Letter: Time for Long-Term Town Financing

lettertotheeditor

To the Editor:

The RTM’s Finance Committee has released a compelling analysis of the town’s borrowing program. It recommends ending the current program of paying the total capital cost of a major project over the short term—in five years after two years of construction finance notes.

In its place, the committee recommends that the town adopt the “common practice for municipalities to match the amortization schedule of their debt issuances with the useful life of the assets financed by said borrowings.” Capital assets yield services over a period of years, and paying for those services as they are received makes more sense than paying for all of them up front. In the household sector, this municipal practice has its counterpart in the mortgage financing of home purchases. Moreover, as a second issue, there is fairness. If a municipal asset, such as a fire station, yields services over 30 or 40 years, why should taxpayers pay all of the costs of such an asset over 5 to 7 years? Finally, the change to long-term financing would have the advantage of saving money to use for tax relief, additional infrastructure maintenance, or municipal services.

It would seem that there is little disagreement with the logic of the recommendation, but opposition to it hinges on concern over a “slippery slope.” What protection would there be against allowing resort to long-term borrowing to ease fiscal discipline and eventually lead to higher taxes and possibly even worse? The town’s experience with self-imposed constraints is hardly reassuring. When its total debt exceeded the ceiling of the last debt policy, the ceiling was simply increased. Needed are external constraints, beyond the reach of local politics.

The RTM’s Finance Committee proposes that the town’s bonded debt be “consistent with the maintenance of the highest AAA bond ratings that the town currently enjoys.” The committee identified two ratios as the most important in Moody’s bond ratings of bonds such as those in question: first, net direct debt as a percentage of full value of a town’s real estate; and second, net direct debt as a percentage of operating revenues. Including limits on the level of these ratios would serve to restrain excessive debt. It is not irrational to fear a slippery slope. But it would be irrational to be paralyzed by this fear when effective safeguards are available.

The current interest-rate environment offers exceptionally favorable opportunities for low-cost municipal borrowing. These opportunities should not be missed.

Gerald A. Pollack
Old Greenwich

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