Less public debt, but a ‘lost decade’ for US infrastructure spending, S&P says
Most U.S. states took on less debt during the COVID-19 pandemic, continuing a long period of deleveraging, according to a report released Friday by rating agency Standard & Poor’s. But the focus on pay-as-you-go infrastructure spending likely limits the upgrades needed, according to the report.
As governments scrambled to figure out how to handle the COVID crisis, normal spending habits were disrupted, the report notes. Many states have postponed bond sales or reduced the amount they issued: overall tax-backed government debt (as opposed to income from things like user fees) fell 0.7% in fiscal year 2020 compared to 2019.
This decline reflects “the continuation of a longer-term trend of deleveraging,” note S&P analysts.
“Median debt per capita has averaged about $ 947 over the past five years, down 8.5% from the record high of $ 1,036 per capita in 2012,” they write. Since 2009, median aggregate state debt has fallen by almost 7.5%, with around one-third of states reducing their total stock of tax-financed net debt.
The report cites data from the National Association of State Budget Officers (NASBO) that shows capital spending increased 10.3% in fiscal 2020 from 2019, to $ 126.6 billion. , the highest level in 20 years. But pay-as-you-go financing accounted for 74% of government spending on capital spending. The 26% of spending from bond proceeds was the lowest share since 2001.
S&P analysts believe this ongoing deleveraging among many states could be a continuing reaction to the aftermath of the Great Recession of 2008. This downturn and the weak and slow recovery that followed “constrained state discretionary spending, coupled with efforts to contain Medicaid spending, pensions, and retiree health care benefits that have outpaced income growth.
Importantly, the report notes, many governments make tough decisions about infrastructure based not only on the cost of immediate investment, but also on ongoing maintenance. Such considerations mean that the infrastructure is below what they deem necessary, perhaps up to $ 1.5 trillion, as shown in the graph below, which is local and state government spending. .
For this reason, analysts are calling the period after the Great Recession a “lost decade” for infrastructure spending.
“This missed opportunity has contributed to a decade of shallow economic growth, missed productivity gains and deferred maintenance that would inevitably increase the costs of deferred capital projects,” they write.
Read more : This graphic shows why we need “infrastructure week” so badly.