Borrowing by State and Local Governments:

The problem of intergenerational equity arises most acutely at the state and local levels where the bulk of public investment expenditures are made and financed. Suppose that a township is about to construct a school building, the services of which will extend over thirty years it is only fair to spread the burden among the successive generations of residents which will benefit from the service. The principle of benefit taxation is applied in allocating the burden between generations.

To accomplish benefit taxation, the initial cost is covered by borrowing, typically in outside markets. In subsequent years, future  generations, resident and partaking of the benefits are taxed each year in accordance with their current benefit share. In the process the debt is amortized and repaid by the time the facility is used up. Once more intergenerational equity is secured, with each generation paying for its own benefit share. A township which finances its school building by borrowing and amortizing the debt over the length of the asset life thus provides for an equitable pattern of burden distribution not only between age groups but also between changing groups of residents as the population of the jurisdiction changes in response to in- migration and out-migration.