Debt and Other Liabilities: 1. Vermont’s Direct Government Debt

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Unlike the federal government, the country’s state governments tend to use debt prudently.

Vermont is no exception and has a conservative posture when it comes to state indebtedness. Having said that, there is a fair amount of debt in the system, consisting of direct state debt, pension and postemployment liabilities and the stand-alone indebtedness of various autonomous state agencies.

Direct State Government Debt

Vermont issues three types of debt. General Obligation Bonds, which are supported by the full resources of the state, are the most common form.

The state also issues Special Obligation Transportation Infrastructure Bonds to fund highway projects. Unlike General Obligation Bonds, these Special Obligation Bonds are supported by a dedicated claim on a single revenue stream. In the case of Vermont, the claim is limited to gasoline taxes.

Both of these types of bonds are tax-exempt instruments sold in the municipal bond market.

Last, the state has capital leases on certain properties that are basically rent-to-buy financing schemes.

At the end of fiscal year 2016, Vermont had $667.8 million of total debt comprised of $627 million of General Obligation Bonds, $29.9 million of Special Obligation Bonds and $10.9 million of capital leases.

This is equivalent to $1,069 of debt for every man, women and child in the state. To put this in perspective, the average credit card debt in Vermont exceeds $5,000.  The per capita debt of many of Vermont’s towns and cities is also well in excess of $1,000.

The interest expense on this debt was $18.4 million, suggesting an average interest rate of only 2.8%. The total interest expense is only 3.9% of total state tax revenues, so debt service coverage ratios are very healthy and Vermont’s debt burden looks highly manageable.

Given its low indebtedness, Vermont is rated Aaa by Moody’s and AA+ by S&P. This is the same credit rating as the federal government (but unlike the federal government, Vermont can’t print its own money). The Special Obligation bonds are rated Aa2 and AA, respectively, as they do not benefit from the full credit support of the state. With these strong credit ratings, Vermont gets very good terms in the market.

The state issued three General Obligation Bonds in 2015 with interest rates ranging from 2.0% to 2.68% with average life maturities ranging from 8.2 years to 11.4 years.  This looks pretty attractive for Vermonters.

 

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