Financing Environmental Projects

• Author: Michael Curley
• Pages: 43-46

43

Chapter 6—Financing

Environmental Projects

As we have said before, we will have to pay more to maintain our qual-

ity of life. So, it behooves us to produce environmental services as

inexpensively as possible.

e lowest cost for environmental improvement projects results from

nancing them over the longest possible term. e longest possible term

depends directly on the service l ife of the assets being nanced.

e easiest part of this equation is to discuss service life.

Every capital asset, especially equipment, has a term of years over which it

can typically be used. Good home washers and dryers last 10 years. Automo-

biles, 5-10 years. Most people don’t nance their washers and dryers. But a

lot of people pay for their cars over time. Payment terms of 5-6 years are very

common, and occasionally 7-10 years.

ere is an enormous dierence between decisions to buy or nance per-

sonal items such as cars and washers and dryers versus nancing major capi-

tal assets used by public agencies.

e best example of this involves a school boa rd buying a school bus.

School buses last 10 years. So if the school board issues a 10-year bond to pay

for it that is completely appropriate. On the other hand, if they issue a ve-

year bond, their taxpayers for the next ve years will be paying much more

than they should, and those who move into the school dist ricts and begin

paying school taxes in yea r six will get a free ride (so to speak) for ve years.

e opposite side of th is coin is the sc hool district t hat is sues a 20 -

year bond. at is just lunacy. e taxpayers in years 11-20 will be payin g

for not hing.

Contrast the school board’s decision with that of a 50-year-old homebuyer

who has to choose between a 15- and a 30-year mortgage. e service life of

the house will certainly be at least 30 years. So, why not a 30-year mortgage?

Well, this particular homebuyer plans to retire at age 65. He really doe sn’t

know what his nancial condition will be at that time, and he doesn’t want

to guess. In short, he doesn’t want to be paying the mortgage for more than

the next 15 years. So, although the monthly payment on a 15-year mortgage

is signicantly more expensive than the monthly payment on a 30-year mort-