Long-term debt creates long-term problems

FI-Letter-to-the-EditorTo the Editor

There has been much recent discussion about long-term debt financing for the town and those advocating this must be flummoxed about the dynamics of debt.

To consider the merits of any debt financing program, either existing or proposed, it’s necessary to identify the risks, explicit and implicit, with it.

Since the Greenwich BET proposed seven years ago to initiate external financing (debt) for current capital projects, the town debt model has utilized bond anticipation notes (BANS), one-year instruments, and five-year notes. This is a prudent structure of debt financing to satisfy the three-part capital appropriation model. This debt model was proposed and adopted for multiple reasons, including the reluctance of the RTM to approve external debt financing and the multiple-part capital appropriation model that we utilize.

Each town capital project has three stages: conceptual, design or planning and construction. The first two component stages frequently are financed with a one-year instrument, BANS. The construction stage will be financed with two one-year notes, BANS, followed by five-year notes.

Thus most capital projects have a minimum financing term of nine years with an average length extending to 11 years.  This model is very effective and sophisticated. It serves our needs and the cash flow requirements as a project progresses. Plus it minimizes debt service costs.

Understanding the Greenwich appropriation and financing models requires an understanding of the risks inherent in debt financing. To modify these models by lengthening maturities will be a zero sum game. Since debt will add to total project costs, lengthening debt maturities will lower annual debt service costs and will increase the total cost of each project. This isn’t prudent fiscal policy if it isn’t necessary.

Some argue that extending debt maturities will allow more capital projects for “infrastructure” for Greenwich. However, that argument doesn’t address the constraints (environmental, managerial, capacity, and administrative) that are impediments to suggested capital projects, so the argument is specious. Longer debt maturities do not influence consideration.

We don’t support any change in policy and we urge the voters of Greenwich to endorse our view.



Arthur Norton

 The author is the vice chairman of the Greenwich BET and is running for re-election on the Republican slate.

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