Wednesday, March 4, 2009

If I Were Mayor: Pay Off City Debt

On Monday the Chronicle reported that the city has had to pay an additional $9.3 million on its debt of $12 billion due to ties with troubled banks. The city has taken steps to reduce the high interest rates on some of the debt, including an investment of $118 million from Harris County. City Controller Annise Parker said, "We took prudent steps to deal with a very unusual situation.”

The city's debt is approximately four times its projected revenues for fiscal year 2009. To put it another way, if the city used every dollar of revenue it would take four years to pay off its debt.

I do not consider the city's debt load to be prudent, as hundreds of millions of dollars are spent each year simply to pay for the spending of previous years. In other words, today's taxpayers are paying for the roads, libraries, parks, and other improper government activities undertaken years ago.

If I were Mayor, we would pay off the debt. Doing so would require several specific steps:

  1. Begin to limit government to its proper functions--the police and courts. This would dramatically reduce current expenditures and eliminate the need to use bonds or other debt to finance improper activities.
  2. Sell assets--such as parks and libraries--to raise millions of dollars in revenue, which could be used to retire debt.
  3. Privatize city services--such as water and trash collection--to raise substantial sums, as well as reduce the city's capital expenditures.

It is a gross injustice to mortgage the lives and property of future Houstonians through debt. Future taxpayers will be forced to pay for today's profligate spending, and that burden will undoubtedly continue to grow as city government increasingly expands its involvement in our lives. Indeed, in fiscal year 2004 the city spent nearly $206 million on servicing tax bonds. That increased to an estimated $272 million in 2008, an increase of about 32%.

The city's need for debt financing has one essential cause--the city's involvement in providing services that are outside of its legitimate sphere. By limiting the city government to its proper purpose of protecting individual rights, the city's financial needs would be a fraction of what it is today.

Debt financing can be legitimate in the realm of production--it can be used to purchase equipment, raw materials, and expand productive capacity. It that context, debt can pay for itself through increased production.

Government however, is not a producer. It is a consumer--its activities do not create bread, or computers, or jobs. As the economist Henry Hazlitt puts it in Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics:

Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that it continue to pile up debt without ever paying it off, because "we owe it to ourselves."

Hazlitt concludes by saying that all government expenditures must ultimately be paid through taxation. If they aren't paid today, they will be paid by tomorrow's taxpayers.

If today's citizens and voters are not willing to pay for a particular project with current revenues, they have no moral justification for saddling their children with that expense. If today's citizens and voters are not willing to voluntarily write a check from their own account, they have no moral justification to force other taxpayers to do so.

Most citizens recognize the irresponsibility of running up debts far beyond their ability to pay. Most citizens recognize the fact that the hamburger, or stereo, or BMW that is bought on credit today must be repaid tomorrow. To believe that this changes when the government is involved, and the items purchased on credit are roads, or libraries, or anything else is pure fantasy.

In fiscal year 2009 the city is scheduled to sell more than $1 billion in new bonds. This is not how one gets out of debt. You cannot borrow your way out of debt. The city is simply ignoring fiscal responsibility and passing it off to future generations.

It is time for the city to govern responsibly by limiting itself to the protection of individual rights. It is time for the city to live within its means by spending less than it brings in. It is time for the city to pay off its debt.


Rational Jenn said...

Really appreciate your taking the time to submit this post to the carnival. Thanks!

Brian Phillips said...

Jenn--thanks for your posts on the tea party, particularly this one. I wish my parents had taken me to something like that.