EDITORIAL: The correlation between bonds and taxes

0
85
Tyrone Walker (left) and Frederick Morgan reminisce at the overlook next to the quarry. (photo by Jordan Green)

All of a sudden it’s news that a major package of municipal bonds — voted on by the Winston-Salem electorate only six months ago — is actually going to cost the taxpayers some money.

It’s been in the news, and the subject of some contention at a city council meeting last week.

But come on, people. This is about as basic as math gets.

Let’s start at the beginning: American cities generally have excellent credit ratings. This is because, unlike corporations or individuals, municipalities and other government bodies have the authority to raise revenue by levying taxes, which means that they can borrow lots of money because they can always pay it back. Like the Lannisters.

This borrowing power comes in handy for big projects that tax revenues won’t cover, infrastructure stuff that cost tens, sometimes hundreds, of millions of dollars. That’s what the Winston-Salem bonds were about: $122 million in five bonds for 36 projects, most of which are upgrades or improvements.

Municipalities are so rock solid that they can put their debt on the market as bonds, which usually get funded by investors because of the low element of risk. In return, investors get a piece of the monthly debt service — known on the street as the “vig.”

There is nothing new or remarkable about this. Nor is the inevitable result of a bond issue, which is a raise in taxes.. Because bonds are for things taxes can’t cover.

Municipalities have the authority to raise revenue by levying taxes, which means that they can borrow lots of money because they can always pay it back. Like the Lannisters.

And yet, every time bonds get passed by voters — and they almost always get passed by voters; each of the 2018 bonds passed by double-digit margins — the bump in taxes, no matter how trivial, gets politicized and sensationalized, obscuring the deal that got struck at the ballot box.

Predictably, local taxholes decry the increase in their burden — which is $60 a year for homes worth $150,000 — and the media likes to make it into a story, like it’s some sort of bait and switch. Elected officials like to remind the voters that they greenlighted this themselves, though by voting to put them on the ballot, councilmembers did give these bonds their tacit endorsement.

Bond referenda almost always pass because people want the stuff: parks and bike lanes and smooth roads and new firehouses and such. Elected officials love them because it gives them some money to spread around, and tangible results that can be used as re-election material.

And most people don’t begrudge the $60 — or $50 or $250 or whatever — bump in their taxes.

So what’s the big deal?