Fiscal Highlights - November 2016
As the Holidays Begin, Let's Discuss Debt Affordability -
Steven M. Allred ( PDF)|
I recently had the opportunity to attend a National Conference of State Legislatures fiscal seminar for legislators and staff from across the country. I found the presentations to be interesting and informative. On several occasions Utah was recognized as being a fiscally well-managed state. One presenter, from UBS Financial Services, congratulated our state on having the best credit of any state in the nation. Another presenter, from Moody's Investor Service, reviewed states' debt and factors states should consider when analyzing debt affordability. I will highlight her presentation here.
A good debt affordability review should include more than just a state's current debt. It should also include all long-term liabilities (in particular pension and other post-employment benefit liabilities), current commitments (for example, Medicaid), and revenue projections. As shown in the chart below, on a national level state debt has stabilized in dollar value since 2010 and has declined as a percent of personal income since 2012.
Nationally in the past fifteen years we're spending less as a percentage of Gross Domestic Product (GDP) on infrastructure than in the previous thirty years. States have become averse to debt due to painful memories of the Great Recession and other commitments being incurred. During the last four years municipal bond rates have been historically low, yet states have not been borrowing to what Moody's believes is the need to maintain infrastructure. While the presenter didn't say this, it is also possible that well-managed states are using pay-as-you-go rather than borrowing in recent years.
Average net pension liability (not debt) is the largest pressure point on states' long-term liabilities:
Interestingly, Utah's net pension liability is lower than our net tax-supported debt. The Division of Finance recently provided the Executive Appropriations Committee with our FY 2016 long-term liabilities from the soon-to-be-released Comprehensive Annual Financial Report (CAFR). A copy of the table is shown below. Across three categories of state government activities, General Obligation Bond debt was $2.5 billion and net pension liability was $1.4 billion. Lease/revenue and revenue bond debt was $2.7 billion ($1.3 billion of which was student assistance revenue bonds), and total long-term liability summed to $8.5 billion.
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