The amount of debt states owe climbed up to10.3 last year to $460 billion dollars, said representatives from Moody’s Investors Service. Most states pay through debt by raising taxes and fees, leaving residences responsible.
As the economy continues to collapse, it is very likely that states will depend on bond markets as federal stimulus money weakens. Officials face an additional $12 billion shortfall for the current fiscal year and a $72 billion gap for fiscal 2012.
Robert Kurtter, a managing director at Moody’s Investors Service, said “Debt is a tool to help bridge the gap between the downturn and when the economy starts to recover.”
States are depending on debt markets in a number of ways. Some state officials are borrowing more to fund capital projects.while other states issue bonds to cover their budget shortfalls or restructure their debts to lower their monthly payments
Luckily for states, right now is the best time to issue debt. States do have an advantage because interest rates are low, however the American Recovery and Reinvestment Act gives support to interest payments on certain municipal bonds.
Connecticut is planning to borrow up to $956 million dollars in a few short months because they are required to close a $684.3 million budget deficit for fiscal 2011.Connecticut made this decision after the state issued $916 million in bonds to cover a previous shortfall.
Connecticut is welcomed into the bond markets, however state treasurer Denise Nappier warned that officials should not rely on loans as much in the future because the state already has the highest debt burden per capita at $4,859. Nappier gave a statement saying, “We must continue to manage our existing debt as aggressively as possible, and our governor and legislature must avoid additional borrowing to close budget gaps if the state is to avoid the very real prospect of having to pay more for the cost of money.”
Illinois is taking a different approach.They are planning to turn to the debt markets to fund $3.7 billion in pension obligations in December if the legislature approves.The state sold $2.4 billion in pension notes in January. John Sinsheimer, Illinois’ director of capital markets said,”It frees up other funds that can be used for operations”. Illinois is in progress to solve overspending problems that left the state in deep financial debt.Governor Pat Quinn recently cut off $1.4 billion dollars in spending before approving a $24.9 billion budget.
California’s debt issue has forced officials to go to the bond markets to cover the cost of its capital improvement programs.The state issued about $25 billion dollars in bonds over the past year to fund infrastructure projects.
Build America Bonds makes up almost 10 million dollars in the debt in California, which has 35% of their interest payments covered by the federal government.
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