. bonds were typically paid off in six years. Higher debt loads and tighter budgets have led to longer repayment periods on recent bonds, but the rating agencies still consider Utah a low-risk, high-quality debtor.

Stephen Kroes, Utah Foundation Executive Director, said "Coupled with our previous release on state spending growth, this report highlights a decade of tremendous growth in state government spending. There are reasons for the growth, including highway and other infrastructure needs that had gone unmet when the economy was slow in the 1980s, but we must realize that this kind of growth cannot continue indefinitely." Kroes emphasized that Utah is still considered an excellent credit risk by Wall Street, meaning that the state has ample capacity to handle its current debt loads. "Utah has a unique history of avoiding public debt and paying for many projects with cash, which is a reflection of Utahns' fiscally conservative political preferences," Kroes stated. "However, the next few years will determine whether there has been a change in those preferences or if the recent increase in debt loads is a temporary phenomenon caused by unusual needs and tight budgets."

Utah Foundation is a nonprofit, non-advocacy research organization. Our mission is to encourage informed public policy making and to serve as Utah's trusted source for independent, objective research on crucial public policy issues. Learn more and view research reports at www.utahfoundation.org.