Sunday, January 4, 2009

Financing trouble? Oh noes!

The Times reports that infrastructure projects around the country are coming to a standstill because states are having trouble borrowing money.

Call me naive, but I honestly didn't realize that so much was done with borrowed money. It's not like I have no debt, but I thought that projects were done by, you know, saving until you had enough to pay for them. Doesn't anyone pay cash anymore?

3 comments:

CityLights said...

I certainly won't get upset over abandoned road and highway projects. But the fact that states borrow to fund them shouldn't come as a surprise.

Paying cash for a big project implies that the budget carries a sizable surplus for several years. And think about it- as soon as a surplus appears, politicians, the news media, and citizens begin to demand that it is distributed to the public. "Extra" money can never stay in the budget for long. Even supposedly stable funds like pension funds, Social Security included, are routinely borrowed from.

BruceMcF said...

Of course infrastructure projects are run on borrowing ... it would be a bit daft to do anything else. The cost is up front, and the public benefits are received over time. Funding infrastructure projects (while boring to the high flyers) is one of the most legitimate uses of capital markets.

The problem is that the local and state bond market is specialized to selling directly to rich people, who benefit from the tax break (the Fed's can't tax interest income from state and local bonds, "power to tax is power to destroy" and all that Constitutional stuff) ...

... and since rich people tend to get a lot of income from capital gains, and at this point in time there isn't a lot of capital gain income to find a tax shelter for, and at the same time nobody knows with states and municipalities in particular are going to be in serious financial binds over the next year or two ... its very hard to move local and state bonds at the moment.

The federal government providing infrastructure block grants to keep existing infrastructure projects going would be one of the quickest working parts of a stimulus package, with the "break ground" time frame being as short as the day after the funds are both appropriated and allocated to the project, since the budget balancing period for most states with balanced budget requirements is a quarter.

Cap'n Transit said...

Fair enough. I also note that lots of bankers got rich by financing various war efforts. It's just weird that if financing dries up, we have no alternative. It's not like that never happens.