Long-term borrowing can reduce taxes

FI-Letter-to-the-EditorTo the Editor

Does long-term debt really cause long-term problems? This issue clearly defines this year’s selectman election.

In finance, it is commonly accepted that matching long-term (capital) projects with long-term financing is prudent and advisable. This preserves cash, reduces contractual annual debt servicing, and maintains financial flexibility. Large and small companies do it, consumers do it and local governments do it.

Prudent matching of debt maturities to project life is how America and most of the developed world have been able to make as much progress as it has. Just imagine if one had to save up the cash to buy a home instead of availing oneself of a 30-year mortgage.

The problems with debt arise when a borrower has no discipline and indiscriminately borrows for all one’s “wants” rather than one’s “needs.” That raises the commensurate debt service obligations more quickly than income. (Greenwich’s “income” is basically real estate taxes.)

Greenwich’s tax base is pretty stable, so that just means the town authorities need to show some restraint in the projects they take on. The fact is that with proper restraint Greenwich could actually lower the mill rate and resulting tax burden on us taxpayers by financing capital projects with long-term financing.

If one is interested in reducing one’s local tax burden, disciplined long-term borrowing should be allowed to finance needed capital projects of the town. This is a fundamental concept voters should consider when they vote Nov. 5.

 

Ric Wolf
Greenwich

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