If I were to ask you how much of the state budget goes toward paying off debt, what would you say? 10%, 30%, 50%?
Try between 3% and 4%.
Like a family buying a home or a business opening a factory, the Commonwealth of Pennsylvania borrows money to finance buildings, roads, bridges and other facilities that have a long useful life. And as we found in the latest installment of the Pennsylvania Budget and Policy Center's February Fiscal Facts, Pennsylvania has kept its repayment of debt to a reasonable level over time. Bond rating agencies recommend that states keep debt service to 5% of revenues or less, a threshold that Pennsylvania’s General Fund has met for 30 years.
Yes, debt service payments have increased over time — along with wages, tax revenues and the cost of goods and services. But debt payments remain a small slice of the state budget.
It's also important to remember that debt is an appropriate way to pay for a large asset over the course of its useful life — like roads and bridges, prisons, facilities at state colleges and universities, public transportation, and office buildings. It would make little sense to pay for these types of assets up front.
Bottom line: Pennsylvania has kept the repayment of its debt, as a share of its yearly spending plan, quite manageable. Tomorrow we’ll have another Fiscal Fact on overall debt levels. For now, check out today’s edition of Fiscal Facts to learn more.