Why More Debt Is A Dumb Idea When You’re Broke

You know, the devil’s in the details when it comes to just about everything.  Especially government, and most especially, government budgets.

Take next year’s proposed city budget.  I’ve been through this thing line by line, with a fine-toothed comb, ever since we got the “final draft” in early August.  It’s a lot to digest.  Lots of numbers and all.  But some numbers are more important than others, and right now I want to focus on debt and its effect on our bottom line.

The city borrows money to make major infrastructure improvements, like constructing new libraries and police stations, building new roads, putting in new playgrounds in our parks.  These are bond projects approved by voters.  When we borrow money for these projects, we’re essentially putting them on the city’s credit card.

As with any credit card, the city has to make regular payments.  Next year, our credit card bill will be about 22% of our entire operating budget.  It’s the largest expense after police.  Take a look:
Next year, the city manager proposes to charge an additional $314 million to our credit card.  The critical question is: How will that affect our credit card payment? Well, it won’t make much of a difference next year.  It’s the following year we have to worry about.

See, if we decide to borrow $314 million next year, then the following budget year we’re going to be up a creek without a paddle.  Our credit card payment will jump by $24 million.  TWENTY-FOUR MILLION DOLLARS.

Why am I shouting?  Because I’m worried about this.  Really worried.  Because if we have to spend $24 million more on debt repayment, that means $24 million less that we’ll have for all our other city services:  police, streets, parks, libraries, code, the arts, etc.

It’s just like your household budget:  The more stuff you buy with your credit card, the higher your monthly credit card payment.  In this economy, you probably aren’t going to be getting a raise. So assuming your income stays the same, a higher credit card payment means less money you can spend on groceries, gasoline, the light bill, etc.

The same is true for the city. The more debt we incur, the higher our debt payment and the less we have to spend on the basics (assuming we’re not rolling in more money in two years, which I doubt).

So my question is pretty simple:  Where is this additional $24 million supposed to come from?  Property and sales tax revenue is likely to remain down, so more money won’t be flowing into the city coffers.  And we’re already cutting muscle and bone in the upcoming budget — laying off 840 city employees, cutting back library and rec center hours, combining city departments, dipping into the city’s rainy day fund.  Seriously, where are we supposed to get $24 million in 2010-11?  Look at the pie chart again.  Where are we going to get $24 million?

There’s a simple solution.  If we just cut our credit card purchases down to a “modest” $125 million next year, our credit card payment the following year will stay level.  Makes sense, right?  Don’t increase your credit card bill when money’s tight.

I brought this up at last week’s council meeting when we were discussing the budget:  We’re about to dig ourselves into a bigger hole, I said.  A $24 million hole at a time when we’re looking for pennies in the couch.  Bad idea.  Only Councilmember Ann Margolin shared my concern.

I went over to the mayor, thinking, “He’s a business guy.  Surely, he gets this.”  Instead, he did that thing he does when he wants to dismiss any opposition.  You know the thing I’m talking about.  It goes something like this:

“We must do [X] to make Dallas a great city.  If you oppose [X], you don’t want Dallas to be a great city.”

It’s a hell of a syllogism, and it’s worked for him through the Trinity Toll Road and Convention Center Hotel campaigns, so why not go back to the same well?

So when I told him my concerns, he just shook his head.  “We can’t just throw up our hands and not invest in our city.”   (As if I were proposing to eliminate bond projects altogether and let Dallas devolve into a third-world country.)  I asked him where he thought he was going to get $24 million.  “We’ll find it.”  Are you planning on raising taxes?  “Absolutely not.”

So I guess the mayor is saying, “Spend, baby, spend!  Who cares if we don’t have the money!  We’ll tell everyone that we have to do it, or else Dallas won’t be a world-class city!”  I guess he thinks there are buckets of money we can dip into.  But that would be silly.

City Manager Mary Suhm had the same response.  “We’ll find it.”  Where?  “It’s not that hard to find $24 million.”  Really?  Can you find me $24 million in the upcoming budget so we don’t have to cut our parks, libraries, streets, health services, police, and everything else?  And if we’re so flush with money, why are we planning to take $11 million out of the city’s rainy day fund?

Now, keep in mind, this time last year when we were debating the budget, Mitchell Rasansky and I were the only two people on the council saying the city’s revenue projections were overly optimistic.  We suggested cutting the budget by $40-$50 million or risk making severe cuts mid-year.  But the mayor and the rest of the council ignored us and passed a bloated budget.  Guess what happened mid-year?  The city had to cut services because it had over-estimated revenue by a cool $44 million.

So I’m raising the alarm again.  At a time when we’re cutting deep into city services and scrounging for every penny, it’s irresponsible to dig ourselves into a deeper hole.