The State of Utah borrows billions of dollars to finance large capital projects. Several such projects loom on the horizon, including the prison relocation, highway construction, and water projects. In consideration of these needs, Utah Foundation researched whether it is beneficial for Utah to maintain the practice of bonding with shorter terms, or if it might be useful to extend the term lengths.
The report first explains what municipal bonds are, how they work, and who issues them. The second half of the report details how bonds have benefited the state, and how they can be useful in funding Utah’s future. In seeking to answer the research question regarding term lengths, Utah Foundation determined that legislators and other policymakers who are promoting funding for large-scale projects should convene to prioritize Utah’s future needs and how bonding can assist in funding these projects.
Findings:
- Utah’s practice of utilizing shorter-term bonds raises more capital at lower borrowing costs, essentially saving the state millions in interest payments.
- Other states with AAA bond ratings tend to issue shorter-term bonds, though Utah’s average bond length is the shortest.
- Lengthening bond terms to match the useful life of projects ensures more equitable repayment; more users would pay for projects from which they benefit.
- Utah may have room to extend the average term of its bonds which would allow for the completion of larger projects with larger economic impacts.