Because it is spread out over 15 to 20 years, the annual cost of a larger bonding bill would be relatively small. Even a very large increase in the size of the bonding bill costs relatively little on an annual basis. This isn’t just financial sleight-of-hand, though; it is a well-accepted budgeting practice to spread the cost of large infrastructure projects over many years, so they are paid for by the people who use them throughout their life span.
In addition, we’ll be getting more bang for our buck on everything we build this year. Right now, interest rates are down, making bonding cheaper, and contractors’ bids are likely to be significantly lower. We can fund critical infrastructure needs more cheaply today than we could in a couple of years. That’s why spending the money today, instead of in two years, will save us money in the long run.
Given the small difference in annual payments, we should spend more on bonding when it’s the most affordable. It would be extremely unfortunate to allow our budget deficit today to stop us from saving money over the next 20 years.
Right….because when you are faced with a 1.2 billion dollar deficit the first thing you should do is borrow more money.
Curious,
Maybe the world is a little more complex than you are able to work with. In a simple answer, yes, sometimes hardship provides opportunity. Look how many folks are using being unemployed to go back to graduate school and improve their marketability for when times turn around. They are taking out more debt, but it is an investment in their future.
That is the biggest difference between fiscally responsible democrats and irresponsible republicans. Democrats are willing to take on debt if it is an investment in the future. Republicans only want to increase the debt in order to transfer wealth to the already wealthy.
According to Moody’s economy.com, extending Bush’s tax cut would return 29 cents on every dollar it costs the taxpayer. We should go into debt in order to extend tax cuts to the rich? That is not responsible.
Also according to Moody’s economy.com, increased infrastructure spending returns a whopping $1.59 for every dollar it costs the taxpayer.
Which is more fiscally responsible, getting 29 cents on the dollar it costs your children and grandchildren, or getting $1.59 on the dollar? Which is more responsible, tax cuts or infrastructure spending? I hope the math is not too difficult for ya.
http://www.economy.com/mark-zandi/documents/assissing-the-impact-of-the-fiscal-stimulus.pdf
“Maybe the world is a little more complex than you are able to work with.”
Bingo. The vast majority of “fiscal conservatives” speak bumper sticker.
Oh yeah, lest you think economy.com is partisan, their chief economist named Mark Zandi was a McCain/Palin adviser.
It’s pretty clear, tax cuts put us into debt and cost the taxpayer billions.
Infrastructure investment actually stimulate the economy, growth and return the investment by over 150%.
Pesky facts
Reminds me a little of when I went to buy a car last. I wanted to talk price. The sales lady wanted to talk monthly payments. I kept asking her to convert things to my bottom line price. She kept wanting to tell me how manageable the payments were. I walked away.
On a serious note though, I actually agree that now is a time to invest in state infrastructure — those projects that we know need to be done anyway might as well get kicked off now. Not because they might employ someone (they might “create” a job, but they also create future obligations for our incomes so it is a wash, IMO). Not because we want to “stimulate” the economy by reshufflig the money in our economy. But because of Jeff’s point that the price to do this projects that legitimately need to be done is probably at a relative low point right now considering the cost and interest.
But I don’t buy the “for just $12 a month you can have this flat screen TV” argument. I’ve seen people use that logic to rationalize themselves into bankruptcy.
“But I don’t buy the “for just $12 a month you can have this flat screen TV” argument. I’ve seen people use that logic to rationalize themselves into bankruptcy.”
This is actually entirely different:
In the case of the sales lady with the monthly payments, the enticement is that the monthly payments are affordable because you extend the period over such a very long time that the final total ends up being exhorbitant. “Why, we’ll only charge you $100 a month for twenty years!” for something that would cost $18,000 dollars up front. You end up paying a total of $24,000 - a lot more than the lump sum- because the $100 a month seems so darn manageable. Exhorbitant interest rates are hidden by the long period of payments because people really only register the monthly bill. Credit cards do very much the same thing. In fact, credit card providers employ economists/mathematicians/etc. to engineer their fee structure to bilk as much money as they can out of people…but that’s another matter.
In the case of the bonding bill, we know the lump sum. We also know that the interest rate to pay off that lump sum is at a historically low level. In other words, it’s a good deal. And quite frankly, with our backlog in roads and bridges alone- which eventually MUST be paid for- this cheap money will go quickly.
Lastly, I don’t know why you would ignore the stimulus effect of such borrowing: I think it’s a valid point. People working on roads, bridges, buildings, etc. will have money in their pockets to spend elsewhere, and they will also pump up tax revenues. The stimulus effects would be non-negligible for a state with desperate budget problems.
Yep, lots of roads in that bill! hahahahaha!
pick up a book and learn the state budget “theoko”
We also know that the interest rate to pay off that lump sum is at a historically low level. In other words, it’s a good deal. Hmmm.. When you use interest to “pay off” a lump sum, you haven’t paid it off. You’ve entered into an obligation just like buying a car. It is right now a good deal compared to paying a higher interest rate. But there is still an interest rate. Let’s not kid ourselves that we’ll be paying millions of interest. Like the example you gave, we will pay more for the project due to interest rates. Not sure you’re fully appreciating that.
Any stimulus effect of borrowing money is highly debatable and should never be a factor for including projects in our bonding bill. I guess we’ll just have to disagree on that point, but I know many in St. Paul would agree with me.