Why is Utah better at managing finances than the feds?

The federal government is a mess financially. Why is Utah not?

By Frank Pignanelli & LaVarr Webb

The debt limit near-disaster is an excellent illustration of the dysfunctional way the federal government manages its budgeting, finances and debt — especially when contrasted with Utah’s sensible and transparent budgeting processes. We make some comparisons.

The dirty truth is that the federal government’s finances are a mess. The U.S. government borrows at least $2 of every $10 it spends. Budget experts estimate that the $31 trillion federal debt is actually less than half of total unfunded obligations over the next several decades. In a matter of several years, major federal entitlement programs will run out of money. The congressional budget process is badly broken, with Congress unable to pass budget bills for the various departments. If a publicly-traded company ran its finances the way the federal government does, its officers would go to jail. How does this chaos compare with Utah’s budget process?

Pignanelli: “The American people expect more from Congress. They expect fiscal responsibility and common sense.” — former Illinois Congresswoman Melissa Bean 

Budget processes are a direct reflection of the human element. State officials endure constitutional constraints in appropriations and ramifications for failures, real and perceived. There are no such limitations (if any) for federal lawmakers. Thus, human nature dictates how these institutions respond.

Proponents of federal largesse argue that states are the beneficiaries of massive federal dollars and comparisons of process are unfair. Yet, Utah, along with other states, exude responsible behavior beyond capping expenditures. Frequent audits and reviews are conducted — and the recommendations implemented — to maximize efficiency of taxpayer dollars. The feds rarely do this.

Deficit spending is critical in times of war, economic distress, and emergencies. However, continuing government expenditures that exceed revenues crowds out private economic activity and reduces incentives for efficiency.

My final act as a state legislator was sponsoring a resolution in support of a balanced budget amendment to the U.S. Constitution. This was in conjunction with a public statement the federal government needed the same budgetary exercises as I witnessed — and participated in — for 10 years. Twenty-seven years and $26 trillion later, human nature still holds. 

Webb: A number of years ago, Utah faced a financial problem. The state’s retirement system was not bringing in enough money to pay retirement obligations a number of years in the future. The Legislature carefully studied the problem, determined the size of the projected deficit, and reformed the retirement system to keep the retirement system secure and solvent.

Many state employees were not pleased with the reform. Some benefits were slightly cut. But the Legislature and governor took the difficult and thankless action to keep the system solvent and avoid leaving future legislators and taxpayers a financial mess to deal with.

On an immensely greater scale, the federal government faces the same problem with Social Security and Medicare. But Congress and the president are paralyzed and dysfunctional, simply unable to deal with one of the most profound problems facing the nation.

Utah leaders solve problems, manage better and exercise more discipline than their federal counterparts. Federal budgets are full of funny money with inflated revenue estimates and no idea how much new programs will actually cost.

This lack of fiscal discipline is enabled by an unlimited ability to borrow money, with no idea how the debt will ever be paid off.

Utah has low debt, but sometimes bonds at low interest rates for large infrastructure projects. How does state borrowing differ from federal deficit spending?

Pignanelli: Most households borrow money for large expenditures (houses, automobiles, recreational vehicles, etc.) and try to avoid funding ongoing expenses with borrowed money. Utah follows a similar path, explaining its excellent bond rating. Federal support of large projects was extremely beneficial for this country’s development, but Washington, D.C., ignores similar discipline undertaken by families and states.

Webb: Utah has paid its debt down to very low levels. When it does borrow, it only bonds for big, important projects that will benefit citizens for many years into the future. Those who use the project in the future, help pay for it. The state never borrows for the day-to-day operations of state government or for employee salaries or benefits paid to citizens. If the state had to stop borrowing completely, it could easily do so. It just wouldn’t build big projects for a period of time.

By contrast, the federal government must borrow vast amounts of money for all operations of government, not just for infrastructure. If the federal government was a business or a family, it would be bankrupt — in deep financial trouble.

Votes on the debt limit agreement between President Joseph Biden and House Speaker Kevin McCarthy were scheduled after our deadline. The extreme right and extreme left were expected to oppose the agreement. What does their unwillingness to compromise say about them?

Pignanelli: Most Americans do not receive direct benefits from entitlement programs. But if there is a debt default, they would suffer through collapse of retirement accounts, threats to private enterprise funding and deterioration of other economic interests. The political extremes have many other occasions to exercise their ideological priorities, but not when a crisis is looming.

Webb: Both the debt and the periodic debt limit crises demonstrate the broken ways of Washington and federal financial profligacy. Extremists on both sides make it more difficult to solve the nation’s problems.