ANALYSIS OF BONDING VS. "PAY-AS-YOU-GO" FINANCING

The decision to bond or to pay-as-you-go must be made on a case-by-case basis where all of the relevant concerns are taken into consideration. Research has allowed us to develop the following general conclusions: The interest cost of bonding is not outweighed by the effects of inflation. While it is true that inflation causes bonds to be paid back in dollars that are worth less than the dollars that the bonds generated when they were issued, this effect is taken into account when interest rates are determined. Investors would not purchase bonds if they felt that the interest rate did not cover the inflation rate and offer a reasonable return. We could find no evidence that the effects of inflation allow governments to issue cost free debt. In the long run, bonding will result in there being less funds available for other uses. Interest payments impose a real cost on bond issuers. Continual bonding may result in there being less funds available for other uses, but this effect may be outweighed by the benefits bonding affords. The principal benefit of bonding is that it allows projects to be completed sooner.

• Record URL:
  • https://ntlrepository.blob.core.windows.net/lib/21000/21600/21695/PB99134223.pdf
• 
• Corporate Authors:

  Arizona Department of Transportation

  Research Center, 1130 North 22nd Avenue
  Phoenix, AZ  United States  85009

  Federal Highway Administration

  1200 New Jersey Avenue, SE
  Washington, DC  United States  20590
• Authors:
  • ROWELL, M
  • Buonincontri, R
  • Semmens, J
• Publication Date: 1999-3

Language

• English

Media Info

• Features: Appendices; Tables;
• Pagination: 103 p.

Subject/Index Terms

• TRT Terms: Bonds; Financing; Inflation; Interest rates; State departments of transportation
• Uncontrolled Terms: Pay-as-you-go financing
• Geographic Terms: Arizona
• Subject Areas: Finance; Highways; I10: Economics and Administration;

Filing Info

• Accession Number: 00762978
• Record Type: Publication
• Report/Paper Numbers: FHWA-AZ-98-470,, Final Report
• Contract Numbers: SPR-PL-1-(53)470
• Files: NTL, TRIS, ATRI, USDOT, STATEDOT
• Created Date: Apr 6 1999 12:00AM