Against Borrowing in Providence or Anywhere

In his Saturday column, Ted Nesi makes a point that I’d been thinking about as the week came to a close, related to a proposed $40 million infrastructure bond in Providence:

Governments should borrow to fund long-term infrastructure projects that have a higher rate of return than the interest on the bonds, but [in Providence’s past] bond money was used to pay a principal’s salary and develop a restaurant. Buddy Cianci, apparently confusing borrowed money with free money, told Stycos: “This way, we can make the improvements and the tax rate doesn’t go up.” Cianci left off the crucial word “now” — because the tax rate certainly will go up eventually if the projects aren’t ones that will boost the city economy and help offset the interest costs. Taveras would do well to burnish his reformer credentials further by finding a new, transparent way to allocate bond money if voters approve the proposal in November.

In theory, Ted’s argument definitely applies. One clarification I would make, first, is that one can’t forget the actual cost of the work. The “higher rate of return,” as Ted puts it, can offset the interest, but one suspects that new streets and sidewalks will require replacement well before their incremental benefit has compensated for the whole $40 million plus interest.
That said, suppose an accurate projection finds that improved pavement would increase city revenue — through increased commerce, property values, and so on — by three percent. In such a case, even if the interest paid on the bonds were exactly the same, the city might as well borrow the money rather than save it up over the same period of time and then do the work. Residents and visitors would gain the benefit of tomorrow’s new sidewalks, today.
There are good reasons to resist that argument, both in practical and in theoretical terms.
Continue reading on the Ocean State Current
(Note: edited at 7:48 a.m., 7/30/2012, to clarify that the bond is for roads and sidewalks.)

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Warrington Faust
Warrington Faust
9 years ago

Sidewalks, it is always sidewalks.
Several years ago I was doing a subdivision in a suburban Massachusetts town. They demanded sidewalks. I pointed out that the nearest sidewalks that could ever hope to connect with them were a mile and 1/2 away. They offered that I could “volunteer” the money to install sidewalks in a part of town that acutually could use them (near a school). I should have suggested that they bond it out.

Phil
Phil
9 years ago

Warrington
You most likely do not concern yourself with anything pedestrian, but some people need a place to walk without getting run over by vehicular traffic.

Mike
Mike
9 years ago

Phil…would you like some cheese with your whine? You want a sidewalk, pay for it or learn to walk on the side of the road with a modicum of situational awareness.

Warrington Faust
Warrington Faust
9 years ago

Posted by Phil
“You most likely do not concern yourself with anything pedestrian, but some people need a place to walk without getting run over by vehicular traffic.”
Phil, it was a 10 house subdivision on a dead end street. Guess what! People don’t want the sidewalks, they look too “urban”. They want the lawn of their “country house” to come down to the street. Maybe a “Cape Cod Berm” would be OK.
The real issue is school busing which has become a crippling cost. Having instituted it, they are afraid to drop it. Couple this with a fear that if a child is injured walking to school, there will be a suit against the town. They wanted me to build sidewalks about two miles away, near a school. Why are they unwilling to speak the truth, rather than present ridiculous arguments in favor of isolated patches of sidewalk? Basically, the suburban sidewalk requirement was instituted to force builders to “volunteer” sidewalks in other parts of town.
Remember when condos were disfavored as the “slums of tomorrow”? Then it was discovered that they increase the tax base while hardly effecting the school population.

ANTHONY
ANTHONY
9 years ago

I think there should be bike paths with lemonade stands (Summer) and hot chocolate vendors (Winter) every 5 miles. It should be paid for by the Govt. with or without bonds. It would help if there were pretzel stands very 3rd mile in case you get hungry.

Monique
Monique(@monique-chartier)
Editor
9 years ago

It just registered … this is for SIDEWALKS??? Not even roads?
All the more is this a bad idea.

OldTimeLefty
9 years ago

i have noticed
that when chickens quit
quarrelling over their
food they often
find that there is
enough for all of them
i wonder if
it might not
be the same way
with the human race
* * *
archy
From Don Marquis’ Archy and Mehitabel.
Justin pick up a copy at your local library and read to your profit – All provided through taxes for the general welfare of the populace.
OTL

Dan
Dan
9 years ago

OTL – How much work have you seen chickens perform, and how long would they last without the farmer to give them their feed each day?

Justin Katz
Justin Katz(@justin)
9 years ago

Monique,
In retrospect, I overemphasized the sidewalks, because I was more focused on the intellectual point, and it helped keep the focus. The bonds would cover roads and sidewalks, and I’ve edited the post to be more accurate.

Dan
Dan
9 years ago

If we’re sharing book recommendations, read Animal Farm if you’d care for some insight into how Marxist experiments inevitably end – with the pigs in the farmhouse. Available to own $9.99 on Amazon.com, delivered free to your door by the private market, no wait, money back guarantee.

Monique
Monique(@monique-chartier)
Editor
9 years ago

Thanks, Justin.
Quoting you, I believe, maintenance of roads and sidewalks needs to be paid for out of the annual operating budget, not from “free” (wheee! it’s free!) bond money.
The fact that, for decades, elected officials chose to commit and spend budget monies elsewhere is not an acceptable reason to now turn to the “free” money to get the job done.

mangeek
mangeek
9 years ago

I’m in agreement with Justin and Monique on this one… This kind of thing should be paid-for out of the operating budget. I want to get to a few other things that are bothering me about how this stuff is being managed: 1. Remember that Taveras struck a deal to keep the entire DPW staff on, in exchange for some concessions? A little birdie told me that this meant that they literally have a full staff but no supplies to work with. If this is true, then we’ve come full-circle to the point where the ‘services’ being offered by the government are the jobs themselves, NOT the sidewalks, sewers, and roads. 2. Remember the incident with Zurier? The cost the city pays internally for sidewalk jobs is 2-3 times what a private contractor would charge. 3. They’ve been digging-up Hope St. for a year now, putting in new sewers. Meanwhile, nobody is sucking the sand and grime out of existing or new storm drains. We’re literally digging holes for drainage, letting nature fill them up, then the water corrodes the underpinnings of the sewers and roads, negating the whole project. I’m literally watching this stupendous waste happen right in front of my eyes. 4. On the drainage note, Has anyone noticed the growing number of places in the city where there are obvious cracked water pipes bubbling water into the roads? I call the city on those, but they never come fix the problem (see #1). I can point to spots where simple problems were left to fester, causing hundreds of thousands of dollars worth of city infrastructure damage. 5. I happened to be traveling through MA, NH, and VT last weekend. I found myself stopped at MANY construction sites. I noticed that the actual quality of the jobs and… Read more »

Warrington Faust
Warrington Faust
9 years ago

I would need to hear a pretty good argument to justify borrowing money for recurring expenses such as roads, water and sewer.
A lot of towns in Massachusetts are being crushed by “free money”. They took a lot of federal grants for “capital improvements”, now the recurring costs for maintenance are killing them.
For instance, Attleboro. They took grant money to build a business park for which there is no demand. Now the interest on the city’s portion is piling up with no relief in sight. They are presently taking a fortune in grants to “improve transportation”. This is largely parking areas which will chiefly service Rhode Islanders, but will require mega dollars in maintenance. I am not sure how a large parking area, for a heavily subsidized railroad, will generate significant tax revenue.

Sammy in Arizona
Sammy in Arizona
9 years ago

posted June 7, 2008…seven months before Obama took office
The Knuckle-Bumping Messiah
Justin Katz
I find images of Barack and Michelle (Bachelle?) fist-bumping nauseating. The statement that I read in it — albeit, between the lines — is “if we do this, people will think we’re regular folk, just like them.” And why should this well-to-do, upper-crust, non-entertainment-industry couple get away with it? Well, because their skin is dark.

Justin Katz
Justin Katz(@justin)
9 years ago

On that basis, Sammy, I will reconsider my opposition to using public debt to pay for infrastructure maintenance.

drdave51
drdave51
9 years ago

On a related topic: I moved into RI in 1991. Since that time, the state has borrowed $649,820,000 through transportation bonds. The funds are typically matched 3 to 1 by the Federal Government, so the total available for transportation is $2,599,280,000. There’s approximately 1,100 miles of state roads in RI. That works out to $2,362,981.81 per mile.
According to a PA web site, it costs (in 2012) about $103,000 a mile to pave a typical 2 lane road.
When the “stimulus” money came through for “shovel ready” projects, the first project the state pulled out was “Landscaping on I 95.” Why worry about falling-down bridges when you can buy shrubbery?
I realize it’s a bit more complicated than this, but I have no confidence that “more” money will be put to wise use by the same group of clowns that got us in this fix to begin with.

Warrington Faust
Warrington Faust
9 years ago

Posted by drdave51
“According to a PA web site, it costs (in 2012) about $103,000 a mile to pave a typical 2 lane road.”
That is probably about right, if it is repaving. Without “prevailing wage” you can probably think of something more than $200, per foot, for a new two lane road. Sewer, sidewalks, etc would drive that up. Prevailing wage, police “details”, etc nearly doubles that.
So, if it is a new street, still on private property, think a “million a mile”. That is nearly double what it was 10-12 years ago. Cities and towns took advantage of the prices being obtained in the “housing bubble” to increase the standards/work required before they would “accept” the street.
Regardless of housing “deflation”, at $10-15,000 to put a street in front of a lot, it will be a long time before we see a $50,000 house lot in a new subdivision. In recognition of this, many towns are being more generous about “cluster zoning” which permits much smaller “frontage” on a street.

mangeek
mangeek
9 years ago

“..it is repaving. Without ‘prevailing wage'”
I think the Providence price has the two retired guys plus the double-payment for the guy doing the work who is going to retire built into it. This is how bad management for decades ultimately manifests itself.
“it will be a long time before we see a $50,000 house lot in a new subdivision”
And honestly… Good. That’s not real growth, as long as there are swaths of empty housing in the rapidly-thinning urban core.
I’m not a fan of central planning, but I’ll take regional or statewide planning over the kind of shady stuff local politicians have been able to get away with for the last two decades. As long as I can still get heard, I’m OK.

Warrington Faust
Warrington Faust
9 years ago

Posted by mangeek
“And honestly… Good. That’s not real growth, as long as there are swaths of empty housing in the rapidly-thinning urban core.”
Unfortunately, it is not all about price. Very important are “schools” and a general quality of life.
Look at the demographics of the “gentrified” sections of Boston. It is “starter housing”, as soon as kids reach school age, bang, they’re gone. In Cambridge, private schools are simply a “housing cost”. I expect the same is true in that part of Pawtucket now being touted as an “East Side Alternative”.
Providence schools will deter families from the “rapidly-thinning urban core”. Significant improvement would need two generations to take hold in the pblic mind.

mangeek
mangeek
9 years ago

“the ‘gentrified’ sections of Boston”
Yup. Same here. Young people start out in the West End, then ‘settle down’ nearby in Cranston or Warwick where the schools are tolerable.
My little guy is only a month old, but I’m already scratching my head over how to get him into something better than Pawtucket’s schools.

OldtimeLefty
9 years ago

Dan,
If a chicken can figure it out you should be able to, but maybe it is asking too much from you?

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