Issue Bonds with No Tax Increase? Dream On...

Next week we will be headed to the polls here in California, and radio listeners and TV viewers around here are being inundated with commercials urging folks to vote "yes" on this or that bond measure. Many of those commercials claim that the bonds they support can achieve some noble goal without "new taxes" or "without raising taxes". Without taking a position for or against any of the bond measures on the ballot, such arguments are misleading and dishonest.

Let's talk about the basics for a moment. Bonds are a form of IOU, in this specific case an IOU issued by a state or local agency. This agency raises money from the public now, and pays it back over time, with interest. This is not a bad thing, it is a way for governments to finance large upfront capital investments and spread the cost over time. Bonds are particularly useful in financing large infrastructure projects - e.g. highways, ports and power plants - which cost a lot upfront but that generate a return down the road. 

What some folks don't understand or choose to overlook is that bonds are not free. Unless the interest on the bonds can be re-paid using funds generated by the project itself, such as from tolls raised on a new freeway, the interest must be paid from tax revenue. When bond supporters claim that their bonds will not require new taxes, they are, in fact, lying or intentionally misleading the public. It may be that no new taxes will be imposed, but tax revenue will be used in repaying the bonds. Such revenue could be used for other purposes or returned to the public through lower tax rates. Of course, telling the public that "you'll be paying for this project through the nose" is somewhat less palatable than the lie of a free lunch, so promoters of bond measures go with the happy fairy tale instead.

Don't get me wrong. I am not against all bond measures. Bonds are a very acceptable method of financing vital or productive public projects. So are taxes. What I am against is intentional disinformation of voters. Another favorite trick: (read with pathos, and a single tear in the corner of your left eye):

"It's for the kids...."

I am not even going to go down THAT road...

For extra credit: add a police officer, firefighter, nurse or teacher to your commercial. That's gotta be worth a few more votes. Psychology of the masses. You gotta love it... 

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