A new 10-year $8.2 billion transportation program passed by the Kansas Senate Friday will be funded in part by the issuance of bonds, as was also the case with the 1999 comprehensive transportation plan now expiring.
Some House members strongly object. Issuing bonds is just another way of borrowing money, they say
Sure is. Moreover, issuing 20-year bonds for a 10-year program obligates the state to make payments on one 10-year-program for 10 years or more after a successor program has started. That is happening today. Money must be taken from current state in-come to make interest and principal payments on bonds used to finance the 1999-2009 CTP. Those payments will continue to require KDOT funds for 20 years after the last bond is sold — unless money from the skies drops down to allow early retirement.
Is that smart financing?
Two factors make bond financing attractive to-day.
First, and most important, interest rates are at a rock bottom low. The cost of borrowing for public projects may be as low as it has ever been when the KDOT issue goes to market. Since the interest rate for the term of a bond is established when it is sold, the earlier bonds are sold in today’s economic climate, the lower the rate will be.
Interest rates are very likely to rise in the relatively near future. As the economy continues to recover and federal def-icits mount, the Federal Reserve Board is quite likely to decide that inflation is the new enemy. Boosting interest rates is the first tactic the Fed will take to reduce that risk.
Second, using bonds to build highways or make any other investment in infrastructure spreads the cost out over the term of the bonds. Doing so, means that the current population does not bear the entire cost of building roads and bridges that will last for decades. Funding with bonds is a way to see that future highway users help pay transportation program costs.
The argument against bonds is that the cost of interest must be added to the total cost. But to get a clear picture of the cost of borrowing with bonds, the erosion of the value of the dollar through inflation must be subtracted from the interest paid. In the current environment, with interest rates so low, there is a very real possibility that the true interest the bonds create will be less than zero before the bonds mature.
THERE ARE other faults to find with the program’s financing. It would be wiser to finance 10-year programs with 10-year bonds so that one decade’s construction costs don’t create a burden on the next decade’s KDOT budget.
It also would be a good idea to continue the practice of paying for highways with user fees; that is, with highway fuels taxes and higher registration fees on cars, trucks and other highway-using vehicles. Kan-sas also should persuade its members of Congress to work harder in support of higher federal taxes on gasoline and diesel to rebuild the federal transportation trust fund that built the Interstate System but is now exhausted because the federal tax hasn’t been increased since 1992 — 18 long years ago.
The need to raise state and federal fuels taxes increases with every fuel-saving advance the industry makes. Even more dramatic fuel econ-omies lie just ahead with the development of plug-in cars, which will be good for the environment and car owners, but bad for state transportation budgets.
Dwight D. Eisenhower sold the Interstate Highway System — and a federal fuels tax to pay for it — as a way to tie the nation together and make it even less vulnerable to its enemies. Our economy and our national welfare is even more interdependent today than it was then and even more dependent on the best possible system of highways. A higher federal fuels tax would be a prudent investment in the nation’s future prosperity.
— Emerson Lynn, jr.
