Montana has very little bond debt according to new study
(The Center Square) – A new analysis released this week by the American Legislative Exchange Council shows Montana has comparatively little bond debt compared to the other 49 states.
Montana is fourth in per capita bond debt, at $1,059 per person. Only Wyoming at $67, Indiana at $200 and Nebraska at $667 are lower.
Total state bond debt for all 50 states exceeds $1.25 trillion, or $3,800 per person. Just 10 states – California, New York, Texas, Illinois, Massachusetts, New Jersey, Ohio, Washington, Connecticut and Virginia – account for 64%, some $809 billion, of the total.
Montana’s total bond obligation stands at nearly $1.1 billion, which is the second lowest in the country behind Wyoming at $39 million.
Montana ranks 14th in general obligation bond debt at $94 million. There are 11 states – Arizona, Colorado, Idaho, Indiana, Iowa, Kansas, Kentucky, Nebraska North Dakota, South Dakota and Wyoming – that have zero general obligation bond debt.
General obligation bonds are backed by the full faith and credit of the state, meaning states cannot default on such debt. That also means that general obligation bonds are the most secure type issued.
Such bonds account for a little more than $463 billion nationwide, or nearly 37% of all state obligations.
Montana ranks 30th for interest costs on general obligation bonds at 22.6%, but those same 11 states are tied for first with no interest costs on general obligation bonds.
As for governmental activity bonds, revenue bonds used to fund capital projects, Montana is 13th at $43 million. There are eight states – Arkansas, Colorado, Indiana, Nebraska New Hampshire, Oklahoma, Pennsylvania and Tennessee – with no governmental activity bonds.
Business-type activity bonds are issued by state agencies that are basically self-supporting, such as a university or a toll road. Montana is tied for first at $0 along with Delaware, Indiana, Kentucky, Nebraska, Mississippi, Montana, Nebraska, Ohio, Tennessee, Utah, Vermont, West Virginia and Wyoming.
Montana is 12th for component unit bond liabilities at $994 million. Component units are entities created by a state government that are legally separate and can go bankrupt.
As the authors explain, bondholders do not care what state governments do with the money, only that they get repaid.
The study notes that government debt is an “opportunity cost” for taxpayer money that states could use elsewhere, while debt used for current government spending is a consumption of what could have been productive funds for taxpayers in the future.
The authors quote Nobel Prize winning economist James M. Buchanan that financing current spending with debt is, “in effect, chopping up the apple trees for firewood, thereby reducing the yield of the orchard forever.”
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