Let’s avoid insane ‘payday loans’ for local government

According to a recent news article, a school district in California recently got a $2.5 million bond (i.e., a loan) that will cost taxpayers in the district $34 million to pay off – almost 14 times the size of the original loan. Curiously (at least, it’s curious to a non-expert on local government debt) this loan was needed so that the school district could qualify for another, federally subsidized loan of $25 million, which the school board president said would be “foolish” to “leave … on the table.”

Evidently, this seemingly over-priced form of local government debt, which the California State Treasurer calls “the school district equivalent of a payday loan,” is a real problem in cash-strapped (and evidently mathematically challenged) California government. In a similarly egregious case, a school district in suburban San Diego got a loan of roughly $100 million that will cost taxpayers there $1 billion to pay off.

Thankfully, in Utah we value wise financial management and provident living (even if we are often imperfect at practicing it), and so Utah’s local government leaders have yet to develop a case of California’s “fiscal insanity syndrome.” However, local government in Utah is not without its risky debt practices.

According to a Deseret News article, referencing Bloomberg for its data, eight Utah cities and towns had accumulated more than $2 in debt for every $1 they received in revenue from taxpayers, on a per-person basis:

    City                       Debt/Revenue (per person)
    Brian Head           $4.16
    Cedar Hills           $2.88
    Pleasant Grove    $2.66
    American Fork     $2.30
    Midvale                $2.25
    Santa Clara         $2.06
    Park City              $2.02
    Herriman              $2.02

Additionally, there were 19 more cities and towns in Utah that had more than $1 in debt for every $1 in revenue.

Certainly there are other, and probably better, ways of looking at cities ability to properly manage and pay down their debt loads (such as comparing cities’ and towns’ total assets and their total liabilities – one reason we have accountants). However, with municipal debt levels that are this high relative to ongoing revenue from taxpayers, and with California as the glaring example of how neglecting wise stewardship of taxpayer dollars (i.e., limited government) leads to fiscal insanity, it may be time for state policymakers to re-assess, and perhaps reform, constitutional and/or statutory debt limits for local government in Utah.

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