## Thursday, October 6, 2011

### San Francisco Proposition B

The San Francisco Bike Coalition has been flooding Facebook and Twitter with posts supporting Proposaition B in San Francisco, a bill which would use a \$260 million bond to pave roads. The population of San Franciso is 800 thousand, so that works out to a around \$300 per person in the city.

Now if you got a bill in the mail for \$300 so the city could upgrade its roads, on top of the city's rapidly growing budget presently at \$6.6 billion (according to last night's mayor candidate debate at UCSF), you might be disturbed. It's extremely unlikely if there was a proposition asking each citizen of the city to pay \$300 for roads that it would pass. You can even pro-rate it as you will, make those with higher income, more property, even bigger cars pay more and you'd rightly ask: "but I already pay taxes for a city spending money at an all-time record rate, even adjusting for inflation, why should I pay more for such a basic service?" The proposition would crumble and fail.

But bonds are different. People face them with glassy-eyed innumeracy, ignoring the number of digits, and instead evaluate them on a benefit-benefit basis. Paved roads? Sure! I'm for that!

Proponants argue that even with the interest associated with bond debt, the "interest" on potholes is higher. Leave a pothole in place for unit time dt, and there will be a cost of K dt. However, if you need to borrow L at an interest rate r, they argue, the payment on the debt, r L dt, is still less than K dt. So it's a good investment.

But the problem with this logic is it assumes you're in a position to pay back the debt. The interest rate is only the immediate cost of a bond. Bonds also contribute to the debt load of the city, and if the debt load gets too high, the bond rating for the city will drop and there will be a huge cost increment. This second-order effect can have an enormous impact on the true cost of a bond.

It would be as if I took out a loan to brush my teeth each morning. Sure, not brushing my teeth will result in much higher dental treatment costs, but the choice isn't between borrowing and not brushing. The solution is to get a job and pay for toothpaste out of my salary. If I were to rely on debt for my daily dental care, eventually the collection agency would come and reclaim the gold from my mouth (perhaps my best financical investment lately, but I digress...)

San Francisco needs the discipline to pay its bills. It's exponentially increasing budget, even discounted but whatever reasonable inflation rate you choose, is clearly unsustainable. Bonds are clearly not the answer. San Francisco Bike Coalition is dreadfully off-base on this. This is especially true because cyclists cause so much less road damage than cars and trucks, yet with a bond cyclists are footing as much, or in the case of commercial truck operators, more of the bill to fix it.