Submitted by Andy Duus, Chair of the 2020 BET Debt and Fund Balance Committee
To the Editor,
In the First Selectman Debate this past Monday, the Democratic candidate Anthony Moor repeated several assertions about municipal debt that have been previously expressed by other Democrats in Town.
Specifically, Mr. Moor said that “Pay as you go is a bad way to be doing large capital projects… you buy it over 30 years. Every other municipality in the U.S. does it this way.” Mr. Moor continued to say that “longer-term bonding was the most cost-effective way to finance projects.
Unfortunately, the Democrats continue to exhibit ignorance of municipal debt issuance law in CT and the reason why the Town has benefited from the modified “Pay as you go” capital funding and debt policies of the past several decades.
Have several specific comments.
First, it is both illegal and impractical for the Town to match fund large long-term capital projects.
Connecticut law prohibits municipalities from issuing general obligation debt with a final maturity greater than twenty years. It further requires that municipal debt principal be amortized annually. Therefore, at recent interest rates, the longest debt that the Town could consider would have an average life of about a dozen years.
A single capital project typically will have its capital costs spread over several years, and every year the Town funds a large portfolio of capital expenditures. Therefore, the Town has followed the annual practice of funding the cash flow needs of all capital projects rather than the total needs of discrete capital projects.
Second, municipal debt borrowing is, by definition, always more expensive than tax proceeds.
Finally, the only valid reason for the Town to issue debt is not “a more cost-effective way to finance projects”; rather it is merely a tool to more closely match the benefits of the Town’s capital investments with the payment of taxes (to fund debt service). Unfortunately, debt is far-too-often abused by governmental issuers (to defer payment for current benefits onto future generations).
The Town’s debt policy, fortunately, strikes a balance between cost and fairness. It limits the total amount of long-term debt issued to fund capital projects. Additionally, the Town structures its borrowings such that the interest cost of its debt is priced off the shorter end of the yield curve, which is typically at a lower rate than longer-term borrowings.
Mr. Moor said in the debate that “Elbows have gotten sharper.” Wish that he would sharpen his pencil when discussing debt.