Bonding: An opportunity to invest in Montana

Apr 27, 2015

By MBPC Staff

The state of Montana has never had a better opportunity to address infrastructure needs through bonding than right now, and that opportunity begins to dwindle after this session as interest rates will inevitably rise in the future). The bipartisan compromise, SB 416, strikes a balance between bonding and direct appropriations for projects across the state, creating good-paying jobs and putting our infrastructure on better footing. This has been an interesting day for the 64^th Legislature, with the House failing to pass SB 416 by just one vote and then passing a motion to adjourn the session (sine die). However, they will be back tomorrow, because the Senate refused to consent in adjourning, urging the bodies to reconsider the bipartisan measure to help create jobs across the state of Montana. In advance of what will no doubt be a fascinating session tomorrow, we will revisit what it means to finance infrastructure through bonding – a tactic Montana and virtually all other states use – and the economic benefits it brings for our communities. Rather than using existing tax dollars or drawing down a budget surplus, states and local governments finance large capital projects by issuing bonds to the public. For the borrower (state and local governments), bonding is an effective way to quickly raise funds, spread out expenditures across long-term infrastructure projects that typically have high up-front costs, and take advantage of low interest rates. On the lender’s side (you and me), we benefit by participating in a very safe investment and are able to create intergenerational equity since we all now technically “own” some share of an infrastructure project. Not to mention, we’re supporting the schools, roads, bridges, and other public works projects that make our economy flourish. There is also been quite a bit of talk about Montana’s ending fund balance, and it is important to note that this is not a surplus, shouldn’t be considered a surplus, and is critical to maintaining our budget’s structural balance. Montana is wise not to draw down these reserves, as the ending fund balance is really Montana’s rainy day fund needed to invest in other short-term projects or to combat emergencies like wildfires. In fact, to come full circle, Montana’s stellar ending fund balance is why we can take advantage of such low interest rates on our bonds. Just as most families do not have the luxury to purchase homes or large ticket items with cash and instead use some form of financing to cover the cost, bonding is a smart, responsible way for a state to finance critically needed infrastructure that help us all. Communities need safe bridges and roads, and we all benefit from schools that provide an educated workforce. We hope the legislature will take another look at SB 416 when it returns tomorrow.