What does pay-as-you-go financing involve?

Pay-as-you-go financing involves funding projects using cash reserves upfront. This method allows municipalities to finance projects without incurring debt or the costs associated with borrowing, such as interest payments. When a government entity utilizes pay-as-you-go financing, it allocates available cash or reserves to cover the expenses of a project directly at the time of expenditure. This approach can lead to more prudent fiscal management and ensures that a project is funded and completed without the obligation of future payments.

In contrast to this method, other financing options involve varying degrees of debt or obligations. For instance, issuing bonds for future projects requires creating debt instruments that will need to be repaid over time, which can lead to interest costs and financial obligations. Similarly, taking loans for immediate expenses results in an obligation to pay back the borrowed amount with interest. Funding projects through tax increases shifts the financial burden to taxpayers for the projects, rather than using existing cash resources effectively. Therefore, pay-as-you-go financing stands out as a strategy focused on immediate cash use without accruing future liabilities.