We should not be scared of carefully planned long-term debt

Greenwich-Voices-GoldrickWith the passage of MISA, it makes sense to take a look at the town’s fiscal facts.

Most are probably aware that the effective property tax rate in Greenwich is the lowest in the state by a wide margin. Yet many worry that “debt is getting out of control.”

Until 2006, the town operated a “pay-as-you-go” system. But the new police headquarters, Hamilton Avenue School and Glenville School projects necessitated taking on debt. Greenwich has also been financing major repairs to its sewer system, which has experienced a number of serious breaks over the past few years. So how indebted is Greenwich?

A key metric of indebtedness utilized by rating agencies in ascertaining credit quality is the debt burden, the ratio of net debt divided by the estimated market value of a town’s taxable properties known as the grand list. Greenwich’s net debt stands at roughly $133 million and our grand list just over $43 billion. Total debt should rise to $161 million this coming fiscal year. That translates into a debt burden of 0.3%, the lowest in Connecticut and one of the lowest nationally.

The average debt burden for AAA-rated municipalities nationally, as measured by Standard & Poor’s, is 2.2%. That means that Greenwich’s debt burden stands at roughly one-seventh the national average for the highest-rated municipalities. If Greenwich were to match the national average for AAA municipalities, the town would carry roughly a billion dollars in debt. In Connecticut, the town with the next lowest debt burden among the state’s 28 AAA-rated municipalities is Darien, with a ratio of 1.2%.

Were Greenwich to match that, it would have debt of more than half a billion dollars. Most AAA-rated towns in Connecticut feature debt burdens of between 1.5% and 2.6%.

In short, Greenwich could carry debt in a range of between a half-billion dollars and a billion dollars and still remain well within AAA-rated municipalities both in our state and nationally.

That certainly does not mean that we should go out tomorrow and add hundreds of millions of dollars of debt to finance a multitude of new projects. But it does mean that the MISA project’s added debt will not impact our credit rating and that the town’s debt will remain extremely low by the standards of the rating agencies.

The capital model currently used by the town, which is being evaluated and debated by the Democratic and Republican caucuses of the BET, includes a $210-million cap on total debt. At that level, the town’s debt burden would come in at roughly 0.5%, well below the level of most affluent AAA-rated towns in Connecticut. We should meet that figure within the next couple of years. The capital model also calls for debt to be amortized in no more than five years, though The Nathaniel Witherell’s Project Renew and sewer repairs utilize 20-year financing.

Greenwich is the only AAA-rated municipality in the state that uses such a short amortization period for most projects, 20-year financing being the norm. The problem with five-year amortization is that current taxpayers get stuck with a large bill for debt service, while subsequent taxpayers get the use of major facilities virtually for free.

While the current economic climate has been difficult, it has resulted in the lowest interest rates in generations. The town could take advantage of these low rates by locking them in over the long term. Currently, the town could borrow over 20 years at roughly 2.5%, with inflation at approximately 2%.

MISA will not cause Greenwich’s debt to spiral out of control. But we should be seriously considering locking in record-low interest rates and lengthening maturities to reduce pressure on the mill rate.

 

Sean Goldrick is a Democratic member of the Board of Estimate and Taxation, though the opinions expressed in this column are his own. He may be reached at [email protected] 

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