Utah lawmakers on Wednesday discussed the possibility of borrowing $500 million through bonding to keep transportation projects on track that might otherwise be slowed during the pandemic and to take advantage of low interest rates.
“We’re thinking possibly a bond might be helpful in moving some of the transportation projects along,” said Rep. Kay Christofferson, R-Lehi, co-chairman of the Transportation Interim Committee.
Its members discussed the pros and cons of the borrowing but came to no conclusion. They also did not identify which specific projects might share in the half-billion dollars if it is borrowed.
The Utah Transportation Commission normally prioritizes which transportation projects are funded first. Lawmakers were shown the priority lists. But the Legislature can tweak those priorities — and often does — when it authorizes issuing bonds.
Christofferson gave an example of one such possible change from priority lists that lawmakers might consider.
He said a new Latter-day Saint temple is planned on Geneva Road in Orem, and the church is helping to fund some road widening and improvements at that spot. But more extensive widening along Geneva Road is planned seven years or so in the future, so he said it may make sense to combine the projects now to prevent multiple disruptions along the road.
Some projects high on the priority lists include widening northbound Interstate 15 in southern Salt Lake County; installing several more freeway-like interchanges along Bangerter Highway in Salt Lake County; and beginning conversion of the Cory B. Wride Memorial Highway in Utah County into a freeway.
State Treasurer David Damschen said one advantage of issuing bonds now is that interest rates are low. The state received a rate of just 1.156% on bonds that it issued in May.
“There’s not much room to go any lower,” he said.
He added that the state’s debt level is reasonable, and room exists to borrow more without damaging the state’s highest-possible AAA bond rating.
Before the pandemic in 2019, Utah’s debt amounted to $720 per resident and about 1.5% of overall personal income, Damschen said. Because of bonding earlier this year to handle early effects of the pandemic, the debt rose to $890 per person and 1.85% of personal income.
If another half-billion dollars were borrowed, Damschen said the debt per person would rise to $904 and 1.88% of overall personal income.
Damschen said, “Debt is very affordable now. We’re well under our constitutional debt limit and our affordability measures are good. So, we don’t threaten our bond rating at this moment” by borrowing more.
Linda Hull, director of legislative and government affairs at the Utah Department of Transportation, said her agency takes no position on whether to borrow more — and she also listed some pros and cons.
A benefit: “It would allow us to be able to deliver projects sooner, providing safety, mobility, and preserving infrastructure for the system, if we were advancing the projects sooner,” she said.
Also, it might avoid some losses from future inflation.
“Inflation cost is about 5% per year for the last eight years,” she said. “So one of the benefits of bonding is that you’re able to address the inflationary value for projects by being able to do a project sooner.” A disadvantage, she said, “is bonding is not free.” UDOT figures the state would pay about $171 million in interest over 15 years on the $500 million worth of bonds. “It may restrict our ability to respond to future growth pressures.”
She told the committee, “These are all really important policy trade-offs that need to be considered as you weigh whether or not to issue new bond authorization.”
Christofferson said the discussion will be helpful as leaders continue to weigh whether to borrow the money.