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Iowa State Daily

Iowa debt reaches record heights

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Posted: Tuesday, December 4, 2012 12:00 am

Debt in Iowa has reached record heights, according to an article in the Des Moines Register, with the total debt including state agencies and public groups reaching approximately $14.406 billion, a 4.37 percent increase from last year.

The biggest portion of the debt continues to be cities, which has 35 percent of the state debt. Des Moines has the largest debt in terms of cities in Iowa, closely followed by Cedar Rapids.

Peter Orazem, university professor of economics at Iowa State and member of the Ames City Council, said: “There are right and wrong reasons to borrow money. ... The numbers they were reporting for Iowa were not of concern.”

Public schools follow cities in terms of largest contribution to the state debt, covering almost 21 percent, an increase of approximately 10.3 percent.

Some economists stress that Iowa is borrowing the right way, and Iowans should not be concerned. Michael L. Fitzgerald, the state treasurer of Iowa, stated that even though the debt increased, it is the smallest increase Iowa has seen since 2005.

Orazem said the right reason to borrow money is for long-term investments, such as public works projects, which can be paid over longer periods of time and have a long projected life span. He compared the idea to households borrowing money to invest in cars or secondary educations.

The amount of money borrowed is often dependent on the wealth of the residents of the state. Orazem explained that as people become wealthier, the state will borrow more money, mainly to improve public goods and services.

Orazem said nationally, Iowa is doing very well compared to other states when it comes to the state debt and borrowing. Not only is this good for Iowa's financial standing, but it also means that Iowa has less to worry about with the looming “fiscal cliff.”

Orazem said this is due to the fact that Iowa does not rely a lot on the federal government. Iowa is in better standing than states such as California and Illinois, which are struggling more financially and are more reliant on the federal government.

“I think Iowa is in a much better state than most states, and a lot of that has been because we have been fairly prudent with our state and local expenditures,” Orazem said.

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