For the last five years the U.S. economy has been in the dumps. Yields on savings and CDs have plummeted. Corresponding borrowing rates have been attractive for households, and, apparently, states and municipalities as well. However, while households have largely redirected their “savings” towards debt reduction and/or taken steps to reduce monthly debt service payments, many municipalities have defied common sense and used the current interest rate environment to take out additional debt—funding new projects and initiatives in the face of a rising debt load.
Today, Utah is at 75% of its constitutional debt limit, and if items such as unfunded pension liabilities are included, Utah is far in excess of 200% of this constitutional restriction.
We believe it’s time for the state of Utah and its municipalities to
follow the example of the families who comprise them and use this period
to get their fiscal house in order—reduce debt, refinance to lower debt
service payments, and return to a conservative fiscal situation as
measured by historical standards—not the spendthrift standards of other,
less responsible states.
We have seen in recent months a spate of municipal bankruptcies
across the country. In fact, two records were recently set for largest
municipal bankruptcies in U.S. history: one by Jefferson County, Alabama
($4 billion total debt) and one by Stockton, California (population
300,000). In both cases, revenues from taxes and fees did not keep up
with the merciless call of creditors, and current leadership had to bite
the bullet to preserve a semblance of public services. The illusion
that property values would forever increase and cover these future
obligations was the perpetual siren song of city and county managers—a
prediction that ultimately and predictably fell flat.
By contrast, Utah’s entire General Obligation (GO) debt in 2011 stood
at $3.3 billion, a far cry from the free-wheeling levels of some
municipalities, but nevertheless representing a large increase from our
historical debt levels. Just three years prior, Utah’s GO debt as a
percentage of the constitutional debt limit was 28.30%. By 2011, this
figure had increased to 77.28%. In other words, Utah was not immune to
the recession’s impact on real estate values. While GO debt is not
usually funded directly by property taxes, this is still a troubling
Utah also has a statutory debt limit which states “GO debt must not
exceed 45% of total appropriations” (a fancy word for taxation by
legislative fiat). On the surface it looks like Utah runs a
conservative percentage, even leaving a surplus of debt capacity.
However, the largest line item, Highway Construction Bonds, which in
2011 comprised 83% of all bond debt, is exempted from this so-called
limit and has been since the early 90’s. Predictably, this exempted
portion of GO debt has more than tripled in the last 3 years, outpacing population growth 118:1.
Either Utah officials are hoping for a triple-digit percentage
population boom in the next two decades, or a lot of money is being
funneled into jobs programs building our own “bridges to nowhere.” Now
I’m no forensic accountant and interpreting this data is not my forte,
but it’s quite clear that we have room for improvement. We should not
rest on our “best managed state in the nation” laurels and ignore the
ominous warning signs presented by high levels of debt. Agents of the
state government, as fiduciaries of public funds, must be held to
How can we improve the financial picture? Consider this: how many
times have you driven by road construction projects without a single
working employee to be seen for miles? Each standing barrel on a
construction site represents a $.40/day charge to the state. When was
the last time you received excellent service at the DMV? How many
private sector employees get free health insurance and amazing pension
The answers are clear. It’s beyond time to privatize more of the
functions assumed by the state government. Market forces encourage
restraint and fiscal discipline; government exempts itself from these
forces to our collective detriment. Last year, state per capita
expenditures totaled nearly $4,000. You and I already being forced to
write the check—it’s time to demand more bang for our buck (while
working to keep more of our bucks!).