As we enter the 2011 commonwealth election cycle, there are a number of proposals coming from Republican sources that rely on bonds to pay for needed improvements to our infrastructure. The problem with that is the fact the none of these bonds come with an attendant new source of funding to service them in the long-term. In essence, these proposals put major new expenditures on Virginia’s state credit card, leaving us with the bill after the Governor (and others) leave office.
The issue of addressing Virginia’s (and Loudoun’s) needs is not one of financing, but one of funding.
Governor McDonnell’s proposal is perhaps the most prominent.
As part of his budget amendments presented in Richmond in December, McDonnell said he wants to help pay for $4 billion in new transportation spending by issuing $3 billion in bonds. Pulling in more money for road improvements is a major component of the governor’s initiatives for the upcoming 2011 legislative session, which starts Jan. 12. – The Loudoun Times-Mirror
The Loudoun Times gets it right in using the language “pulling in more money” rather than saying “finding new money.” The money the governor proposes to use is already in the Commonwealth’s financing plan for the long-term. He just wants to spend all of it, now. He wants to max out the state credit card on the first of the month. Which begs the question, how will we finance needed improvements in three or five years, when those bonds were already issued?
Follow below for a rough lesson in fiscal policy. A similar argument is advanced by Leesburg Councilmember Ken Reid, in terms of the Silver Line and the Dulles toll Road.
Therefore, I have been proposing to several Fairfax and Loudoun supervisors, and state officials, to have the state take back the Dulles Rail project from the Airports Authority, use state-backed bonds for construction and apply for federal mass transit New Starts funding for Phase II. – Ken Reid, Leesburg Patch
Leaving aside for the moment the irony of Council member Reid, who voted against essential maintenance of roads in Leesburg, advocating for more local control of the most significant transportation improvement in our region’s history, Reid’s “use state-backed bonds” plan is a dead letter from the start. The Governor’s plan already uses up all the state’s debt capacity. Furthermore, even if those bonds were available to apply to the Silver Line, getting Assembly buy-in for allocating them in that manner is no slam-dunk. And this is ignoring the fact that the cost of issuing and maintaining bonds (interest rates) is getting higher, not lower, for local governments.
Ultimately, however, the procedural niceties of using bonds pale in comparison with the risks to our Commonwealth’s future of issuing bonds without an attendant funding source to service them.
When we issue bonds, we need to pay them down, and pay the interest on them, every year. That money comes directly out of general (tax, fees, etc.) revenues. If we issue more debt without finding a way to also increase general revenues, we must, necessarily, allocate more future revenues from a fixed pot to debt service. When we do that, we leave ourselves less money to maintain our roads in the future. The money we could use in 2014 to pay for road maintenance and construction would have to go to servicing the bonds issued in 2011. Yes, issuing bonds so we will have more money for roads today will actually leave us with far less (not more) money for roads tomorrow!
The Governor and Mr. Reid’s proposals boil down to “let’s get another credit card, and max that one out.” Any financial advisor, or high-school student with a job and a credit card, can tell you that you don’t get a new credit card unless you have gotten a raise. Well, the Governor and Mr. Reid have proposed no way to give the state coffers a raise. Maxing out the state’s debt today is not just imprudent, it is fiscally reckless.
Virginia has a long, and worthy, tradition of fiscal astuteness. The last time we tried a financing-without-funding scheme, we were promised “no car tax.”
How did that work out?
It is up to the people of Virginia, and Loudoun, to be the parents in this analogy. we must send a message to Mr. McDonnell and his allies like Mr. Reid, that new debt without new funding sources is irresponsible. It puts our commonwealth’s future at risk for the sake of a political goal today.
Virginia is better than that. Virginia deserves better from our elected officials, at every level.
[Update] – Sen. Herring makes this point in response to the Governor’s State of the Commonwealth address, demonstrating real leadership.
He also questioned the governor’s proposal to borrow $3 billion for transportation and transit projects. McDonnell’s plan doesn’t provide a long-term funding solution to fix northern Virginia’s congested roads, and it doesn’t provide a revenue stream to repay the bonds, Herring said.
“What are we going to do over the next 17 years while we’re repaying this? (McDonnell) kind of punted the problem to his successor instead of being bold and dealing with it now,” Herring said. “On the other hand, this is something I’m going to have to look at very carefully. We’ve got some of the worst traffic in the nation.” – Sen. Mark Herring
Anybody who didn’t see the presentation on land use / transportation planning using a networking model that was hosted by Kelly Burk a few months ago should get a chance to see it. I think it was recorded and should be available in the county government archive. The presenter also has a website. If somebody has that information bookmarked, please post it. Otherwise, I can track it down.
Stevens,
Your point is well made that we need a better interconnected road way. However, I said road widening, “etc.” I guess this is mistakenly to assume that road widening alone is the solution. While road widening might not be the solution in some areas, it is definitely part of the problem in many east west routes running into 28. Examples: Rt. 50, Rt. 7, Waxpool, Rt. 606. All of these roads do not sufficiently handle the volume of traffic that exists today during rush hour. Rt. 606 is a two lane road with no, and I mean no, “interconnectedness.” The CTP plan calls for providing many “efficiencies” to these roads that include widening, overpasses, interconnectedness, etc. All of these in combination are necessary to solve the problem. Despite those areas where there are problems with the CTP, it is overwhelmingly a good plan. It even incorporates transit into the plan which can alleviate up to 50% of the current traffic off of existing roads during rush hour. I haven’t checked this statistic so I admit it might be ambitious, but the point is if people are taking metro to work from Ashburn to Tysons or McLean or even DC, these are many reduced trips off of Waxpool road. I beleive you understand these issues well. The point made above is that without funding, none of it is possible. People are so tired of having to deal with it that they don’t care how the funding is achieved. Economic development alone won’t address the overall poor condition of Virginia’s roads and highways. It certainly is a step in the right direction. Because there are so many contributing factors, I will simplify it by saying it needs good management. The State must address the issue you brought up about putting off funding to future generations. This is also why Richard must bite the bullet and accept small increases in his taxes. That is the compromise that will be necessary on many levels.
And more, not wider.
To fix Loudoun’s road problems we need a more interconnected network, not widening of existing roads.
Example: A change in the Countywide Transportation Plan pending in the BOS would keep Rt. 659 planned for four lanes between Route 7 and Ryan Road (CTP, due to an error, now calls for six lanes, which would be a pretty major road cutting off the houses north of Tillet field from their neighbors east of 659). If more traffic than four lanes can handle evolves there, what to do?
Connect four-lane Claiborne from Croson down to Ryan as well. Two four-lane roads, running in parallel, are a better plan than one six-lane road carrying everything. Because the solution to road overload is not widening, it’s networking. More intersections making more of a network of smaller roads lets all that load s-p-r-e-a-d out, giving more paths from all the Heres to all the Theres.
Still needs to be paid for though. More money in taxes is one way (that’s McDonnell’s ultimate result, even if the bill on those bonds comes after he’s left office). Another is more revenue from an expanded tax base. We might still get that, if investment is made in our road network and other Northern Virginia infrastructure now.
But I won’t kid you about the chances of that happening…
The problem with all this analysis is that Loudouners are simply ready for road improvements. We keep hearing about roads that will get fixed (widened, etc.) and we never see results. To most people it has gotten so bad that they just don’t care with how the funding will come…they just want funding. This is the hole that the county, the state and federal government has dug for us. It is very similar to the old westerns where the outlaw makes the man dig his grave and then the grave becomes his own. Ultimately, the only solution to the problem is raising taxes and no one is willing to say this. Cutting spending alone will solve very little.
“That’s like buying a car you can’t afford on the hope you’ll get a raise at your job before the payments bankrupt you.”
AND
“But, if you knew you’d be driving that car for a year or two, then could hand the keys to someone else, why worry? Oh, not just the keys. The keys and the debt. That’s our governor. He’s driving the car for another few years, then he’s leaving us the keys, and the debt.”
If people take away nothing else from this discussion, I would hope it’s at least those analogies.
Punting the bill to the next administration is this governor’s MO. He did the same thing last year to “balance” the budget. Remember how we advertised a whopping increase in taxes to a $1.40 rate, then came in at the end with a $1.30 final number? That was possible largely due to money we had expected to use for retirement funding as part of the Virginia Retirement System. Loudoun (like other localities) must make certain payments every year. But we didn’t have to pay it last year, nor will we pay it this year, because the governor has used a clever, if familiar, trick: he deferred the payment for two years. With no VRS payments required last year, we were relieved of a big piece of our annual operating costs. Same deal this year. But… Next year, we must start paying again.
Plus we must pay the unpaid two years McDonnell deferred.
Plus interest.
Plus lost portfolio revenues.
For the next ten years.
His backers say this makes sense because, when times are tough, you defer what you can in the hope of better days. Well, I’m delighted by the implicit admission that President Obama’s stimulus and other economic-recovery methods are so sure to work, and that we’ll all be farting through silk in 2012, but even I think that’s optimistic. Moreover, it treats these deferments as something akin to speculative investments. We’ll risk the overhead involved in later repayment on the theory that it will help us during the recovery, which in turn will yield an economy that makes the increased payments easier to bear than timely payment would have been.
For ten years.
McDonnell’s max-the-credit-card scheme only works if it is a successful investment. If the roads it buys get our economy moving, and the boom times come before the bill comes due, he wins (and so do we all, and yay if that happens). But, that’s assuming the investment (call it a “bet,” if you want a more accurate term) pays off. For that to happen, the recession has to end, the economy has to skyrocket, and that great steaming heap of leadership we have in Richmond right now sees the sense in investing those bond-sale proceeds in Northern Virginia and Hampton Roads, where the healthiest Virginia economies are most likely to make the deal work.
Which they’ve never done before. All of us attuned to Virginia policy know that ours is a “donor” area to the rest of the state, and that good fiscal policy, good portfolio management would have called for investment in NoVa many years ago. A booming economy here would make it possible to be a donor jurisdiction and keep local commerce strong. Everyone knows that.
Except our legislature’s majority.
It’s possible they’ll invest the bond proceeds here, but I’m not holding my breath. And, even if they do, one thing all of us lowly supervisors learned in our first year was: if you want to keep your bond rating, you don’t structure your budget in anticipation of future revenues. That’s like buying a car you can’t afford on the hope you’ll get a raise at your job before the payments bankrupt you. No one should buy a car that way.
Or a road.
But, if you knew you’d be driving that car for a year or two, then could hand the keys to someone else, why worry? Oh, not just the keys. The keys and the debt. That’s our governor. He’s driving the car for another few years, then he’s leaving us the keys, and the debt.
VRS payments. Interest payments. Any damned payments, just so long as someone else pays them.
That’s Bob McDonnell’s MO.