Citizens urged to vote "no" on bond referenda
Arthur G. Purves, president of the Fairfax County Taxpayers Alliance,
today urged Virginians to vote against the two Virginia bond referenda, $119
million for parks and $900 million for colleges. He also urged Fairfax County
residents to vote against the county’s two referenda, $60 million for public
safety and $20 million for parks. Mr. Purves charged, "Due to excessive
bond sales, both Virginia and Fairfax County are wasting a billion dollars
on interest. Frequent bond sales are the bond underwriter’s paradise and
the taxpayer’s nightmare."
This year, Virginia’s budget is $9 billion more than needed to keep
up with population and inflation growth since 1979. Fairfax County’s budget
is $1 billion more than needed to keep up with population and inflation
growth over the past 27 years. Using these extra revenues instead of
bonds would have saved billions of dollars of interest.
Vote "NO" on both.
Selling bonds is how government borrows money. Bonds are to government what a mortgage is to an individual. To pay off a mortgage, the individual makes periodic mortgage payments, which incrementally pay back the money borrowed (capital) plus interest.
For government bonds, the mortgage payment is called "debt service."
The purpose of borrowing is to obtain an amount of money that is many times, generally ten times, larger than the annual debt service payment. This is called "leverage." The greater the amount borrowed compared to the annual debt service, the greater the leverage.
Interest is the price of leverage. Leverage should be about ten, i.e., bond revenues should be about ten times the annual debt service. High leverage, however, is obtained by not selling more bonds until current bonds are paid off.
As the accompanying charts show, both Fairfax County and the state sell bonds annually. The result is almost no leverage. Fairfax County's highest leverage in the last 24 years was "2", in 1989 and 1983. In only two years, 1981 and 1984, did the county have the discipline to not sell any bonds.
The state of Virginia has obtained higher leverage than Fairfax County over the last ten years. However, the state's highest leverage was only "3", in 1993.
Excessive bond sales have exhausted Fairfax County's debt capacity, have nearly exhausted the state's debt capacity, and eroded their leverage.
This means that taxpayers are paying higher taxes for hundreds of millions of dollars of interest for bonds that have little or no leverage.
The only way the county and state can increase their debt capaicty and sell more bonds would be by lowering their credit rating. This would mean higher interest rates.
The county's cost of bond interest this year is $73 million, which accounts for 6 cents of the $1.21 real estate tax rate. The total cost of interest for all outstanding county bonds is $1.3 billion.
For government, construction and capital maintenance are annual expenses and should therefore be paid for from their mushrooming operating budgets. Using bonds for annual expenses is wasting billions of dollars in interest.