QUIGLEY: Why The Debt Policy Debate Is Important and why the Republicans are right

Submitted by By Dan Quigley

One of the biggest differences between Republicans and Democrats in the recent election debates has been their views on long term debt. The Republican candidates, Fred Camillo & Lauren Rabin, have advocated continuing the policy of pay as you go mixed in with five year financing for major capital projects. On the other hand, Democratic candidates, Jill Oberlander & Sandy Litvack, have endorsed introducing the use of longer term debt as a financing option. It is imperative that residents of our community pay close attention to this issue as it is crucial to our fiscal health and our ability to ensure a future as prosperous as our past.

Although Debt Policy is not determined by the Board of Selectmen, members of that board can use their bully pulpit to speak out as they deem appropriate. I believe Fred & Lauren will use their voices as a bulwark against the moral hazards of using long term debt as a means of financing our capital projects. We have seen many examples of the peril of long term municipal debt financing over and over within our own state. The results are always the same: long term debt eventually leads to higher taxes, constrained budgets and its legacy costs can be a massive burden to the future fiscal health of a municipality.

While the Democratic candidates correctly point out that we currently finance our sewer maintenance with the use of 20yr bonds, this is not an appropriate analogy. In this case the bonds are supported by the assessment imposed on the users and the moral hazard risk is negated. Once moral hazard is introduced, it becomes easy for elected officials to deliver on new projects without having to worry about the consequences of how to pay for them. What is moral hazard? Simply put, it is the lack of incentive to protect against risk when one is protected from its consequences. This is a risk not worth taking.

Our Democratic colleagues have also claimed that in recent years we have not made enough capital improvements to our schools, thus leading to their neglect. Iwould take the other side of that argument. While the capital demands of our education infrastructure are always an evolving challenge, over the past fifteen years Greenwich has built three brand new schools (Glenville, Hamilton Avenue and New Lebanon), and added a new science wing and a world class performing arts center at GHS (MISA) among many other smaller projects. We have and always will be fully committed to improving the quality of our public schools’ infrastructure especially when it comes to safety. Where Fred and Lauren differ from Jill and Sandy is their approach to using your tax dollars most effectively to pay for it.

This topic is a heavy lift for some residents who may not be familiar with how a municipality structures its financing. So here is a more streamlined way of thinking about it. In every municipal budget process three things work together: spending, taxes, and debt. Every $1 of government spending must be matched with $1 of tax revenue or $1 of debt, or a combination of the two. For every $1 of debt we take on, we require more than a $1 of future taxes (or reduced spending) to repay the interest and $1 borrowed. Borrowed money only seems more cost effective because its repayment is deferred over a longer period of time. In the end, it always costs more.

In many ways we are still recovering from the global financial crisis that ended a decade ago and has left behind lasting damage to so many communities. One of the main drivers of that crisis was the insatiable appetite among individuals, businesses and municipalities to borrow money and pile on debt. The Democrats have openly stated that “rates are low now” and that longer term borrowing will
allow Greenwich to “complete priorities without having a lasting impact on residents”. It amazes me how quickly people forget and how easily history repeats itself. Just look at the debt problems that have plagued states and municipalities across the country. Most of their issues are rooted in governments’ insatiable appetite to borrow now to pay the piper later. This is what moral hazard is, and this is not what we want for Greenwich.

Prior generations have paid for the capital assets we are currently using and we believe that passing the buck to future generations is neither fair nor is it practical. Our pay as you go system has worked very well for our community. It is one of the keys to maintaining our Triple A credit rating. Greenwich’s low taxes have been one of, if not, the most important magnet to attracting families to our
town. This is especially true for middle income families, and it has been a primary driver of increasing diversity throughout our community. The best way to keep your taxes low and maximize the effectiveness of each one of your tax dollars is to continue along the prudent fiscal path that has made Greenwich the envy of all other communities in our state.

The allure of “cheap money” at “low rates” can seem compelling. It’s like the mirage that you see on the horizon of a desert. It looks good from afar, but ultimately it is far from good. When people say they want to use long term debt as a “funding source”, it is a bit of an oxymoron. The “funding source” is not the debt itself, but the future revenue streams that will pay off that debt. This is what makes long term debt so seductive and ultimately so dangerous to a municipality. Ask yourself this: based on the propensity of government to mismanage debt, is long term borrowing a policy you trust will be managed any better in Greenwich?

It is also crucial that we balance our “wants” with our “needs”. In doing so, we should continue to prioritize fiscally responsible solutions that meet our most necessary capital requirements, maintain our best in class credit ratings and preserve our low tax profile. We want to avoid saddling future generations with an unsustainable debt burden and the much higher tax rates that they lead to.

I believe that Fred and Lauren understand this core concept and that they will be stalwart advocates for a sound fiscal policy. I support their approach and strongly endorse their candidacies, and on November 5th I hope you will too.

The deadline to submit a letter to the editor regarding candidates in the Nov 5 municipal election is Tuesday Oct 29 at 5pm.