Saturday, September 8, 2007

A Healthy Debate

I must admit, that although this blog generally purports to cover local issues, it sometimes ventures in to other realms of discussion. Capital Punishment, which does a very good job in staying local and is the only other blog that I know of that covers Annapolis city issues, has offered some comments regarding posts that I have made. This is exiting to me, and hopefully is to you also, because now I can post some comments on the previous comments, and before you know it we've got interested people debating how to make the city better (rather than blaming various people for various things in press releases)!!

To begin, CP wonders what if any good a low interest rate on bonds is for we citizens. He is referring to a 4.27% interest rate that the city recently got on some $29 million in bonds:

This sounds like great news, and CP is sure every homeowner can appreciate what a good rate such as this means, but not being an economist, it is very hard to say how this translates into solid benefits for taxpayers. CP inquired of Mr. Weaver in his role as PIO, but was told to contact the Finance Director for such details. Perhaps staff reporters at newspapers, or maybe even ERIC SMITH, can take the time to delve into this, but CP thinks it is incumbent upon our own government to explain this is real terms to real people. What standard ratios are used in small cities to determine solvency and debt ratios? Will this mean our budget growth is slowed? How many dollars per year does it save over having a higher rate?

As a degree-holding amateur economist, and as an amateur participant in the city's budget process, I will try and offer some understanding to the process.

Bonds are issued for capital projects---big ones, like rebuilding a parking garage or building the outer west street gateway. The city doesn't pay for these right away, and they are not paid for out of the general fund. When the city council approves a capital expenditure, the finance director basically plans that he will need this money eventually, and when the time comes, he issues bonds in the private market, at the market rate. For more on the bond process, click here.

So how does this affect taxpayers? Well, our property taxes go to the city's general fund, and a portion of the general fund goes to debt service. Just like we pay money every month for our credit cards, the city pays money every month (or year) for bonds. The bonds are money that the city borrows on credit, just like our credit cards. And just like our credit cards, if the interest rate is lower, the debt service that the city has to pay is lower.

As far as the standard ratios used to determine a municipality's solvency, its what you might expect. Property tax base, a good amount of debt in relation to annual taxes, and willingness by the city council to impose taxes even if they are unpopular are all some things used. As far as the benchmark statistics, I don't know, but the city is doing well here because we have the second best bond rating possible.

Most importantly, this absolutely does not mean that the rate of our budget growth will slow. Debt service is about 4% of the operating budget--around $3 million per year. (I couldn't look up the exact number because the PDF file on the city's web site was messed up.) Eliminating debt service completely would help, but paying a 4.27% interest rate as opposed to a 4.4% interest rate doesn't help much. For a $10 million bond amortized over 10 years, a 4.27% interest rate as opposed to a 4.4% rate would save the taxpayers about $74,850--over 10 years*. I would guess that if the city were to re-finance every penny of outstanding debt we had at the best rate ever--like the rate, say, Microsoft gets--we might be talking about saving $100,000 per year, or .1% of the annual budget.

(*I used an online mortgage calculator to figure this out. There are probably nuances that differentiate mortgage lending with bond financing, but I am confident that these numbers make my point just as well.)

A way more important factor is the city council and mayor spending so much money! If they didn't spend as much, we wouldn't have to issue as many bonds and we could really save some money.

So I guess this first part wasn't really a debate with CP as much as some general info on the subject.

Moving on, CP had this to say about one of my recent posts:

CP must respectfully disagree with AP. The R party is not a party of ideas, but like all parties, is a party with some ideas, but in the case of the R's, most of them are bad. For example, invading Iraq. Would that be under the good idea list or the bad idea list?

How about privatizing social security. private? social? private? Well, which one?

As for this supposed R belief in lack of governmental control wherever possible, that always seems to end when someone wants to, say for example, smoke a joint, or when a man wants to have sex with a man, or when an unmarried man and woman have sex, or when anyone wants to do anything in their bedroom or what an R thinks is immoral, etc., etc.....

And let's not forget that it was President Bill Clinton himself who said, "the era of big government is over" (not that we actually believed it, but he did bring the deficit to almost ZERO) while Dubya himself has presided over the largest military and bureaucratic expansion in history and raised our deficit to astronomic levels. Oh--and Bush did all this with R's running Congress. And finally, do you feel that our bigger and bigger government under all these years of R domination has led to more or to less governmental control in our lives???

Well, I will of course concede the the GOP does not have a monopoly on ideas, but the bigger point that I want to make is that we (at least I) would prefer to debate on ideas, and ideas only.

Take Martin O'Malley. By most accounts, his record as a public servant did not merit his election to governor--based on ideas, he was not the best candidate. Using the platform "I am a Democrat, GW Bush is a Republican, Ehrlich is a Republican", O'Malley won. Many politicians, admittedly R's also, refuse to talk about ideas and have these nonsense talking points that accomplish nothing.

Now take the state budget debate as an example. The governor is prepping us for a huge tax increase. The Republicans complained, but also came up with THEIR OWN IDEA for how to solve the problem without raising taxes. Does this matter to the Democrats in Maryland? We will see soon enough, but my guess is no.

Unfortunately the Republican party has been parting ways with some of its principles. However, using the same lesser of two evils argument that CP uses, the Republican party is clearly the party more likely to favor reduced government and individual responsibility. And while this may not be the fundamental Republican ideology, it certainly is the defining characteristic of conservative ideology, which is precisely the claim I made.

As for CP's contention that Republicans are not the 'stay out of your life' party because of ethical dictum on social issues, he is slightly off of my point. So said I:

The problem is: the social issues that the right of our party espouse in no way define a conservative, or a Republican. And if our party narrows the scope of our appeal, we have no chance in this state.

So let me repeat, moral superiority is not the platform of the Republican party. There is no way around the fact that all governments must make some social policies based on value judgements and morals held by individuals. Many such morals are based on religion, and in aknowledgement of the numerous world-wide discrepancies concerning what is right and wrong, a definition of one's political philosophy cannot be determined by his/her interpretation of moral correctness.

In other words, my views on many social issues are determined by my religion, and not by my political ideology. So yes, value judgements made by some Republicans may equate to restrictions of choice for some people. But in general, Democrats want way more controls on everything, which makes the Republican party the party of individual freedom, even if not perfectly so.

And lastly, a quick round-up of the national issues mentioned:
-Iraq: perhaps, repeat perhaps, a bad decision in hindsight, decision was made on best available info, can't surrender now.
-Social security: there is nothing "social" about a pay-as-you-go system that takes your money and gives it to someone else. You should not be forced to give your money to the government so they can promise to administer your retirement plan, then spend the money whatever they want.
-The Bush/Clinton deficit comparison is invalid because there is always a deficit in wartime.

I applaud CP, as he actually admitted that he does not hate either party, which many people cannot do. And as long as we debate in the realm of ideas (like me, the Republican!), we will be better off for it.

1 comment:

Mark Newgent said...


Excellent explication on bond issues. I am excited about healthy debate as much as you.

You touched on a notion about ideas that I did here

The left really has no new ideas and the progressives that run the Democrat party are long on anger and short on ideas. They care only about taking power.