Bonds revisited

Bonds act like loans.  You pay back fees, principle and interest over time.  If your furnace goes out or your roof needs to be replaced, you may not have the option of just paying cash.  If not, you may take out a loan like a home equity loan and pay it off as quickly as you can.

Government is not as frugal spending your tax dollars. Bonds have been a major source of government waste.  The amount of waste depends on the size and duration of the Bond.  A 30 year Bond, paying 5% interest gives you a debt that is double the size of the Bond.  If the duration is 20 or 10 years, the interest cost is reduced proportionally.

Before the days of government trying to increase its cash reserves, voters were inclined to approve or disapprove Bonds based on their necessity or merit, these days, not so much.  The sales pitch for all ESPLOST (sales tax increase) votes for public schools was “it’s for the kids”.  Knowing that school districts sell Bonds immediately after the vote should tell you that your sales taxes will go to their debt service fund.  If the ESPLOST raises $50 million a year and goes on for 5 years, the school board anticipates receiving $250 million. If they want money up front and they sell 30 year Bonds at 5%, the school district ends up spending $125 million on stuff and puts the other $125 million into a paper shredder for interest and fees.  

I never understood why a $1 billion a year county public school system or county government would ever need to borrow money.  But without any voter objections, they use Bond money to fund buying land and building schools.

Cities, Counties and other government entities use Bonds to supplement revenue or build reserves.  If their debt gets out of control, they go broke. Elected officials are mobbed by developers who want local government to redevelop private property.  This is never a good idea.  Economic development is best left in the hands of the free market investors, without government subsidies.

Government can avoid selling Bonds if they want to save money.  They can budget dollars to set up accrual accounts and use these accounts to fund construction.

The only folks who can justify borrowing money are individuals who need a loan to buy a car, so they can get to work.  Likewise, they may buy a house and eventually have an asset rather than just paying rent forever. 

Government entities also have reserve accounts you can find in their CAFR (Consolidated Audited Financial Report). These funds are budgeted to accrual accounts and are invested.  Most of these accounts are spread all over and can amount to an entire years’ revenue.  They don’t tell you about that do they ?

Norb Leahy, Dunwoody GA Tea Party Leader