New study shows Nebraska ranks low for bond debt obligation
(The Center Square) – A new analysis released this week by the American Legislative Exchange Council shows Nebraska has comparatively little bond debt compared to the other 49 states.
The Cornhusker state is third in per capita bond debt, at $667 per person. Only Wyoming at $67 and Indiana at $200 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.
Nebraska’s total bond obligation stands at nearly $1.3 billion, placing it behind Wyoming at $39 million and Montana at $1.1 billion.
Nebraska is also tied for first with 10 other states – Arizona, Colorado, Idaho, Indiana, Iowa, Kansas, Kentucky, North Dakota, South Dakota and Wyoming – having 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.
Nebraska, of course, is also tied for first with those same 11 other states for having no interest costs on general obligation bonds.
As for governmental activity bonds, revenue bonds used to fund capital projects, Nebraska is tied for first at $0 along with Arkansas, Colorado, Indiana, New Hampshire, Oklahoma, Pennsylvania and Tennessee.
Business-type activity bonds are issued by state agencies that are basically self-supporting, such as a university or a toll road. Nebraska here again is tied for first at $0 along with Delaware, Indiana, Kentucky, Mississippi, Montana, Nebraska, Ohio, Tennessee, Utah, Vermont, West Virginia and Wyoming.
All of Nebraska’s bond debt is in the form of component unit bond liabilities, placing it 15th in the nation for that category. 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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