Revenue bonds

Fun fact. According to Charles Schwab, only about a third of US investment-grade municipal debt is of the general obligation type that's common here. 

General obligation debt is debt that falls to ratepayers at large to cover, either directly or in the limit if something else fails. 

The other two-thirds are revenue bonds.

NZ doesn't have those but it should. 

A revenue bond gets paid off only by the revenues that arise from the project it funds - user fees, targeted rates and the like. If the revenues from the project fall short, the bond can fall over - so project viability gets a harder look.

The government's 'Three Water' reforms are largely about trying to unlock better funding and financing for water infrastructure. All the convoluted governance structures are mainly about trying to achieve balance sheet separation, so that there's no risk that the underlying councils will bail out any debt issued by the amalgamated entities, so they won't hit council debt limits.

A better approach would just allow councils and council-controlled entities to issue revenue bonds to fund this stuff, with payments financed by levies on the users.

It unlocks a pile of potential infrastructure investment. It provides fewer reasons for unaffected ratepayers to say no to stuff - the pipe serving the new set of apartments, or the new subdivision, gets paid for by the users and beneficiaries of the infrastructure, not by others. And it could bring bondholder oversight that necessary maintenance is being undertaken - to protect their stream of payments. 

It's this week's column over at the Stuff papers. But it builds on a theme from a column last year, where I reminded people about the special purpose districts that used to be able to issue this kind of debt. 

Anyway, I can't see what real problem gets solved by the proposed forced amalgamations that doesn't get solved, better, by revenue bonds for funding and financing infrastructure. 

And just think about the dynamics for other projects. Want a new highway? Set a revenue bond that has to be paid off by tolls on the users. That road will not get built unless its revenues exceed its costs. And same for a new tunnel at Mt Vic. Or a rail line. No more 0.2 BCR stuff.