Intrastate Competition for Debt Resources
Limited economic resources create constraints that force trade-offs among desired objectives. Likewise, state-balanced budget requirements force policy makers to make budgetary trade-offs among competing state programs. Constrained state resources have also encouraged states to issue bonds to finance infrastructure and capital assets rather than using pay-as-you-go financing for such investments. However, the expanded use of debt financing often faces another constraint known as debt capacity. As a result, states may be required to make trade-offs among the competing demands for debt financing similar to the trade-offs they must make for operating program expenditures. The authors' empirical findings indicate that tradeoffs occur between highway projectâ€”related debt and other state debt in those states with formal restrictions on total general obligation and revenue-backed debt (umbrella debt limits). In states without umbrella debt limits, there is no evidence of a trade-off between the highway debt and all other state debt.
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