Arizona governments still cutting back on debt

The Arizona Republic
Monday, February 8, 2016
Russ Wiles

Arizona governments and other public entities continued to reduce their indebtedness last year. Borrowing has slowed considerably since the boom years prior to the recession.

Like consumers wary about bloated credit-card balances, government entities throughout Arizona have been reluctant to take on more new debt.

The trend continued last year with public-sector borrowers paying down a bit more than they took on in new borrowings, according to a recent report from the state Treasurer's Office.

The level of overall indebtedness by public entities in Arizona eased to $42.5 billion last year from $42.9 billion in 2014 — the third decline in four years since debts peaked at $44 billion in 2011. The latest figures reflect borrowings and long-term leases incurred by state agencies, counties, cities, education systems and other public groups through the latest fiscal year, which ended June 30, with the report drafted in December.

Statewide debts had escalated sharply during Arizona's high-growth years prior to the recession but have declined modestly since then. The last few years also have brought lower interest rates and stable, if not improved, credit ratings for government entities.

New debt, excluding that issued to refund or refinance prior debts, amounted to $3.4 billion, or slightly less than the amount of principal that was paid. Arizona entities also issued $4.2 billion in bonds to refund prior debt at lower interest rates, much like homeowners periodically refinance mortgages to take advantage of low interest rates.

This refunding activity likely will slow if interest rates rise, said Todd Curtis, who tracks the municipal-bond market as portfolio manager of the Aquila Tax-Free Trust of Arizona. However, interest rates have remained low for a prolonged period and could ease further if the economy stalls.

Bonds represent about 96 percent of statewide public debts, with long-term leases the rest.

The current draft report from the Treasurer's Office is incomplete because several-dozen jurisdictions, primarily small school, fire and irrigation districts, hadn't yet reported numbers, noted Jennifer Stielow, vice president at the Arizona Tax Research Association, who sits on the debt-oversight commission that reviews the report. Nevertheless, Stielow said she's not aware of any big increases in debt among public entities over the past year or so.

About 970 governmental and other public entities throughout Arizona are required to submit debt figures.