Nixon’s billion-dollar building plan deserves support
Missouri Gov. Jay Nixon has asked state legislators to submit proposals for a major capital program to fund projects on university campuses and at other state facilities. It’s a sound idea.
The money, perhaps as much as $1 billion, would be raised under the Build America Bonds program, part of the $787 billion federal stimulus package passed earlier this year. The interest is subsidized at 35 percent by the federal government.
Under the BABS program, states and other governmental entities might sell bonds yielding a 7 percent return, but the interest cost to the state would be only 4.5 percent. In effect, the state would be spending 65-cent dollars; such deals don’t come along very often.
BABS bonds are taxable, but many institutional investors, like pension funds, foundations and endowments, don’t pay taxes and should find the high returns attractive.
Many states already have jumped on the BABS bandwagon. That means there’s some urgency to Mr. Nixon’s proposal. It not only has to be approved by lawmakers, but also by voters. Unless Mr. Nixon calls a special election, the earliest such a proposal could go before voters is November 2010.
The state should act before then, even if it requires a special legislative session and a special election. Adding some urgency to Mr. Nixon’s request, made in a letter to lawmakers last week, is the fact that the state budget is $371 million in the hole.
To bring it into balance, the governor may veto many of the capital projects included in House Bill 22, passed a week before the legislative session ended May 15. After posturing for months about their reluctance to spend federal stimulus money, lawmakers went on a last-minute $348 million spending spree with stimulus funds in HB 22.
Among the largest stimulus-funded projects they approved were $31.1 million for the Ellis Fischel Cancer Hospital in Columbia; $9.3 million for the Bellefontaine Habilitation Center in north St. Louis County and $28 million for projects at the University of Missouri-St. Louis. More than $50 million was earmarked for projects at other state universities and agriculture research stations.
If those are whacked from HB 22, they could wind up in a BABS package along with a wish list of other projects from around the state.
In his letter to lawmakers, Mr. Nixon asked for a comprehensive list of projects and proposals. He vowed that a bond package would not require a tax increase and that if necessary, he would cut other parts of the state budget to service bond-related debt. He further vowed that “nothing would jeopardize” Missouri’s AAA bond rating.
A bond package that would have addressed $700 million worth of capital needs at state colleges and universities died in the state Senate in May. If the BABS package incorporated those projects and others as well, the total bond package could exceed $1 billion. State taxpayers would bear $650 million of the cost over the next 25 years.
“Missouri faces not only a unique period of built-up capital needs, but also a unique opportunity to finance those needs at historically low costs,” the governor said.
He is correct. The state must invest in its future, and the sooner the better. Those 65-cent dollars won’t last long.
Translation of Nixon’s proposal: The feds are printing money as fast as they can and throwing it out at every hairbrained idea local pols can come up with. Missouri needs to get in line with its hand out while there’s still an economy to provide it.
Hurry, hurry, hurry! Let’s borrow a billion dollars so we can go on a spending spree, even though the economy is in the tank and the state budget is already in deficit. What a great idea.
Umm, can someone from the nameless Editorial Board explain something to me? If the Treasury will pay 35% of the INTEREST on the bonds, how did you calculate that a 1 billion dollar bond sale with 7% rate of return on the bonds will only cost the state 650 million dollars in payoff? Won’t it cost 1 billion dollars PLUS 4% of the interest that accumulates, with the other 3.5% of the interest being paid by the Treasury?
This notion of 65-cent dollars is mathematical nonsense.
Tim overlooked another important error in this commentary: As usual, the Post editorial board is laboring under the presumption that federal funding grows on trees, when in fact, it must be extracted from the fruit of somebody’s labors.
Read the editorial again:
“The interest is subsidized at 35 percent by the federal government.”
The cost of the bond, interest, is separate from the amount of the bond, principal.
Interest is paid 35% federal, 65% state. Thus, for every $1.00 of interest, Missouri will pay just 65¢.
This construction program will create jobs for Missourians. As long other states are accepting funding from this stimulus package, Missouri should grab our share. Otherwise, the jobs go to workers in some of the other 49
states.
Remember, the object of the stimulus package is to create jobs, but the result will be improved state infrastructures.
New translation: more jobs, an improved Missouri economy.
Webhead, you are as big of a doofus as the nameless Editorial Board. The blog says, and I quote, “the total bond package could exceed $1 billion. State taxpayers would bear $650 million of the cost over the next 25 years.” That’s not 1 billion in interest my mathematically challenged friend, that’s principal. The nameless Editorial Board thinks that we can spend $1 billion dollars and only have to pay $650 million to pay off the bonds…LOL!
So, not only are you and the nameless Editorial Board wanting to incur another 1 billion plus in debt for the state, you don’t even know how it needs to be paid off.
Webhead, if the nameless Editorial Board has an opening, I bet you’d be a shoe-in to fill it…
We act like the money grows on trees. Where in the he## do you think the money comes from. I got an idea? Stop with your projects until the economy straightens out. If spending federal money gave you the returns you claimed, would’nt we have seen an improvement by now after two stimulas packages. Now their talking money for a for a high speed rail line to chicago. It is not all Obamas fault but this country is in deep deep trouble.