Part 4 of 5: Municipal Debt
The following comes from Harrison Township Mayor Louis Manzo:
In this issue, I’ll address the least understood aspect of a town’s finances: Municipal debt. I ask you to relate what follows to your personal mortgage or better yet, if you own a business, your business debt payments as they relate to your business revenue.
In the municipal government, our mortgage or loan funding comes through “bonding,” which is “borrowing,” in layman’s terms. As funds are needed for large purchases like equipment or construction projects, the town will issue bonds (to borrow the money) and then pay them off, just like you do with your home mortgage or business loans. In our case, the law also requires that all municipal debts be permanently financed with a 20-year payoff term. A few residents have told me they “heard” that Harrison Township is paying interest-only on all their debt and there will be some huge bill to pay in the future. This is totally false.
Municipal law allows interest-only payments for three years to lock in the best interest rate, but permanent financing is required by then. It is fair to ask, however, how much debt is necessary? The answer lies in understanding the needs for a growing community.
Harrison Township was the fastest growing town in the state from the mid-1990’s until the economic slowdown in 2008 to 2009. This called for a massive increase in the services provided as our population nearly tripled from about 4,500 in 1990 to 13,000 today. So, when someone points out that we have more current debt than other towns in Gloucester County, the logical response is “of course we do.” If the size of your business tripled, would your costs (and therefore, your debt) increase during that period? Obviously, the real question is: Are we managing the town’s finances responsibly? Is our debt-to-income ratio acceptable? That’s how you are judged when you apply for a mortgage or business loan, right?
The process is similar with municipal borrowing. We have auditors and advisors to guide us and all municipalities receive a Bond Rating. This rating system considers these ratios, as well as other factors like payment history, PILOT revenue and surplus. Harrison Township has maintained an “AA Bond Rating” from Standard & Poor’s for many years; no town in Gloucester has a higher rating. In fact, we have been complimented in our annual ratings review with S&P for our fiscal philosophy and use of PILOT programs.
The numbers don’t lie. If you hear about the “burden” of our debt, keep in mind that the average valued home in Harrison ($341,000) pays $1,483 a year in local tax, or about $123 a month. The debt portion of that bill, on schedule to be completely paid off in 20 years or fewer, is $27. While we’d all prefer zero debt, the reality is that a growing community must keep pace with its required services. Rest assured that we are fiscally sound and well positioned for the future based on new tax revenues already slated.
Next issue, we summarize everything we’ve covered in the series.