Increasing debt poses risk at national and local levels

Colorado sometimes draws national attention for its method of raising taxes. Under the Taxpayers Bill of Rights amendment to the state constitution approved in 1992, voters themselves are the only ones who can raise local or state taxes.

Voters still have no direct say over federal income taxes. But many view TABOR as an amendment in the spirit of the founding of the country — and of the warning from the founding fathers that a government allowed to run amuck could eventually trample individual rights and, just as importantly, spend more than it makes in a given year.

Even as TABOR ensures that voters have a say in tax increases, state and local governments still have plenty of loopholes to which they can take advantage. State and local governments can borrow money with the intention of paying it off in the future. And in lieu of taxes, governments can raise fees for everything from motor vehicles to planning documents for a new housing project.

Given the national alarm over the size of the federal deficit and the questionable wisdom of continuing to borrow money in light of that deficit, one might think a local government in a conservative city might think twice about going into debt to fund new public safety projects only two years after voters rejected a sales tax increase to fund such a project.

It’s important to note the city went back to the public after the ballot measure failed and found out that people wanted to downsize the scope and the cost of the project and proceed without raising taxes. The revised project involves the construction and remodeling of five buildings, not the construction of seven buildings. The cost has dropped to $35 million, about a third of the initial $98 million budget.

What people probably didn’t have in mind was a decision to borrow money through what are called certificates of participation and then pay it back over 30 years with an annual lease payment $2.2 million a year. We might not have a world-class education here at the Grand Valley Business Times, but we’re pretty sure $2.2 million multiplied by 30 comes to more than double the $30 million the public had in mind.

The city will not raises taxes to pay back the certificates and interest. Rather, annual payments will come from $500,000 from the surcharge on telephone bills to  fund 911 service and $1.7 million from the capital construction fund.
But at the same time, what happens if the city gets in a further financial bind? Consider recent discussion about raising downtown parking meter rates to 20 cents an hour.

But don’t worry, parking downtown will be free during the holidays, wiping out a potential windfall of revenue during a time of high demand for parking.

Who’s making such economically questionable decisions? Business and community leaders who serve in city management and on city council. They know from handling their personal finances that long-term debt comes with risks. That organization need not be as large as the federal government. It just needs to heed the example of the one centered in the nation’s capital.

The Business Times has served as the definitive source for Grand Junction business news since 1994. The journal offers news, views and advice you can use twice each month in print with daily updates online at www.TheBusinessTimes.com
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Posted by on Dec 8 2010. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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