A healthy dose of skepticism is necessary to prevent a city from using debt to kick the can down the road.
Government accounting can be boring and confusing. Still, knowing some basic accounting principles is essential for understanding the motivations behind some of the most perplexing behaviors of local governments. Two key insights to help us distinguish necessary debt from wasteful spending are: 1) is it an investment for a social need, and 2) can the city afford it?
Understanding wants vs needs
Most of us are probably familiar with Maslow's Hierarchy of Needs. The intent of this pyramid is to differentiate basic needs from higher-order wants. The role of government is to help individuals secure their fundamental needs (physiological, and safety & security). However, our liberal society regards the private sector (free market) as the better negotiator for allocating social resources (time and money) to pursue the wants for Love, Self-esteem, and Self-actualization.
Taxpayers should remain skeptical when a government agency relies on phrases like "surveys show that this is what the community wants" to justify going into debt to pay a social cost. Not because it is inherently bad for people to pursue their wants. But, because people satisfy these wants in widely different ways, making it impossible to ever fully satiate a community's social wants.
FY2023 Comprehensive Financial Report: Cottonwood Heights
Further, diverting a city's limited funds to meet diverse social wants is likely to underfund fundamental social needs. In the case of Cottonwood Heights' desire to bond for a city center, a vigilant citizen must require the city to justify such an expense for acquiring more open space when our city already enjoys 144 acres of parks. And, even if that bar is cleared, it must also show that its budget can afford its cost.
Debt as a Funding Source - Cash vs Accural Accounting
Municipal governments are unlike the federal government because they cannot engage in deficit spending (they cannot print their own money). Therefore, municipal debt must be offset by the city's revenue sources (taxes). Consequently, a community's fiscal health can be defined by how well its budget is balanced over some time. It is this concept of time where most disagreements about the health of government budgets flare up. A city conducts its financial accounting with a Cash Method. Meanwhile, most private firms and households assess their financial health through the Accrual Method. To better understand the difference these two accounting methods impact decision-making, I suggest you read this article from Strong Towns.
To make a long story short, most city officials will claim a balanced budget if they can prove there is more than X amount of money left in the general fund. However, for most people, the idea of a balanced budget means the ability to maintain a steady level of cash in that pocket over several years. That's the main difference between short & long-term thinking.
Short Term Thinking - kicking the can down the road
Cottonwood Heights is currently asking permission from its residents to use its power to borrow 30 million dollars and provides a statement of how the bond will impact the city's ability to maintain a balanced budget with an illustration depicting three different scenarios (see image 4):
- Projected budget without property tax increase.
- Projected budget with property tax increase (GO Bond).
- Projected budget with property tax increase (GO Bond) and land lease revenue.
The city's cash-basis accounting method allows the city to claim that the best-case scenario (GO Bond and land lease revenues) will balance the city's budget for 4 years.
However, an astute person who understands the same scenario under the accrual method will readily understand how a 30-year debt obligation is used to kick the proverbial can of insolvency by barely 4 years. At this time, the city will be left in a worse fiscal position than the one it faces today because it has 26 more years to payoff that bond.
There are serious systemic problems that make it very hard for our city to level off the erosion of its budget; runaway wages, a tax base largely reliant on single-family properties, insufficient commercial activity, too much space dedicated to non-productive uses (Parking and Parks), too many miles of pavement that need to be maintained, etc. This bond does nothing to address these fundamental issues. In fact, spending money on a want without considering the ramifications of long-term costs might put our community in a worse position to mitigate the rapid growth of the cost of living.
VOTE NO on the bond.
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