Idaho’s political leaders are generally viewed as being quite conservative. But when they want to borrow money for large infrastructure projects, they are sometimes criticized for following “borrow and spend” policies.
That is really an unfair accusation, because Idaho’s bonding policies are quite conservative, perhaps so conservative as to render Idaho less competitive economically than surrounding states.
A new study by Idaho2020 makes the case that wise and prudent public finance options are an important economic development tool for state and local governments, resulting in more jobs and economic activity.
Idaho2020 was formed by top business leaders to provide good public policy data for policymakers. The organization produces world-class research and conducts public opinion polling to provide information policymakers need.
Research conducted for Idaho 2020 by Stanford University’s respected Hoover Institution shows that
Idaho faces high hurdles for public finance. Bonding is important to facilitate investment in public infrastructure. Modern infrastructure, including highways, bridges, school and university buildings, and community facilities are critical to a strong economy. Companies won’t relocate to a place lacking good mobility and a high quality of life enabled by good public infrastructure.
But infrastructure development options in Idaho are more limited and more difficult to enact than in surrounding states. “Idaho could benefit by loosening funding restrictions in smart, targeted ways in order to respond to the unmet demand for infrastructure investment,” says the study. For example, Utah, Colorado, New Mexico, Nevada, Arizona and Oregon require a majority vote from the public to issue a general obligation bond. But Idaho requires a two-thirds vote, which makes it very difficult to finance new school buildings. Thus, “Idaho invests in infrastructure approximately one-quarter as much as Utah per capita,” noted the study.
Idaho’s leaders have been, and will be, fiscally prudent and wise in their use of bonding. But some critics equate bonding with the deficit spending of the federal government. Such criticism demonstrates a lack of understanding about bonding.
In reality, prudent state and local government bonding is dramatically different than the irresponsible borrowing of the federal government.
Here’s why: State or local government use of debt is like a careful and prudent middle-class family getting a mortgage to buy a home at a time of very low interest rates, using a relatively short pay-off period. The family has sufficient income to pay the mortgage each month and still provide for other needs, so they purchase the home today instead of renting for decades and seeing home prices rise. The family can enjoy using the home, which provides family stability and a sense of community, and increases their net worth, while they are paying for it. They are not borrowing for day-to-day living expenses, but instead for an important asset that increases in value. In due course, they pay off the mortgage and own their home free and clear. That’s wise use of debt.
By comparison, the federal government is like a family in deep financial trouble living a luxurious lifestyle. This irresponsible family is borrowing 40 cents of every dollar it spends, not just for major assets like a home, but also for daily expenses like food, clothing, movie tickets and golf games. Their debt always increases and is so great they will never pay it off in their lifetimes. A day of severe reckoning is ahead.
That’s unwise borrowing, but that’s not what Idaho’s state and local governments are doing.
Some critics say bonding is saddling our children and grandchildren with debt. To an extent, that’s true. But if bonding is only used for critical infrastructure projects, then it is fair for future taxpayers who will enjoy the projects to help pay for them. Future Idahoans will greatly benefit from good highways and modern school buildings. Even then, a prudent bonding program has short pay-back periods, so debt is paid off relatively quickly.
Wise infrastructure investment uses bonding only for long-term capital assets that will provide great value now and long into the future. A strong economy and enviable quality of life are absolutely dependent on good infrastructure. Without it the wheels of commerce simply won’t turn.
State and local borrowing are governed by constitutional and statutory guidelines that maintain conservative debt levels. Bonds are paid off relatively quickly and the state has ample revenue to make the payments. There is no danger of default or financial trouble.
It is actually more conservative for state and local governments to use a prudent amount of on-going revenue to bond for transportation projects than it is to spend every dime of on-going revenue building the base budgets of other programs. Once bonds are paid off, that money is available for other needs, like education, healthcare, or for further bonding. In effect, policymakers can wisely stockpile money that will be available in future years for critical needs. That’s conservative budgeting.
That’s why the rating agencies do not downgrade states with prudent bonding policies. Smart bonding generates economic activity and more tax dollars.
Certainly, a state can borrow too much (and many have). Certainly, the right balance between bonding and the needs of other programs and education must be found. But Idaho can strike that balance fairly easily, even with less restrictive bonding policies. Idaho’s state and local officials deserve commendation for using debt wisely and judiciously for infrastructure projects crucial to the state’s future.