What’s Debt Got to Do With It? A Look at General Obligation Bonds

July 1, 2022

Last week, Legislative leaders alongside the Governor and others participated in a ribbon-cutting ceremony to unveil the new state prison. The new prison provides a notable example of the approach the state uses when financing a multi-year, multimillion-dollar project. For projects that are not expected to earn revenue sufficient to pay for the project, general obligation (GO) bonds are issued, which means that taxpayers are responsible for the principal and interest payments. Revenue bonds, on the other hand, may be issued for something like a state university football stadium, which could be expected to earn revenue with which to make payments toward the debt. The two GO bonds the state currently carries are for the construction of highways and the new prison; these can be monitored on the LFA Fiscal Health Dashboard. Bond payments are appropriated to the Debt Service line item in the Infrastructure and General Government appropriations subcommittee.

While GO bonds are a useful tool for financing large projects instead of using cash, they are also part of Utah’s ‘working rainy day fund’ (one part of Utah’s Fiscal Toolkit). Working rainy day funds are unique from a traditional set of budgetary reserves, because they do not take the form of financial investments or a finite sum in an interest-bearing account. Instead, these are ongoing funds which are used to pay for one-time capital projects and can be replaced by borrowing in the future. In other words, legislators pay down debt and use ongoing appropriations (“cash”) for infrastructure when revenue is strong (like in the past few fiscal years). Then, when the economy slows, policymakers can move that cash flow out of capital projects and use it to fill budget holes, and instead borrow for needed infrastructure – typically in favorable terms. During the 2022 General Session, legislators appropriated $250 million one-time and $32 million ongoing from the General Fund as a set-aside for outstanding prison GO bond debt (see table). Setting aside most of the outstanding obligation up front creates debt capacity for future needs and frees up ongoing cash for other priorities.

Fiscal YearGeneral Fund AppropriationsGO Bond PaymentBalance
2023$   282,000,000$71,756,850$     210,243,150
2024$   242,243,150$71,754,850$     170,488,300
2025$   202,488,300$71,753,350$     130,734,950
2026$   162,734,950$71,756,750$       90,978,200
2027$   122,978,200$71,754,750$       51,223,450
2028$     83,223,450$71,754,250$       11,469,200
2029$     43,469,200$6,885,000$     (36,584,200)
Outstanding GO Debt for the New State Prison

The Utah Constitution caps borrowing at 1.5 percent of the value of taxable property in the State (see Article XIV, Section 1). Unless approved by two thirds of both chambers of the Legislature, UAC 63J-3-402 limits General Obligation debt to 45% of the annual state budget. According to the state auditor, Utah sits at roughly one-third of the $7.4 billion debt ceiling (as of June 30, 2021).