Wednesday, April 28, 2010

Is Leverage a Reason to Vote For or Against the Water Bond?

Leveraging additional non-bond revenues is an argument being made in favor of the water bond. This is from ACWA materials.

Q: What other funding would be leveraged if the bond is approved by voters?
A: The $11.14 billion bond measure would leverage an additional $30 billion in local and federal matching funds, for a total of $40 billion in investments in the state’s water system.
In finance, leverage means taking on risk and usually means large amounts of debt. When all goes well, leverage leads to enormous returns, but also creates exposure to huge losses. In the midst of a miserable recession largely largely caused by excessive financial leverage, it doesn't seem like a good promotional term.

As bond proponents are using it, leverage seems to really mean gaining access to more of "other people's money." For example, the bond might provide the funds needed to secure federal matching funds to build a dam at Temperance Flat. If you are ACWA, that's a wonderful leveraging of additional subsidies, but for ordinary taxpayers it isn't so wonderful.

Local taxpayers, state taxpayers, and federal taxpayers are the same people. From a voter's perspective, this argument for the water bond is investing $1 out of your left pocket to "leverage" the removal of $3 from your right pocket.

The leverage argument means a vote for the water bond is a vote for increasing the federal debt in addition to the state debt. Maybe bond opponents should argue that the water bond hurts national security and will take funds from the military and put our soldiers at risk. More likely it will be tax increases. They should make the bond proponents explain exactly where all those "leveraged" federal and local dollars are going to come from.

It is going to be a long year pointing out all the bad economics in this water bond campaign. This isn't even the main argument, just me complaining about an annoying term that suggests it is a magical deal where we pay for $1 of investment and get $3 additional dollars of investment free.

1 comment:

  1. How real are these "matching funds," anyway? The term "local and federal" looks kind of suspicious to me, particularly since "local" is mentioned first. Are they counting on local bond measures to supplement the state bonds? I don't see that happening, and doubt that's a good idea anyway.