A logical approach to weaning local governments off debt

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May 10, 2016 2 Comments ›› admin

By Lynn Woolley

Local, schools, cities and counties are addicted to debt.

When they want to build schools, fix roads, or buy new equipment, they often call a bond election. This provides the money – but it also builds up massive amounts of debt. Right now, in Dallas, the city spends more than $100 million per year on interest payments on the debt.

It’s not that much for smaller cities, but all things are relevant.

Dallas City Councilman Lee Kleinman says there is a better way. Klienman is making giant waves in Dallas by proposing that the city pay off its debt – then stop spending. The money saved by not calling constant bond elections – and by avoiding a debt service would be banked. Eventually, there would be enough money to pay for the things local governments want. In fact, there’d be more money because of all the savings of being debt-free.

Dallas City Councilman and fiscal watchdog Lee Kleinman (Photo: David Woo, Dallas Morning News)

Dallas City Councilman and fiscal watchdog Lee Kleinman (Photo: David Woo, Dallas Morning News)

How it works.

Klienman told the Dallas Morning News that the city has two portions in its general fund. One pays for operating the city – things like police, fire, parks, libraries and trash pickup. The other part is to pay off debt. That’s true of most cities. And while other towns don’t have Dallas’ gigantic debt service – virtually all of them have indebtedness due to bonds.

Here’s what Klienman would do: He would borrow less in the next bond program.

After that – he’d stop borrowing. He says by doing so, that would leave money in the budget to pay for capital improvements. Because the debt would constantly be dwindling, the city could begin to put money in reserve. The difference in the debt service and collections becomes the source of capital improvement funds.

This is called pay-as-you-go.

Under this plan you do not cut off all bond funding at once. You transition to a more sensible way of keeping your local government modernized and running. You have to prioritize and sometimes, you have to wait until the money builds up before you spend. Logical, isn’t it? But is it practical?

Remember, in Dallas this plan would save more than $100 million year when fully realized. That’s money that can be used for roads and sewer systems rather than sending it to a lender in return for borrowing more money.

The question is – will school boards, city councils, and county commissioners courts have an interest? When they think we must have a new high school, a new stadium, a new jail, or whatever they say we need – they want it now. And they want taxpayers to pay for it – later. Then, a few years later, they do it again. This is how debt mounts.

 McKinney ISD's proposed $50.3 million stadium (Photo: WFAA-TV)

McKinney ISD’s proposed $50.3 million stadium (Photo: WFAA-TV)

What Kleinman is saying is that we can have what we need if we plan well — and if we save money from all the debt.

We can have it at a much better cost. I think its has merit. I think all local governments should take a look. Kleinman is a lone voice at Dallas City Hall. But he’s right about the spending addiction of local governments.

Here at WBDaily, we have identified local governmental spending as a bubble that could become a bust if the economy tanks and tax revenue goes down. And yet, lots of school districts in Texas are building big new stadiums – and they’re doing it with borrowed money. It’s time to look at this new way of thinking.

Kleinman is on to something. Shouldn’t our local school boards, city councils, and county commissioners courts take a look at this? A serious look? By paying as we go, we could make better deals, get more for our money, avoid the debt bubble, and maybe even keep taxes lower.

I doubt that you’ll find many local officials that will even be willing to take a look at this idea.

The debt addiction is too strong. They should do it for the taxpayers. If they won’t do it for the taxpayers, they should do it for the children.

lynn@BeLogical.com

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Comments

  1. admin says:

    Lynn,

    The truth always pisses people off when you catch them doing things they shouldn’t. There is something mysterious that happens to elected officials or bureaucrats when they have the power to spend other peoples money. Most of the time taxpayers never realize they are being ripped off or they just accept it as simply “the way things are done.” They use all sorts of futuristic justifications to camouflage what people in business call mis-management. When you don’t have personal responsibility nor accountability it’s easy spend beyond your means!

    Sid

  2. admin says:

    Y’all,
    My college degree is in economics. Back in the late 50s and early 60s (I graduated in 1961) “economics” was a synonym for Keynesianism. Still is I’m sure. I survived this Keynesian inoculation as still being a firm believer in F. A. Hayek and Adam Smith’s pay-as-you-go economics…….and being unloved by my professors. A few years after graduation I realized that needed to be credentialed in something marketable. So, I elected to live off the taste of my own blood for four years and became a CPA. This is the sorta unique philosophical lens through which I stand athwart history and watch its procession.

    Lynn’s WBDaily column is so on-target and obvious that it is almost elementary. The word axiomatic comes to mind. It’s just too cotton-pickin’ logical! Against stupidity the very gods themselves contend in vain!
    Glenn Dippel (aka The USL)

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