Debt financing of pet projects brings zero benefits to public

Posted on March 10, 2006 | Type: Op-Ed | Author: Noah Clarke
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Phoenix Mayor Phil Gordon has said the multimillion dollar bonds up for voter approval will "propel us into the future, and it will be a future unlike any we predicted."

Unfortunately, the future is not likely to be as rosy as predicted. This year's bond package will cost taxpayers $1 billion more than advertised and has the potential to damage our economy.

 First, bonding costs far more than presented to voters. By the city's own estimate, the $878 million bond package actually will cost $1.8 billion once interest is included. The city's eagerness to spend more through bonding now will come at a steep cost to residents later.

Some say taxes will not have to increase, and that may be true on the front end. But you can bet tax collectors will go through the back door, if necessary. If you just received your property valuation, you probably noticed a significant increase. So while your tax rate did not go up, your tax bill did. The city is counting on this annual increase to pay back bondholders.

Equally important, the initial money required to buy the bonds comes out of private savings. By lending money to the city of Phoenix, individual savings are diverted to political ends rather than financing private initiatives. If the city has $878 million more to spend, that money no longer is available to other parts of the economy.

This results in the routing of savings away from private enterprise and into the city's coffers, allowing it to spend far beyond its needs. Total Arizona municipal bond issues have grown from $2 billion in 1994 to nearly $8 billion at last count. As Phoenix and other cities absorb more private savings, the private sector is left with a smaller share to save, expand existing businesses, or fund new enterprise.

Rarely discussed is that the city still owes more than $1 billion in past general obligation bonds, some dating as far back as 1984. These won't be paid off until at least 2029. Nevertheless, plans already are being made for the next bond election in five years.

And this takes us to the heart of the matter: restraint.

Proponents often compare financing city capital and infrastructure projects through bonding to a home mortgage. But that is not an appropriate comparison for this bond package. $300 million would finance projects that are not infrastructure or capital and have nothing to do with core city functions.

It is perfectly reasonable for taxpayers to question whether they should spend $184 million on another campus for ASU when they already fund ASU through state taxes and tuition. Likewise, the private sector could cover $8 million for a shooting range, $11.5 million for a soccer stadium, $6.5 million for the opera, $16.7 million for the Herberger Theater Center, and other projects whose beneficiaries are largely private persons or organizations.

This $300 million spending for private purposes will cost the public $24 million in annual interest payments alone. The city could hire 625 policemen a year just with the interest taxpayers will pay for the pork included in this bond package.

City Hall may have the best of intentions. But taking on further debt to fund pet projects will bring few benefits to the public and leave taxpayers with a steep bill. Phoenix can do better.

Noah Clarke is an economist with the Goldwater Institute,

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