In response to:

Cut State Debt; End the Muni-Bond Exemption

David1334 Wrote: Nov 04, 2012 9:20 AM
Your idea of government funding capital projects on a pay-as-you-go basis sounds attractive. At the state level this would be realistic. However, all municipalities aren't capable of this. The cost of a multi-million-dollar water or wastewater treatment plant is beyond the short term capability of a small (10,000) municipality to deal with on a cash basis without violent increases in tax rates. Building a capital reserve fund is not always realistic - and assumes returns at or more than inflation, which isn't always possible. Projects which generate revenue streams should indeed be privatized. Projects consistent with the jurisdiction's tax base should be pay-as-you-go. Flexibility, though, is paramount.

Big government programs and special tax-code carve-outs often lead to corrupting ties between government officials and private interests. The Washington Post today discusses the municipal bond industry:

In just about every election, local governments put measures on their ballots asking voters to allow the sale of bonds so that municipalities can finance roads, schools or other projects. Interested parties often form campaigns to help pass or crush these initiatives.

And sometimes the investment banks that donate to those campaigns get hired to sell the bonds to investors after an initiative passes, raising the possibility that they got a leg...