Thoughts on Bonds & Budgets
Despite a reasonably stable economy and projected, albeit slow, growth, the City has a long term structural deficit. As a general matter, I lean toward less concern of debt, as it is needed to ensure dynamism and responsiveness. However, I do have two great and animating concerns, and while they may seem a non sequitur, I feel it critical for any discussion on this issue: the recently passed changes to federal tax law and a coming recession.
Our City has numerous bonds out, with municipal bonds being the traditional alternative option, beyond taxes and fees, for revenue. The new federal tax law offers significant changes to the municipal bonds market that may not be fully understood for some time. An obvious area of concern is with the City's current 5-year plan efforts at refinancing outstanding debt to save money on interest liabilities; this is a common approach for the City, trading new bonds having longer maturities for outstanding bonds before they're due, taking advantage of rate changes. This then liberates otherwise committed City expenditures. However, this long-used practice, called "advanced refunding", is no longer legal, and as a result, debt restructuring is very likely going to prove considerably more challenging.
Additionally, with corporate taxes lower, and with a cap on the write-off for state and local taxes, municipal bonds may prove less attractive investments for banks and investment firms - traditional bulk buyers of municipal bonds. Our City may find it harder to sell bonds intended for issue because there may be fewer institutional bulk buyers; if many municipalities begin issuing fewer bonds, then the supply of bonds drops, thus less supply could lead to less yields for any investor whatever, therefore leading to fewer individual investors. In such a cycle, we find ourselves devoid of buyers of all stripes (institutional and individual), and therefore, stuck with interests from issued bonds while unable to raise additional revenue via bonds. This, I should note, is only one of several of my concerns of this law, which may impact significantly our budget. While I recognize I am no expert, and while I hope once everything of the law is in place, humming along, this concern will not materialize, I do think it will do us well to investigate the matter before committing too heavily on future budgets and expenditures with reliance on pre-tax law models.
While our economy has grown for a decade, this is unsustainable, with a correction and quite likely a recession near-certain over the 4-year term of our next Supervisor. San Francisco enjoyed a large employment growth rate for several years, but has since begun showing a plateau. I feel it imperative our City begin now the process of planning how to manage both a recession and constrictions on traditional methods of raising revenue (wholly un-accounted in the current budget and 5-year plan).
In addition to research and accounting for changes in federal law and its impact on our City (and its impact of the State budget which in turn impacts ours), I feel we must prepare to address ways to ride out recession, especially so with traditional funding paths closed. It will be particularly challenging, if the bond market is closed, to initiate large building projects, which otherwise helps to increase the tax base, while in recession - at least without cash infusions from somewhere (the feds?). The best we can hope for from our budget is nibbling on the margins of a limited pool of discretionary spending, given so much of the budget is enterprise, set-asides, or otherwise committed. If we don't prepare, then sensitive areas of the budget will quickly become targets on the chopping block (likely starting with pensions and labor). While I do not oppose budget nibbling, it is insufficient when the recession hits, and so I lean toward the addition and expansion of existing taxes, the culling of select tax breaks, and perhaps the creation of new revenue sources. While I have some thoughts on where to go, I prefer consulting with experts, and especially so after a study of the federal tax changes is conducted. Regardless, I find this topic critical for anyone running for public office in San Francisco (or any municipality, really). While I am thinking about it, I have thus far yet seen anything of this issue from the mayoral race. Perhaps my concern of recession and, especially, an entirely new bond market, is overblown? What say you?
Jason Lee Jones 21 araw ang nakalipas.