As a rule of thumb, I take a dim view of state bond issues.
We’ve seen several bond issues on our statewide ballots in recent years, championing majestic causes from cleaning up brownfields, preserving green space, raising venture capital for Ohio’s high-tech startups, and, this year’s Issue 1, showing our appreciation for our military personnel.
Keeping our environment clean is worthwhile. Shifting our economy to high tech is worthwhile (though I don’t think the state should assume the role of venture capitalist). Assisting our troops and their families is most definitely worthwhile. These issues reach our ballot with broad, bipartisan support from the politicians. Issue 1 is favored by a number of Democrats and Republicans serving in the Ohio General Assembly.
Former GOP Governor James Rhodes (deceased) loved bond issues. During his tenure, inflation was rather high compared to the interest rate paid out on the bonds, so paying back the principal and interest on the bonds was rather easy when inflation was high.
Are we in an inflationary market at present? The federal government announced that social security monthly benefits to be paid out (and social security withholdings) for 2010 will remain the same as 2009 because the cost of living fell this year, so, no, we are not in an inflationary market at present, so we can’t work Jim Rhodes’ magic on our bond repayments.
Our state budget must be balanced in every biennium. If the state is not permitted to run a deficit, is it wise for the state to carry a debt? I’d think not. No thanks to bond issues that have passed in the past, Ohio does have a burden of debt.
If we don’t have the money in our budget to pay for worthy causes on a pay-as-you-go basis, then it makes no sense to commit the state to paying a chunk of money it doesn’t have and then combine it with interest payments.
Money for repayment of bond principal plus interest comes from the state’s general fund. Money for education and Medicaid also comes from the general fund. Many, many, many other expenses also have to be paid out of the general fund. When faced with budget cuts, the legislature dares not cut the money to repay bonds, or the state’s bond rating would plummet. Therefore, everything else from the general fund is subject to cuts, while political agendas funded with bonds are spared from getting cut. Of course, Governor Strickland doesn’t want to make cuts, which is why he’s sold his soul to the devil for flipflops on gambling and taxes in an effort to raise more revenue for state government. If we, the people, are to slam the door on the state government from reaching into our pockets for bigger money grabs, then the state MUST cut its budget, since the tax base appears to be shrinking. As you can tell, though, some worthy causes, like education, can find its way to the chopping block if state revenues continue to drop.
So, is farmland preservation more important a priority than education? No. But will farmland preservation receive funding cuts? No, because farmland preservation money comes from bonds, not the general fund. Education comes from the general fund. Education is at greater risk of getting cut. This is how issuing bonds skews the state’s priorities. If bonds had never been issued, and money for both education and farmland preservation came from the general fund, we’d be able to align priorities so much better.
So why is it that politicians from both parties love bond issues, even in the current economic climate? It’s all about patronage and pleasing core constituencies without having to justify the expenses during a blistering biennial budget bill battle. (Can you say “blistering biennial budget bill battle” five times fast?) Anything funded directly out of the general fund (except bond repayment) must be scrutinized and fought over by the rival caucuses in the General Assembly. Patronage to reward core constituencies for supporting incumbents would be endangered if exposed to the budget bill debates. Bond funding allows safe haven for payback. As an example, because of environmental bonds issued in the past, incumbents of both parties find themselves in the good graces of environmental lobbies, thus insulating themselves from being out-“greened” by challengers when they face re-election.
The mood of the electorate is surly. Have you noticed any “tea party” action of late? How do incumbents hold on to office in such a “throw-the-bums-out” atmosphere? Issue 1 is a gimmick tailor-made to rally support for incumbents. This is for the troops. Even the “tea party” activists who are fed up with politicians can’t resist opportunities to support the troops. Issue 1 is designed to placate the “tea party” bunch. It’s also designed to allow the incumbents to ingratiate themselves on military families, who are probably more inclined to vote and be politically active than non-military families.
I can think of a much better way to show appreciation for the troops. Just like our state income tax forms and drivers license bureau offices allow you to check a box to willingly donate to a wildlife fund or an organ donor fund, let’s add a “support our troops” donation option.
So, I see no reason why the state needs to obligate itself to pay more interest by taking on more debt and crowding out other funding priorities. That’s why I’m against Issue 1.
Are there bond issues I could conceivably support in the future? Possibly. But here’s the criteria such a bond issue would have to meet: The bond money must go toward a cause that grows the tax base so that the state receives a big enough revenue windfall as a result of the bond issue that the repayment of principal plus interest is all too easy. As I said, I don’t think the state should take on the role of venture capitalist, so more “Third Frontier” bond issues would not likely pass muster with me. Perhaps the bond issues that would have the best chance of garnering my support would be for infrastructure upgrades. Upgrading infrastructure could definitely grow the tax base, if done right. I’d have to be convinced that it’s the right infrastructure project, and not just a patronage project. I’d expect the infrastructure project to be a game-changer and not just a cosmetic facelift. If those conditions are met, I might be persuaded to get behind it.
Issue 1, though, would not do a thing to increase the tax base, and would therefore generate no additional revenue with which to pay back the bond principal and accompanying interest. Vote NO on Issue 1.