Bonding Versus Pay-As-You-Go


Ted Nesi has posted one of those articles that falls in the marshy area of topics in which all of the variables (and the desire of government officials to spin) make it very, very difficult to get a specific question answered — even to decide which question is the important one:

The Raimondo administration claims its debt-financed RhodeWorks plan would save taxpayers $595 million, but that number requires tackling fewer bridge projects than a pay-as-you-go alternative, a analysis shows.

… RIDOT now says taxpayers will spend $108 million more on bridge repairs through 2034 if the bond is floated than they would if toll revenue is used on a pay-as-you-go basis. Put another way, RhodeWorks costs $595 million less than pay-as-you-go through 2025, but it costs $108 million more than pay-as-you-go if you extend the window out to 2034.

Keep in mind that we’re ignoring the important question of whether the Rhode Island Department of Transportation (RIDOT) could even handle a “surge” of new projects, and we’re taking the estimated costs and schedules of all projects at face value.  In the hands of government, a big pot of money isn’t exactly known to encourage efficiency. Those factors could blow the projected savings out of the water, and it could prove that the slower pace of pay-as-you-go would is just right for the RIDOT, even if it would be more expensive compared with a hypothetical perfect execution.

But let’s put those considerations aside in order to understand what Nesi’s getting at.  A key starting point is that both of RIDOT’s estimates assume the state imposes tolls.  The only difference is that one grabs the money upfront by taking out loans and the other just uses the toll revenue as it comes in (which points to another questionable assumption).  2025 is the year the toll-and-borrow plan would make 90% of bridges “structurally sufficient,” while 2034 is the year the toll-only plan would reach the 90% milestone.  In the first case, when the state hits 90% in 2025, it will keep going on a pay-as-you-go basis, until by 2034, it will have spent another $703 million ($595 plus $108), but will have brought the “structurally sufficient” bridges up to 97%.

The confusing piece that hasn’t been put into the puzzle, yet, is specifically what happens during those nine years.  Presumably some bridges will become structurally insufficient between 2025 and 2034, meaning that the pay-as-you-go plan has to repair more bridges just to hit the milestone.  We don’t know when and at what cost pay-as-you-go would finish fixing the exact same bridges that toll-and-borrow would fix by 2025.

At this point, though, we should take a step back and recall that the pay-as-you-go amount is just what the state expects to take in from tolls.  With or without tolls, if Rhode Island’s government decided to find the money to reach 90% by 2025 without debt, we would save over one billion dollars:  $600 million or so in interest and the $595 million in construction costs. That means coming up with around $60 million per year, which wouldn’t be so difficult if the state had its priorities in order.

  • Winter Solstice

    Great article, Justin.

  • ShannonEntropy

    One very important element is missing from this analysis =►
    Both Gina’s & Seth’s background as venture capitalists

    By borrowing the money up·front these two crooks State leaders ensure that their investment banker pals will reap tens of $millions$ in fees

    But there won’t be any fees with the pay-as-you-go approach

    NOW does the decision make perfect sense ??