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Will Arlington County Board Push Debt Limits

At its recessed meeting next Tuesday, July 11, the County Board is scheduled to make its final decision on the Fiscal Year 2007-2012 Capital Improvement Plan, and then set the bond language for the November 2006 bond referenda. In the County Manager’s proposed FY 07-12 CIP, debt service as a percentage of expenditures is expected to increase from its current 7.6% to 9.4% in 2010, and then drop back to 8.9% in 2012. Several years ago, the Board adopted a policy of limiting debt service to a maximum of 10% of expenditures. If the CIP is adopted as is, Arlington’s debt per capital will be $3,164.

The Cato Institute, in its July 2006 “Tax & Budget Bulletin” [Adobe required], notes that skyrocketing debt is not limited to the federal government, but extends to state and local government as well. According to the bulletin, state and local debt has increased from $1.19 trillion in 2000 to $1.85 trillion in 2005, an increase of 55%.

Several problems are cited by Chris Edward’s, Cato’s Director of Tax Policy Studies with such debt. For example, he says that “when politicians are given the power to issue debt, they have an incentive to issue far too much because it allows spending without the political constraint of having to tax current voters.” In addition, because of the interest that has to be paid it is more costly than pay-as-you-go financing. Edwards also notes the potential for corruption when mixing big government with big finance.