December 18, 2012

The Name’s Bond . . . Building Bond

After paying off the mortgage on your house, would you then take out another mortgage as part of a jobs program? The St. Louis Post Dispatch recently published an editorial calling for the state to do something just like that. Legislators are discussing a bond issue and the Post-Dispatch is urging the state to issue another series of bonds in order to create more jobs. For those not in the know, a bond is simply a loan from investors to a company or state. Like any loan, it must be repaid with interest.

I am not categorically against a state or other governing entity issuing bonds for worthwhile spending on infrastructure, but putting the state in debt just to launch a public works program looks like a mini version of the American Recovery and Reinvestment Act of 2009 (i.e., the Stimulus), which really covered itself in glory. To be fair, the Stimulus was not entirely composed of infrastructure spending, but infrastructure spending was a significant part of it.

There are other reasons to be wary of a state issuing debt, as Chris Edwards from the Cato Institute explains:

  • . . . debt financing is more costly than current tax financing because of the interest expenses and related charges.
  • The most important reason that voters should hesitate to approve bonds is that the country already faces huge government liabilities. At the state level, pension and health benefit plans for retired workers have funding shortfalls of about $2 trillion.

Again, there may be good reasons for the state to issue bonds. Transportation and higher education infrastructure are both legitimate uses of public dollars. However, before putting the state further into debt, it is important that these potential bond issuances are thoroughly examined to see which projects they would be financing.

I will write more about these potential bonds in future posts. I can see myself and others at the Show-Me Institute supporting some type of bond issuance, but I hope the primary plan is not that they will serve as some sort of jobs program.

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