Monday, August 15, 2011

Outrunning The Bear – Part 1

This is a post in three sections, roughly centered on these three themes:  Where We Are - How We Got Here; Why Nothing Will Change Soon; and Where We Should Be Going.

Part 1 – Where We Are Now – How We Got Here.

When I was in college I had an economics professor who delivered a lecture roughly entitled: “Why a Growing National Debt is No Cause for Alarm”.  As I recall the thesis was fairly simple:  yes, our national debt was growing, but our national income was growing much faster.  The debt service payments were actually falling as a percent of national income.  On a personal level, the analogy might be: you’ve moved into a bigger house with a bigger mortgage, but you got a raise and your spouse got a raise, so the mortgage payment as a percent of the household income is actually smaller than it was. 

Today, 35 years later, that has all changed.  Our national debt is growing exponentially, our national income is stagnant.  If the Fed fails to hold interest at historic lows, the debt service will be even more of a burden crowding out other expenditures, unless of course, we choose to borrow the money to pay the debt.  (Although that does not seem to be working out for Greece, Ireland, Spain, Italy . . .  ) 

On a local level we don’t have that problem.   .  .  .  Or do we?  Even though we have no practically no general obligation debt to service, we are increasingly using up our capital assets.  Every business manager knows that sooner or later, depreciation ceases to be a bookkeeping line item and becomes a physical reality: things get used up; they have to be replaced.  As one example, the next time you drive on our local streets, take notice of the road surface on which you are driving.  Chances are good that you will be driving over streets that look like alligator skin.  The asphalt has broken into small, irregular shaped pieces about a few square inches in size.  When the roadway gets into this condition, it is past repair, it must be removed down to the road base, then the road base must be rebuilt and compacted before a new course of asphalt can be laid.  The cost of doing this is roughly two to three times the cost of a simple overlay coat.  According the City Streets division in a memo from last November, 2010, we had hundreds of lane miles of roadway that needed to be rebuilt.  Since last November, the roads have gotten worse.  The story is much the same with other capital assets or municipal services:  bridges and storm water channels are falling apart, police and fire services are stretched far too thin, the city’s infrastructure is failing.

But at least our income has kept pace, right?  While TABOR has prevented the city from imposing new taxes, total tax revenues have grown.  So we should be keeping pace?  Actually, no.  When adjusted for inflation, the city now receives less than 59 percent of the per capita sales tax revenues it received in 1993.  Put another way, the city is trying to provide the same level of services it has provided in the past, on 59 percent of the revenue.

Simply put: the city is heavily in debt; its income is falling.

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