ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed

City Journal

search
Close Nav

Cut the Ribbon and Run

from the magazine

Cut the Ribbon and Run

Summer 1998
Infrastructure and energy
Economy, finance, and budgets
New York
Education
Politics and law

Stories of New York City’s public schools crumbling while officials demand billion-dollar bond issues to rebuild them call to mind a day in June 1988, when Mayor Ed Koch, flanked by cameramen and reporters, ebulliently announced that subway service would be restored on the reopened Williamsburg Bridge. Two months earlier, inspectors found such extensive corrosion that they feared the bridge would soon collapse into the East River. When asked how corrosion had advanced so far, Koch admitted that the bridge’s maintenance budget had been appropriated for other purposes.

American cities tend to let things fall apart before they fix them. Political incentives reinforce this: TV cameras record ribbon cuttings, but not routine maintenance. And payments for routine maintenance are operating-budget items, painfully paid in full by current taxpayers, while the cost of major restoration is spread out through bonds. A strong incentive exists, then, for politicians to pay for tomorrow what they should pay for today. Of course, the use of bonds for major restoration instead of current-year budget items for maintenance virtually guarantees that accumulated interest payments will double the final cost to the taxpayers.

Federal programs invite putting off maintenance, too, since federal infrastructure grants primarily target new construction. Under the recent $200 billion Transportation Equity Act for the Twenty-First Century, for example, state and local governments receive a proffered $4 for every $1 they contribute only if the funds go to big capital projects. If state and local governments want to do routine maintenance, tough luck, they’re on their own, except for the Act’s tiny allocations for maintenance. A University of North Carolina study pointed out that as the capital focus diverts funds from maintenance, the overall quality of the existing system declines.

Though the "cut the ribbon and run" syndrome is difficult to prevent, the use of bond "maintenance covenants" might provide a partial answer to perpetually deferred maintenance. Here’s how they might work. Let the federal transportation program require participating state and local governments to guarantee in bond financing documents that they will keep facilities in the same pristine condition they were in when first built. Such maintenance covenants have been used successfully in the past for revenue producing projects like toll bridges and roads. Other required covenants might mandate annual public reports that describe how the structure is holding up. At O’Hare Airport, for example, an independent consultant makes a report each year on needed improvements.


With all major public borrowings, bank trustees usually represent bondholders’ interests. If a covenant is breached—for example, if the covenanter hasn’t prevented a bridge from crumbling the trustee can seek to enforce the covenant by court decree. The ultimate savings to taxpayers would be monumental.

Up Next
from the magazine

Medicaid’s Fatal Attraction

New York’s legislators love Medicaid for the goodies it lets them dispense. Now it could destroy the city’s and state’s budgetary health. Ned Regan The Social Order, Healthcare

Contact

Send a question or comment using the form below. This message may be routed through support staff.

Saved!
Close