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StrongTowns has a great article on this, "The Growth Ponzi Scheme," describing the effect that debt-fuelled, suburban city growth can have on municipal finances

StrongTowns has a great article on this, "The Growth Ponzi Scheme," describing the effect that debt-fuelled, suburban city growth can have on municipal finances: https://www.strongtowns.org/the-growth-ponzi-scheme/ https://www.strongtowns.org/the-growth-ponzi-scheme/

ch4s3 9y ago
I have in fact read that article :). It's quite a good overview.
turc1656 9y ago
I strongly disagree with the core claim that the reason is "unproductive growth". That's not the reason. The reason is municipal debt and gross mismanagement of the townships at every level. The municipalities are taking on debt by the truckload because they have failed to 1) manage their resources and personnel properly and 2) tax accordingly to what they need to actually maintain all services, which is why they take on the debt. If they instead were unable to take on the debt they would be forced to either raise taxes, cut services, or some combination thereof. The past ~40 years have seen an ever decreasing interest rate environment, which allows municipalities to borrow money by issuing bonds, pay only the interest, then when the principal comes due, they roll it into a new bond that borrows even more. That new bond pays the old one off and then they have some more borrowed money to work with. And because interest rates have gone down more in the years since the previous bond issuance, they can pay the same interest. Basically, they just keep rolling debt over so that the principal is never paid down. Example - in 2000, bond rates were around 6%. In 2010 they were around 4%. In 2000, if a municipality took out $100M to build schools or whatever, they need to pay $6M a year in interest. Ten years later it comes due. Uh oh, they now need $106M this year but only budgeted for 6 of it. Our bureaucrats spend every penny of tax revenue over the last decade and never made allotments of $10M a year to pay back this loan. So what do they do? Thankfully the rate is 4%, so they can borrow a whopping $150M and still pay the same interest! So that's exactly what they do. Now they get to pay the same $6M every year and also have an additional $50M to spend on "growth" and "sustainability". This has happened across the board in nearly every municipality (city, suburb, etc.) across the nation. This is why the Fed hasn't raised rates. It's the same reason why Japan is in the situation they are in...for 30+ years.

ch4s3 9y ago

I have in fact read that article :). It's quite a good overview.

turc1656 9y ago

I strongly disagree with the core claim that the reason is "unproductive growth". That's not the reason. The reason is municipal debt and gross mismanagement of the townships at every level. The municipalities are taking on debt by the truckload because they have failed to 1) manage their resources and personnel properly and 2) tax accordingly to what they need to actually maintain all services, which is why they take on the debt. If they instead were unable to take on the debt they would be forced to either raise taxes, cut services, or some combination thereof. The past ~40 years have seen an ever decreasing interest rate environment, which allows municipalities to borrow money by issuing bonds, pay only the interest, then when the principal comes due, they roll it into a new bond that borrows even more. That new bond pays the old one off and then they have some more borrowed money to work with. And because interest rates have gone down more in the years since the previous bond issuance, they can pay the same interest. Basically, they just keep rolling debt over so that the principal is never paid down. Example - in 2000, bond rates were around 6%. In 2010 they were around 4%. In 2000, if a municipality took out $100M to build schools or whatever, they need to pay $6M a year in interest. Ten years later it comes due. Uh oh, they now need $106M this year but only budgeted for 6 of it. Our bureaucrats spend every penny of tax revenue over the last decade and never made allotments of $10M a year to pay back this loan. So what do they do? Thankfully the rate is 4%, so they can borrow a whopping $150M and still pay the same interest! So that's exactly what they do. Now they get to pay the same $6M every year and also have an additional $50M to spend on "growth" and "sustainability". This has happened across the board in nearly every municipality (city, suburb, etc.) across the nation. This is why the Fed hasn't raised rates. It's the same reason why Japan is in the situation they are in...for 30+ years.