UPDATE: The governor signed the bonding plan into law on May 14.
It’s only been a few weeks since the Iowa legislature’s 2009 session ended, and I’m already tired of hearing Republican attacks on the $830 million infrastructure borrowing program (I-JOBS).
The bonding proposal was among the most important bills passed this year. However, to the Party of No it was a terrible idea because paying back $830 million in bonds will cost a total of $1.7 billion.
Iowa Republicans “support funding infrastructure projects on a pay-as-you-go basis.” In other words, while the economic recession is bringing down state revenues, we should sit tight and only improve our infrastructure when the state has the cash to pay the full cost up front.
I cover a few problems with this argument after the jump.
Republican Party of Iowa chairman Matt Strawn recently blasted Democrats for “sticking Iowa taxpayers with a $1.7 billion tab.”
I’d like to know whether Strawn believes Iowans should not buy homes until they have saved enough money to pay for them in cash. This website on mortgage loan basics shows that total payments on an $85,000 mortgage (assuming a fixed interest rate of 7.5 percent) are way higher than the $85,000 borrowed. A home-owner’s total payments would be $164,160 on a 20-year mortgage and $213,840 on the more typical 30-year mortgage.
Even a Republican can tell you that the benefits of home ownership often justify the costs of long-term borrowing. If we required people to pay cash up front before they could buy a house, most Americans would be renting forever.
Here’s a related Republican talking point about the infrastructure bonds:
Strawn, himself a small business owner, said, “Unfortunately, until we have new legislative leaders and a Governor who understands that small businesses and risk-taking entrepreneurs — not state government — create long-term sustainable jobs, Iowa’s economy will continue to suffer.”
Gee, I wonder how those small businesses and risk-taking entrepreneurs carry out the expansion plans that create new jobs?
Oh, now I remember, they borrow money. And by the time they’ve repaid those loans with interest, the total price tag is a lot more than the amount they borrowed. But if they’re smart, what they did with the loan built a solid foundation for their businesses.
Even David Yepsen, who repeatedly called for cuts in government spending, liked the infrastructure bonding plan and mocked its critics:
It’s funny to watch all these Republican legislators, who borrow all sorts of money to buy, expand or repair homes, businesses and farms, now turn prune-faced when Culver suggests doing the exact same thing in state government.
Anyway, private business owners would not be able to accomplish what the I-JOBS money will pay for:
• $115 million for repairs to bridges and roads.
• $600 million would go for repairs at flood-damaged buildings and houses, sewer systems, construction of homeless and domestic abuse shelters, energy projects, public high-speed Internet systems and public construction projects.
• $115 million would pay for flood repairs at the University of Iowa and more construction at a veterinary lab at Iowa State University.
(UPDATE: Click here for a more detailed breakdown of how the bonding money will be allocated.)
Public works such as these cannot be done by “small businesses and risk-taking entrepreneurs.”
How much is too much to borrow? Financial analysts have various ways to calculate whether a business or a government is taking on too much debt. This isn’t an exact science, but Iowa is clearly far from placing a crushing debt load on its citizens. Yepsen noted in a different opinion column that
According to Moody’s Investors Services, Iowa’s per-capita level of public debt this year is $98 per person. We rank 48th. You’d have to triple Iowa’s public debt to $294 per person to take the 47th place ranking from Tennessee, which has $221 of debt per person. Even then you’d still be behind 46th-ranked South Dakota, which has $302 per person.
Nevertheless, Republicans clearly think attacking the I-JOBS program is a winning issue for them. I’ve seen several politicians, such as Iowa Senate Minority leader Paul McKinley here, claim Governor Chet Culver is in trouble because 71 percent of Iowans don’t support his borrowing plan.
That figure comes from a Des Moines Register poll by Selzer and Associates from March, in which 71 percent of respondents agreed that Iowa should “pay for the projects as it has the money over time,” while only 24 percent supported “Governor Chet Culver’s plan to borrow money to speed up public works projects.”
Now scroll back up a few paragraphs and read the list of projects the borrowed money will fund. I highly doubt Iowans will be outraged in 2010 to find that state money was spent on fixing roads and bridges in their county. I don’t think people living in unsewered communities, or towns with obsolete sewer systems, will be upset that the state financed a sewer project with bonds.
I also don’t think rural Iowans stuck with dial-up internet access would turn down a chance to get high-speed internet sooner rather than five years from now.
My point is that no matter how people answer a hypothetical question about spending and borrowing, they generally like public works projects that improve their communities.
For similar reasons, most people claim to oppose “pork-barrel spending” by Congress but like it when their own representative in Congress secures money for a local project.
A separate Republican talking point is that Democrats have supposedly exaggerated the number of jobs created with the infrastructure projects. Iowa State Economics Professor David Swenson, whom I greatly respect, estimates that “only” around 4,050 jobs would be created through the $830 million borrowing program. For the sake of argument, let’s assume Swenson is right. (I don’t think 4,000 jobs is anything to sneeze at, by the way.)
The value of an infrastructure project isn’t measured solely in the number of jobs it creates during construction. If the project is worth doing, Iowans will continue to benefit for many years, as people still use the public buildings, parks, bridges and other transportation infrastructure built several generations ago.
The key point is that the borrowed money must fund good projects. We could borrow hundreds of millions of dollars and spend it on something stupid, like a four-lane beltway in northeast Polk County, or we could spend the same amount on projects with long-term benefits: flood reconstruction, increased capacity to transmit electricity generated through wind power, cleaner drinking water, renovated schools that are more energy-efficient, and so on.
By the same token, a “risk-taking entrepreneur” can go broke borrowing money to fund a hare-brained scheme. Yet a well-conceived loan can allow that entrepreneur to bring a business to the next level. Taking out an $85,000 mortgage may be a good move for a family, despite the long-term repayment costs, or it may be unwise. The key factor is not the size of the mortgage but the value of the home being purchased and the owner’s capacity to meet the mortgage payments.
It will be critically important for Culver’s I-JOBS program to fund projects that benefit whole communities. The Vision Iowa fund was a mixed bag, financing some great things but also some doozies.
If the infrastructure bonding money is squandered on boondoggles that enrich primarily a handful of developers, then the I-JOBS borrowing won’t fulfill its potential to improve the quality of life in Iowa. Not only that, it will be harder for Democrats to convince voters that they are good stewards of the people’s finances.
If the I-JOBS money is allocated wisely, the Republicans may find that their indiscriminate aversion to borrowing isn’t a political winner next year. Democrats will remind voters that if Republicans had had their way, those public works would not be happening for years (if ever).
Even if we did save enough money to invest in infrastructure without borrowing, you know Republican policy-makers would advocate tax cuts for the wealthy instead. But that’s a subject for another day and another post.
Please share your opinions about the substance or the politics of the I-JOBS program.