Another Flashlight on the Fire
And another columnist turns her attention to the odd disconnectedness of Rhode Island budgetary practices, this time Lifebeat-section writer Rita Lussier:
Not that I had time for any of this. I didn’t and I don’t. But I decided to carve out an hour or so to try to learn something while I stood there at the back of Room 35, waiting for the 1 p.m. meeting to begin. If the chatting and chuckling in the room was any indication, the only sense of urgency belonged to me and it was mostly due to the limited amount of quarters I could fish out of my purse for the parking meter.
Finally, at 1:38 by my watch, someone announced that the chairman had been attending another important meeting but was on his way. Wonder what the cost was of all those people sitting around the room? Never mind.
Not long after the announcement, the meeting began. But the first thing on the agenda was not exactly what I was expecting. The committee wasn’t talking about decreases in spending. Far from it. Neither were they discussing difficult cuts or big reductions. No. The topic to start off my very first budget meeting was borrowing. Something called tax anticipation notes. I don’t like the sound of that. Do you?
As if someone at the front of the room sensed my queasiness, he introduced the subject by explaining why we might want to borrow at a time like this by making this comparison to our personal lives.
It’s like at home when grocery day comes before payday. You hit the kids’ piggy bank.
Really? In his house maybe. Certainly not in mine.
Maybe you’ve been through it before. I know we have. You lose a job. A big freelance project you were counting on doesn’t come through. And all of a sudden your bills add up to more than your income. The clock starts tick, tick, ticking and you’ve got to come up with a plan. Think. Fast. What do you do?
Granted, I’m no expert, but what worked for us was to stop. Stop going out to eat. Stop going out to the movies. Stop taking trips here and there unless they were absolutely necessary. Stop buying Barbie dolls and video games and the latest fashion sweaters and all the other things that we really can get by without.
Tax anticipation notes aren’t usually a bad thing. They allow jurisdictions to smooth out their collection schedules and make up for a sudden, unexpected drop in revenue by moving some known revenue forward. They aren’t like normal bonds in that they are very short term and are paid off as soon as the tax revenue is collected. This isn’t something you would be paying off for years like normal bonds.
It’s a little like a payday loan or a refund anticipation loan, but the interest rate is at the (usually) much lower municipal rate. I suppose they could be abused, but it isn’t too likely.
Oh, I should have pointed out that these types of notes are issued to finance the current budget, where cuts and reductions are either very difficult or completely impossible. They don’t have any effect on the next year’s budget, and certainly don’t preclude cuts.
I suppose they could be abused, but it isn’t too likely.
XXX
Yow. This is lotus-land Mario. They can—-and will be abused by our Lords in the GA.
Mario,
The members of the General Assembly have been operating our government on an election-to-election basis, just trying to get over each hump with one-time fixes. The concern is that they appear to be considering tax anticipation bonds to keep pushing the boulder just a little farther up the mountain; in other words, such bonds mightn’t be used to get us through this year, with the hugely deep, but necessary, cuts made next year. They’ll be used to delay the inevitable to give the politicians some time for rain dances.
“sudden, unexpected drop in revenue by moving some known revenue forward. They aren’t like normal bonds in that they are very short term and are paid off as soon as the tax revenue is collected.”
First of all, this is not a “sudden, unexpected” drop in revenue. This is years of short sighted budgeting practices.
Secondly, your analysis assumes that revenue currently equals expenditures. Nothing could be further from the truth. As things stand, we are outspending our revenues by half a billion dollars a year.
As to your last point, fine, this borrowing accrues little interest. But that’s secondary. The principle issue is, if we were to spend now revenue that was to go to expenditures down the road, what would we spend on those expenditures down the road?
I only wanted to make the point that these types of notes are a very typical practice, and shouldn’t be considered a nefarious ploy without additional information. For the most part, they are used to collect money earned (so to speak) in the current year to pay for the current year. I have no idea what revenue they are looking to push forward and, to my knowledge, nor do any of you. In the absence of additional information, I think it should be assumed that they are looking to capture FY08 money earlier, and there is nothing wrong with that. If they are attempting to borrow from FY09, then we most certainly have a problem.
With all due respect to the TANS/RANS issue, it is one thing to use them for transportation/major project funding when you have a lag in sales receipts and a capital improvement program. TANS/RANs are issued normally to help manage the large capital projects – which have upfront costs or “new cost” that must be incurred to keep a project moving forward or “jump start” a project that is reliant on a dedicated revenue/tax stream. However, some states have used TANs to help them during stressful budgetary times. When the state of CA started issuing TANs in the 1990s under Kathy Brown (treasurer of CA) – financing basic needs for the STATE of CA was necessary via TANs, the state rating dropped and the rest is history. When a state needs to start to borrow in “anticipation of future tax revenue” (that in the case of RI is falling dramatically) just for its “every day” operations to survive, well, “Houston, we have a problem.”
I am looking for a personal loan, but my credit is not good. I do not want a payday loan but that is all I find on the internet when I type in personal loans for people with bad credit. Do you know any lender who will give loans to people with bad credit? I do not really care.