State Net Capitol Journal: Despite Low Bond Rates Governments Decline to Borrow

State Net Capitol Journal: Despite Low Bond Rates Governments Decline to Borrow

 by Korey Clark

According to the American Society of Civil Engineers, state and local governments would have to spend about $3.6 trillion through 2020 to get their crumbling infrastructures back into decent shape. That figure is about $1.6 trillion more than states and localities are expected to spend, however. And they've actually been spending less on construction every year since 2009, resulting in a $39-billion, or 13-percent, decline over that period, U.S. Commerce Department data shows. Public infrastructure investment as a percentage of total U.S. economic spending is now at its lowest level since at least 1947. 

 
"Infrastructure is one of the only ways that states and local governments directly affect commerce in the United States — the trucks have to use the roads and bridges, the boats have to use the ports," said Daniel White, an economist at Moody's Analytics. "If we continue to let them deteriorate, it could have disastrous consequences." 
 
Despite the dire state of affairs, state and local governments aren't borrowing money to pay for construction projects — even with borrowing costs at their lowest level in almost four decades. Bond issuance through mid-June is down 20 percent from last year and down 30 percent from 2010, according to data compiled by Bloomberg. Meanwhile, corporations like Apple Inc. and Verizon Communications Inc. have been borrowing at a record pace, selling $648 billion of dollar-denominated debt this year. 
 
Governments haven't forgotten — or completely recovered from — the worst financial crisis since the Great Depression. 
 
"There's a psychological hangover," said Uri Monson, chief financial officer for Montgomery County, Pennsylvania. "We're not going to go out and borrow unless we absolutely have to." 
 
Investors approve of the austerity kick. 
 
"There's actually some sanity at senior levels of government," said Thomas Metzold, co-director of municipal bond investments at Eaton Vance Management in Boston. "People are saying just because times are good again, we still have to think about what's going to happen five years from now." (BLOOMBERG) 
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