ABSTRACT
The pay-as-you-go method of funding means simply that capital works are paid for from the government's current revenue base and that the municipality does not take the more usual approach of issuing bonds and then repaying those borrowings over time. This chapter illustrates the cost implications of a program of continual financing. Some of the characteristic situations in which a pay-as-you-go approach may be most appropriate include, in areas in times of high interest rates unless they are offset by even higher rates of inflation, where the fiscal projections for the municipality do not permit the ongoing escalation of borrowing costs, and so on. The pay-as-you-go concept is intended to fund the normal and routine level of capital spending. During the latter half of the 1970s, real interest costs were negative. It was possible to borrow at moderate interest rates, which were at times lower than the rate of inflation at the time of the bond issue.
