So, let's do a quick discussion of that.
The first thing to know is that the city can't run the same kind of annual deficit that the federal government does. By law, local budgets have to balance.
What we're talking about here is borrowing for long term hard investments, mostly street repair, but also police and fire stations, libraries, and so on.
Each year the mayor introduces two budgets -- one for the annual operations of the city and the other for capital investments. So, for example, police salaries are in the operating budget, but a new police training center is in the capital budget.
The final thing you have to know is that the capital budget comes with a five-year capital investment plan. So, for example, a given street improvement might be scheduled three years down the line and a new fire station might be built year after next. Sometimes, for big projects like the Central Library, the expenditures stretch out over a few years.
During the 2011 campaign and ever since taking office, Mayor Paul Soglin has emphasized his concern about where those five-year plans are taking us. For many years, the city comptroller (now finance director) projected that if we borrowed everything we had in the five-year plans, then eventually paying back that debt would consume over 20% of the city's operating budget. It was around 12% when I left office.
Soglin promised to reduce that projection, but he hasn't. In two budgets now, the five-year debt projection is actually a little higher than it was in my last budget.
This is significant because the mayor writes the budget. If he wanted to reduce the debt projection, he has the power to do it.
While this means that Soglin is going back on a promise that was a centerpiece of his campaign, for the city's sake, I'm glad he is breaking that commitment. Here's why.
First, money is historically cheap. The city's latest borrowing package came in at under 2% interest.
Second, the work needs doing. When I took office, Madison's streets were in a mess. I set out a five-year plan to cut the miles of substandard arterial streets by two-thirds. We're near reaching that goal. But if we don't keep up with it, we'll find ourselves back in the (pot)hole real soon.
Third, people need the work. The Great Recession has been especially hard on the trades. We're putting people to work at family-supporting jobs.
Fourth, we're getting excellent construction bids. Contractors need the work, so they're willing to give us the best possible prices.
Fifth, it would be irresponsible not to do all the infrastructure replacement and building we can right now. Let's say we've got $100 million in street repair that we know we need to do in the next ten years. If we do it now with low construction costs and low interest rates, it will cost taxpayers much less to do the same work than if we wait and end up with higher actual costs and interest rates later on.
Sixth, we'll never get to 20% of operating budget going to pay back debt. That's because the five-year capital plan is a wish list. We never actually build everything that's in the plan. Having said that, I could see the percentage moving up above 15% and staying there for awhile. But, again, I believe that that's the right thing to do for the long-run best interests of the city based on the previous five arguments.
I'm not downplaying the problem. Growing debt should not be taken lightly. But if you think about it in terms of long-term investments in public infrastructure, then most of the persuasive arguments point to staying on the path we've established.