The real reason why local governments often have to raise taxes or revenue or go bankrupt (Hint, it is not from spending on social programs, education or public security):
Aggordong to “Strong Towns” a development think tank that concentrates on the costs of suburban growth and development, we are in the third cycle of suburban development in the United States. The first generation of suburbia was built on savings and investment. The second was built and maintained using tons of borrowed money.
Although prepare by “Strong Towns” to reflect US suburb growth patterns, the above chart applies to to larger areas and their infrastructure development including countries. What we build and pay for with debt [whether public or private] generally has not included accounting for replacement costs or operation and maintenance beyond the infrastructure’s estimated life cycle, which as a rule is less than the payback period on the bonds used to build it in the first place. This would be like borrowing for your weeks food agreeing to pay it back in installments over two weeks, then borrowing the following weeks food on the same terms hoping that somehow the nourishment can be converted into increased earnings. The syndrome compulsive gamblers suffer resembles this.
The real reason why local governments (and larger entities as well) often have to raise taxes or revenue or go bankrupt:
Case study: “Free roads’ are a myth”:
A group of high-value lake properties petition the city to take over their road. They agree to pay the entire cost to build the road — a little more than $25,000 per lot — in exchange for the city agreeing to assume the maintenance. As one city official said, “A free road!”
Question: How much is the repair cost estimated to be after one life cycle and how does that compare to the amount of revenue from these properties over that same period?
Answer: It will cost an estimated $154,000 to fix the road in 25 years, but the city will only collect $79,000 over that period for road repair. To make the numbers balance, an immediate 25% tax increase is necessary along with annual increases of 3% with all of the added revenue going for road maintenance.
(See Strong Towns for more)
- QEIII is No Replacement For a Real Infrastructure Stimulus (valuewalk.com)
- Build America (economist.com)
- Forget QE3, America Needs a Real Road and Job Stimulus (businessinsider.com)
- Forget QE3, America Needs a Real Road and Job Stimulus (zerohedge.com)
- Need for Tax Help Grows as IRS Seeks Funds to Bail Out Bankrupt Nation (prweb.com)
- Dean Baker: A Wall Street Gambling Tax: The Remedy to Inequality (huffingtonpost.com)
- Forget QE3, America Needs a Real Road and Job Stimulus (ilene.typepad.com)
- Federal highway fund is running on fumes (kansascity.com)