Utah State Treasurer David Damschen warned legislators Wednesday that a full state takeover of the Utah Transit Authority could damage the state’s now-perfect credit rating, and hurt its ability to borrow for other needs.
“If we bring $2 billion of UTA debt onto the state’s balance sheet,” he said, “that throws our debt affordability ratios completely out of whack.”
Also, “It would severely constrain our ability to issue debt going forward for highways, prisons, water infrastructure” and other state needs, he told an interim budget committee dealing with capital projects.
A separate state task force is studying how to restructure UTA and other transportation agencies, and is pushing for the state to take significant control of the scandal-plagued UTA, now overseen by an independent appointed board.
But to what degree that occurs depends largely on the damage such a move might do to the state’s credit rating.
Sen. Wayne Harper, R-Taylorsville, who is co-chairman both of the task force and the infrastructure appropriations committee, said Wednesday that “bringing UTA under state purview right now could impact our state bond rating, which we don’t want to do.”
Damschen noted that Utah is one of only 10 states with a perfect AAA bond rating, and protecting that saves the state millions of dollars in credit cost.
The transportation task force has looked at two main options to bring more state control to UTA.
Under one, the state would take over ownership of all UTA facilities. New construction would be overseen by the state Department of Transportation (UDOT), and prioritization of state spending would be up to the Utah Transportation Commission.
A second option would allow UTA to maintain ownershipof its current facilities. But UDOT would build and own future transitprojects — and would control when borrowing occurs.
A disadvantage of the first option — the full takeover — is that the state would assume UTA’s current $2 billion in debt, amassed mostly to build recent rail projects.
Sen. Wayne Harper, R-Taylorsville and chairman of the interim committee, said option one becomes even more problematic because UTA is planning to issue bonds three more times in the next few years — including $88.5 million next year — to cover needed maintenance of tracks and trains. The state would have to fund such work itself, possibly by raising sales taxes, he said.
Damschen warned that state assumption of UTA debt “is technically not even possible. You would have to completely issue new bonds. It would be extremely costly, and it would probably threaten the state’s credit rating.”
Even as he cautioned lawmakers to steer clear of the UTA debt issue, Damschen praised the effort looking at ways to help clean up perceived problems with the transit agency.
He said if UTA or other local governments default on large debt, “it becomes a reputational issue for the state, and could indirectly affect the state at large.”