Saturday, September 24, 2005

Billions in Bond Debt for Highways?

By Mark Moore (click "comments" below for article).


Blogger Mark Moore (Moderator) said...

It looks like the Governor wants to do with our state highway money what he did with our federal highway money (and our tobacco settlement money). That is, he wants to spend 25 years worth of projected future revenue now.

He proposes to do this by loading us down with more debt. The bond daddies should love it. They will make hefty fees and I look for some of those fees to go into the campaign kitty of our latest Man From Hope.

It reminds me of an article I wrote on the federal highway bond issue, which I reprint here because it applies.....
How NOT to Run a Highway Program

Say you have a stream of money for home repairs coming in for the next 25 years, but you are unsure of the exact amount in the stream. This gives you several options. Let's take a look at two of them; the reckless approach, and the conservative approach.

Option A) You immediately get a loan, using the projected revenue stream as partial collateral. You make the loan amount as high as possible, based on the assumption that the income stream will stay near its maximum levels throughout the next 25 years. If for some reason it does not stay high, you of course must make up the balance from your own pocket. You pay interest on this loan.

You then spend all 25 years worth of the money within four years. You decide not only what improvements to make on your own house, you also buy a house for your children. They are ages 12 and 14, but you spend based on what you think their projected needs will be when they are in their thirties.

For years contractors are constantly banging on walls and barricading rooms to do their work. It is sometimes paralyzing as the high volume of constant 'improvements' degrades your ability to function in the house.

One more thing. You have a friend, and also an occasional customer at your business, who does many of the repairs that you want done, but he only has a small operation. Because he can't handle the volume of this job you have to contract with some out-of-area guys you don't know for a lot of this work.

That is the way we are doing it now, but let's look at......

Option B) You spend the money only as it comes in. You do not go into debt, you do not pay any interest or bond-daddy fees. Since you spend the money slowly, contractors do not overwhelm you. Indeed, most of the work is done over the years by your local friend and customer. In fact, he is an even better customer now, because he has more money to spend in your business.

Your children grow up. You have 12 years left on the income stream, which you can now use to help them buy the homes that they want according to their current needs.


Do you think the conservative option, "B", makes more sense? So do I, but our Governor has acted selected option "A", after a good sales job on the voters.

The income stream is our projected federal highway tax dollars. The Governor wants all that money to be spent by his own administration, tying the hands of any future ones. He had better spend wisely, correctly anticipating what highway improvements will be best for your twelve year old when they are in their thirties. They will be almost forty before they get a chance to spend any federal highway money on what they think the road priorities should be, because the Governor has spent it all for them now.

The current bunch we have in Little Rock, Democrats and Republicans alike, have never met a 25 year income stream that they did not want to spend in four years or less. They did it with the Tobacco settlement money, and they have done it again with our future Federal Highway dollars.

Have you had some delays on I-40 lately? Those long delays come from cramming 25 years worth of road improvements into four years. There is no way Arkansas has the highway construction infrastructure to use local companies. A lot of that money will have to be given to out-of-state contractors. We won't see it again. If we had gone at a slower pace, Arkansas firms could have done a higher percentage of the work, and kept that money in our state economy.

To top it off, it looks like the rosy forecasts were all wet. As the Arkansas Democrat Gazette points out, the federal road dollar income stream is billions short of what was projected when we sold the bonds. The difference will come from your pocket, and your children's. Congress may make up some of the shortfall, but as of this writing the income stream may be little more than half of what was assumed.

Maybe going on a wild-eyed spending spree with our children's money is smart politics, but it is not smart government, and its not right.

8:36 PM, September 24, 2005  
Anonymous DCHFLTG said...

It is obvious that Asa, I am sad to say, felt it was politically necessary to align himself with the Reverend "where he at when we need him" Huckabee strictly for campaign financial reasons on this issue. Big money in the investment banking industry and trucking industry are speaking very loudly on this one. There are no real numbers as of yet in regard to the long term debt on the people of Arkansas on the bonds, the argument that it is not a tax increase is a pitifully weak one. Debt incurred has obvious interest, and the fees associated with that will be footed by the taxpayers in one form or another. Huckabee has one of the lowest ratings (D-) from the independent Taxpayers Union in regard to tax issues and increases during his tenure as Governor. One can only hope and pray that Asa will not follow suit and be a candidate, as most are, controlled by big money and special interest. There is obviously some concern that the facts will be too much for the voters to swallow, so in a great political move the election will be held twelve days before Christmas on December 13th. A very low turnout can be expected. Perhaps the opposition can craft a jingle for the campaign..."On the first day of Christmas my non-conservative Governor gave to me, more deceptive practices, higher state taxes and more long term debt bond fees."

8:41 PM, September 24, 2005  
Anonymous Anonymous said...

Mark Moore is absolutely right on the money! This is a bad deal, and our political leadership has failed us.

9:05 PM, September 24, 2005  
Blogger Mark Moore (Moderator) said...

It looks like a sad day for Asa fans- not that I would expect Bebee to be any better. Both of them are being offered a chance to spend $150 Billion in ways that can raise lots of money from the beneficiaries of that spending.

It would take a truly exceptional person to stand on principle and come out against that kind of power for ones self. The temptation to rationalize that it will help the state more than it costs it would be very strong.

9:07 PM, September 24, 2005  
Anonymous Anonymous said...

"On the first day of Christmas my non-conservative Governor gave to me, more deceptive practices, higher state taxes and more long term debt bond fees."

Snicker. That really was clever.

11:51 PM, September 24, 2005  
Anonymous Anonymous said...

Your analysis makes somse sense if you are talking about repairning highways. However, when you are talking about building a new broad band system, or new highways, the pay as you go approach does not make sense.

The analogy would go like this. You are building a house.

OPTION A Pay as you go
The first year you can afford a bathroom and a kithchen.
The second year you prices have increased probably more than tax free interest rate would have been which is about 3.5% Because the prices have risen, this year you can only afford to put a roof on the kitchen and bathroom you spent last year. As you can see this would be problamatic.

Option B youuse debt as a tool. Some things can't be built on a pay as you go. I would venture to say Mark that you have a home mortgage. To not do so would be dumb because debt is a useful tool that allows you to more efficiently allocate your resources.

Now you are right that you should not over extend yourself, but this bond issue is nothing more than a home equity loan to build more value "in your home" and will increase the value far more than small loan you took out.

I don't ofyen agree with Huckabee, but on this one Huckabee is right as is Asa.

5:35 AM, September 25, 2005  
Anonymous Anonymous said...

I think the "D-" from the Taxpayers Union says it all. Huckabee is a tax-and-borrow-and-spend pubby. And it doen't look like Arkansas' economic forecast is looking to improve much in the near future, either.

6:50 AM, September 25, 2005  
Anonymous MarkM said...

I am afraid analogy is weak because a lone kitchen will do no good, nor will a lone bathroom. You must start with the entire house for it to be functional.

The opposite is true here. You can build or widen a road in busy NWA without adding one in the Delta and it works just fine. Unfortunately, I assure you this plan will waste billions building highways where they are not really needed. That is the only way they can get "broad based" support for the plan from around the state.

We cannot borrow our way to prosperity.

8:08 AM, September 25, 2005  
Blogger Mark Moore (Moderator) said...

the above should be " I am afraid anon 5:35's analogy is weak"

8:41 AM, September 25, 2005  
Anonymous Anonymous said...

Asa is proving to be as big a disappointment as Huckabee. I did not expect him to so quickly become a tool of the NWA trucking industry and the highway contractors. Beebe, of course, is no better, but I expected more from Asa.

1:33 PM, September 25, 2005  
Anonymous Anonymous said...

You guys have to start supporting something. This is a good pland and Asa is right to offer leaership on this. This allows him to say NO to taxes and increases in general revenue spending. Don't be such aginners.

6:28 PM, September 25, 2005  
Anonymous MarkM said...

We do support something. We support reducing government spending. Once upon a time, that was the Republican position as well.

And how on earth can you sit there with a straight face (if that is indeed your present facial configuration!) and claim this allows him to say "no" to tax and spending increases? Oh that is right, it allows HIM to say no by passing the buck to the next generation.

Government borrowing is a tax on the future earnings of your children.

10:14 PM, September 25, 2005  
Anonymous markm said...

I just realized that this represents nearly $100,000 in debt for each and every Arkansan with a full time job. Unbelievable!

11:30 PM, September 26, 2005  
Anonymous Anonymous said...

"We must not let our rulers load us with perpetual debt.......A departure from principle becomes a
precedent for a second; that second for a third; and so on, till the bulk of society is reduced to
mere automatons of misery, to have no sensibilities left but for sinning and suffering...
And the fore horse of this frightful team is public debt. Taxation follows that, and in it's train
wretchedness and oppression." -- Thomas Jefferson

11:42 PM, September 26, 2005  
Anonymous Anonymous said...

I've decided that I am not a conservative. I have also decided that I support judicial activism.

Traditionally, "Conservative" refers to one who prefers the status quo. Those who wished "to conserve" do not like change of any sort. Liberals are those who favor change.

I suspect Krauthammer in the linked article above is referring to these traditional definitions. Roberts, by his own words, is a devotee of stare decisis, which suggets a preference for the status quo. Roberts explicitly said that his devotion to stare decisis meant that even a case wrongly decided deserved respect and deference. This is textbook "traditional conservativism," meaning a reluctance to change.

Personally, I think Roberts is playing the Democrats like a deck of cards. I know too many good Christians (i.e. David Barton, that personally know Judge Roberts

Justice Thomas believes in judicial activism as much as any liberal justice, but from the Right. Judicial activism resulted in the Roe v. Wade decision and anyone who hopes for its overturning also believes in judicial activism.

I'm ready for some changes and some judicial activism that ends abortion, places God at the center of society, and establish the ethical centered capitalism.

Since I want change and want activist judges, does that mean I am a liberal?

8:40 AM, September 28, 2005  
Anonymous markm said...

I think an activist judge is one who reads their own desires into the Constitution where as a conservative judge goes by the intent of the authors.

In that sense of the word, Thomas is conservative. He does not want to change the constitution, he wants to revert back to what the founders meant when they crafted that document rather than graft some new and novel meaning onto those words.

The activists have been in control for 50 years. You can be a conservative and still want the last 50 years reversed. You are conserving the orginal ideas that gave us liberty.

6:36 PM, September 29, 2005  
Anonymous markm said...

I am getting conflicting reports on how much they want to spend. The Dem-Gaz now paints it at less than 1 billion to be borrowed for both programs (highways and colleges). Of course, much more than that will be paid back.

8:07 PM, October 01, 2005  
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