A Ballot-Box Paradox: Capital Spending Wins

VOTERS all across the United States sent their elected leaders an unusually unambiguous message last November -- they want less intrusive government, tighter control of public spending, and lower taxes. But in the one area in which Americans regularly vote directly on whether to increase public spending -- the authorization of state and local borrowing to finance investments in schools, highways, and other public facilities -- a majority voted for increased capital spending.

In 450 separate state and local elections, voters OK'd $6.4 billion of the $10.1 billion in new bonding authority that governors, mayors, and legislators had submitted for their approval. Outside California, where a $1 billion state transportation bond and several other large issues went down to defeat, the approval rate was 72 percent. Nationwide, 73 percent of the new bonding authority requested for local schools was approved, and an amazing 96 percent of the new authority requested for environmental facilities. The $6.4 billion total was the fourth-highest nationwide total approved on any election day in the past 50 years.

And 1994's results are no fluke. During the past 15 years, Americans have consistently registered their strong support for public investment where it counts most -- in the voting booth.

Thus, even after a conservative landslide, elected officials -- both the incumbents who survived and the new kids on the block -- need to read the election returns with care. Americans may want smaller, more efficient government. But they also want safe, well-maintained roads; adequate supplies of clean water; and decent school buildings -- and when public officials make a compelling case for specific projects, voters are willing to pay for them.

Can we have both? I believe we can, especially if officials pay heed to some of the lessons that have been learned in the course of the past decade's efforts to meet the country's growing need for public capital investment.

The first is that increased investment doesn't always have to mean higher taxes. During the last 10 years, state and local officials have successfully and creatively developed new ways to finance capital projects, without asking taxpayers to pick up the tab. From California's new toll roads to New York's water tunnel to airports all over the country, projects are being financed on the principle that capital improvements should be paid for by those who benefit most directly from them, through user fees. Some projects, of course, cannot be financed through user charges -- public schools, for example. In these cases local officials and voters need to decide whether they are prepared to finance projects out of the local tax base.

The second lesson is that if there is neither demonstrable user demand nor widespread public support for a project, then it probably won't -- and indeed probably shouldn't -- get built.

Third, as government searches for new ways to finance public infrastructure investments, it can make greater use of private-sector capital and expertise. Private toll roads are being built in several states; and private construction and financing of airport and environmental facilities are now common. With a concerted effort, and a supportive legal and regulatory framework, more ways to use private resources to meet public needs can be found.

Fourth, increasing public investment need not involve major new commitments of federal spending. But it does require federal programs and policies that support -- or at least do not hinder -- state and local efforts to address the issue. Thus the new Congress should look to the waste-water treatment revolving loan fund program, established under the Reagan administration, as a model for how to support and encourage greater (and more efficient) state and local investment, at minimal federal expense.

Congress should also work to eliminate unreasonable federal constraints on state and local authorities -- such as the provisions that now limit the use of federal transportation aid to capitalize state-revolving loan funds, and those that restrict local use of air passenger fees to finance airport improvements. And it should resist the temptation to trim the federal budget deficit by curtailing the use of municipal bonds to finance public capital facilities.

The two messages the voters delivered in that watershed election are really quite consistent. Americans want government that is limited in scope and cost -- and that acts responsibly to meet communities' most basic needs.

It is the responsibility of the federal government and members of the municipal bond industry to ensure that they can continue servicing these needs in the most effective and economically efficient manner possible. When it comes to infrastructure finance, that is precisely what many states and localities around the country have been delivering.