By William Patrick | The Center Square
(The Center Square) – Louisiana has $13.3 billion in total bonded obligations, according to a new report.
While ranking somewhat average among states, the figure represents $2,865 in debt for every man, woman and child in the Pelican State — debt that must be repaid with interest.
The finding comes from the American Legislative Exchange Council’s latest effort to identify the costs of government borrowing. The group says the borrow-now-pay-later practice adversely affects future generations.
“Taxes levied on future income earners and consumers are how states fund debt service,” ALEC explains in “State Bonded Obligations, 2020.” Report authors say it’s similar to chopping down apple trees for firewood, thereby “reducing the yield of the orchard.”
Debt also has a crowding-out effect, they said.
“Furthermore, government debt represents an ‘opportunity cost’ for taxpayer money that states could use elsewhere,” the authors explained.
Using each state’s financial reports, researchers analyzed the types of bonds issued, debt payment schedules, total liabilities and liabilities per capita. Nationwide, total bonded liabilities exceed $1.25 trillion, or roughly $3,800 per person. Louisiana ranks 28th overall for its bond debt.
Louisiana’s bond debt is mostly composed of general obligation bonds and general activity bonds.
General obligation bonds are backed by the “full faith and credit” of the state, meaning it cannot default. According to the report, Louisiana has more than $5.3 billion in general obligation bonds, which comes at an interest rate of 27%.
California ranks last with $123 billion in general obligation bonded debt and an interest rate of 39%. Notably, 11 states do not issue general obligation bonds.
“The greater the interest rate … the less likely a project funded by a general obligation bond will generate positive value,” the report said.
Government activity bonds pay for roads, bridges and other capital projects. They are often paid from government general revenue funds and “dedicated taxes,” such as gas taxes. Louisiana has $7.6 billion in government activity bonded debt, which is greater than 41 other states.
The report concludes that state debt problems are a function of overspending.
“Many states use bonds to increase spending today while passing the costs onto future generations,” the report said, while warning, “States that do not get spending and debt under control will see taxpayers leave for states with less burdensome tax and fiscal policies.”
ALEC is a national membership organization that advocates for fiscal reform and responsible government.