American Paradox: It’s Never Been Cheaper for Cities and States to Borrow Money...And They Refuse to [View all]

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Plunging global interest rates have made borrowing cheaper than ever. But instead of spending on aging roads, bridges and buildings, many state and local governments are scaling back. New government-bond issues have dropped to levels not seen in the past 20 years.

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As a share of the economy, state and local governments are investing less in capital projects than they have since the early 1980s, according to Commerce Department data. Last week, Hawaii became the latest state to pare new highway construction after legislators turned down a gas-tax increase. In May, California transportation officials announced a 28% cut to construction plans between now and 2021. New public-sector borrowing in the state last year dropped almost 40% from 2009.

Florida officials went five years without approving any new borrowing by the state’s main construction program for public schools and universities despite a long list of projects. When the legislature and governor finally signed off on new borrowing again in March, they limited the new debt to $275 million, down from $1.4 billion in fiscal 2007.

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Wall Street executives are calling for investments in infrastructure. J.P. Morgan Chase & Co. CEO James Dimon cited a “need for good, long-term infrastructure plans” in a letter to shareholders this year, echoing economists’ sentiments... State and local governments are carrying about the same amount of debt as they were when they emerged from the recession, in part because tax revenue has been slow to rebound.

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A McKinsey Global Institute study released in June found the U.S. should boost infrastructure spending by 0.7% of its gross domestic product between now and 2030 to meet transportation, water, power and telecommunications infrastructure needs. Doing so this year would mean roughly $129 billion in new spending.

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Many states require a voter referendum before taking out new loans. That means political considerations often matter more than interest rates when governments consider a new round of borrowing.

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http://www.wsj.com/articles/american-paradox-its-never-been-cheaper-for-cities-and-states-to-borrow-money-and-they-refuse-to-do-it-1470562203