California Primary Elections II
Proposition 81 is a bond measure to raise $600 million for renovation and construction of public libraries.
And on to bond measures. Bonds are clearly useful in situations when there is a one-time large capital expense to build infrastructure such as highways, school, and libraries. Since there is a one-time building of these structures with lasting benefits, bonds are sold initially to build the structures and are subsequently paid for over time. However the argument against state bond propositions is similar to one IÂd make to any one of my friends. If you can pay for something straight out in cash itÂs much better than having to have to pay interest (unless the interest is lower than you think inflation will be in the future). So for instance Proposition 81 has the state of California selling $600 million in bonds which is going to end up costing the state $1.2 billion over 30 years with $40 million annual payments at 5% interest. If you include inflation estimates conclude that each dollar borrowed by the state will require $1.30 repayment.
The current California state budget is near $100 billion. $600 million/$100 billion = .6%. If you had a friend that wanted to buy a car for $6,000 and she made $1,000,000 a year would you tell her to take out a loan or pay for it in cash?
And on to bond measures. Bonds are clearly useful in situations when there is a one-time large capital expense to build infrastructure such as highways, school, and libraries. Since there is a one-time building of these structures with lasting benefits, bonds are sold initially to build the structures and are subsequently paid for over time. However the argument against state bond propositions is similar to one IÂd make to any one of my friends. If you can pay for something straight out in cash itÂs much better than having to have to pay interest (unless the interest is lower than you think inflation will be in the future). So for instance Proposition 81 has the state of California selling $600 million in bonds which is going to end up costing the state $1.2 billion over 30 years with $40 million annual payments at 5% interest. If you include inflation estimates conclude that each dollar borrowed by the state will require $1.30 repayment.
The current California state budget is near $100 billion. $600 million/$100 billion = .6%. If you had a friend that wanted to buy a car for $6,000 and she made $1,000,000 a year would you tell her to take out a loan or pay for it in cash?
posted by GW at 12:45 AM
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