Still trying to understand ...

I am still trying to get my head around the Mayor’s budget. That bit about paying for capital projects with revenues is admirable, but troubling. No one else is doing it?

Bear with me for an exercise, to work this out. I give you Joe Pittsburgh, homeowner. He makes a decent living, say he takes about five grand a month home, after taxes (heh). He has a home equity loan, a mortgage on the house, student loans, car payment, credit cards, etc. He has made some flashy improvements on the house, a Heinz deck and PNC hot tub, but he’s been ignoring some structural stuff, and he’s not too sure about the wiring, and afraid to look at the roof and the foundation. Even his fence could use some work. His mom is in a nursing home, and has a fund for her care with annuities coming in. He’s not too proud of it, but he diverted some of the annuities back a few years when he was having trouble making ends meet, and he might have to transfer mom into a state-funded home if he can’t make up the money (if the state will take her).

Joe does make a good living, like I said, and recently he’s been careful, so he built up his savings account to ten grand. He’s decided no more spending on credit cards or taking out home loans. He has a few hundred every month extra, after paying all the monthly bills, so he will do any work on the house from that or from his savings account.

The thing is, Joe owns a really old house. You never know what might break next.

So let’s say Joe decides he needs some wiring work done. That’s maybe a thousand, maybe a fifteen hundred. Easy enough, a bit out of the savings account, a bit from the monthly surplus, and hopefully we build the savings account up again. And if Joe decides to sell the house, he’s probably brought the value up, maybe by two hundred fifty to five hundred, by replacing old wiring. In fact, he improved his crappy credit rating by a little bit.

Suppose the issue of the roof comes up. That’s a big ticket item. Just a minimum fix will cost maybe $7500. The minimum fix helps with the value of the house too, and the credit rating, by maybe $3750. Which means if Joe borrowed $3750 of the amount, he would come out essentially even (sort of, I have to qualify the analogy some for that part to work).

Before I qualify the analogy, though, let me extend it a bit more. Suppose something else happens, which Joe didn’t have in his monthly budget and which involves no structural upgrades to the house. Suppose he has a root canal, or his car gets demolished in an accident, or he accidentally beats up a neighbor, who sues him. His savings may take a beating in any of those situations, and paying for any of them does not improve the value of his house.

I believe I argued before that some capital improvements can help improve a city’s finances, by encouraging businesses to move in. If Route 28 is widened, could businesses on the near Northside make the case to Stanton Heights residents that their commute will be easier? So the Casino (and strip bar) will have a wider pool of qualified applicants to hire from, productivity may improve and the Casino (and strip club) may charge less because their costs are lower. They make a hirer profit and contribute more taxes. Which the city can use to pay down the loan it took out to widen Route 28. Which is why you take out loans for capital projects.

Except for Mayor Ravenstahl.

Of course, I may totally misunderstand this.