The time has come for long-term bonding

FI-Letter-to-the-EditorTo the Editor

The time has come to finance large capital projects in Greenwich with long-term debt.

Our current “modified pay as you go” system — truly a misnomer — pays the total capital cost of a major project in five years after two years of construction finance notes. Let me focus on three reasons why we need to change this approach to longer financing.

First, the town is committed to big expenditures over the next five to seven years, including MISA, the central fire station, Project Renew, soil remediation, and escalating pension contributions. Lengthening bond maturities will reduce annual debt service expenses, thereby allowing smaller mill rate increases or enabling us to afford more projects. Our AAA rate peers in Connecticut all use 15- to 20-year financing.

Second, interest rates are at historic lows. They are unlikely to remain at these levels for long. Let us lock in longer-term financing at 2% to 2.5% right now. We can take advantage of lower rates than those that will predictably have to be paid for debt incurred in later years.

Third, why should current taxpayers have to pay over five to seven years the cost of assets with useful lives of a generation or more? In the corporate world, borrowers match bond maturities and amortization schedules with the useful lives of assets. Longer-term financing spreads the costs of financing capital assets more fairly across present and future taxpayers.

The case for longer-term financing of large capital projects is compelling.

 

Gerald Pollack
Old Greenwich

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