You’d think Indianapolis lawmakers might have learned something from the Goldsmith Administration. (For those of you new to Indy or too young to recall, Goldsmith was blessed with a growing national economy and low interest rates, and he was able to avoid raising taxes by using the municipal credit card–refinancing everything in sight, and incurring lots of additional debt, all of which we’re still paying off. )
The lesson isn’t that cities should never incur debt. There are all sorts of reasons–good reasons–to bond for civic improvements. Think bridges, sewer systems, public buildings. As with so many issues in public administration, the issue isn’t whether to do something, it is under what circumstances and how.
Right now, the Mayor and Council are arguing about the Mayor’s proposal to issue thirty-year bonds for “Rebuild Indy II.” The City–that’s us, the taxpayers–would essentially be taking out a 30-year mortgage on an asset with at most a 10 year life.
That is profoundly stupid.
Think about your house. You may have a loan with a twenty or thirty year term, but at the end of that period, the house will be yours and it will still be standing. If historical trends persist, and you’ve taken care of it, the house will be worth more than you paid for it. That mortgage was for an investment, and it made sense.
Would you take out a 30-year loan to purchase a tent? How about a car? Why not? Because the tent and the car depreciate. Those aren’t investments, they are consumer goods.
Paving city streets is maintenance.
Do our streets need paving? Are you kidding? Of course. Should tax dollars pay for that maintenance? Absolutely.
But a 30-year loan for maintenance that has to be redone every few years?
That’s like taking out a mortgage to pay the plumber for fixing your toilet.