For the Health of Our Community, Can We Plan More in Advance?

Mayor Florsheim has proposed a budget with a 2.7 mill increase for the coming fiscal year. This will mean an increase in taxes of approximately $500 per year for a home with a market value (not an assessed value) of $250,000, with larger increases for many homes in our city.

While I appreciate the time and effort that went into his budget calculation, like many people I don’t believe that this is a sustainable increase on top of the increases of the past few years. What I appreciate even more is that the Mayor has invited members of the public to work together to offer their own perspective and suggestions to the City Council. In the past few weeks, I have offered several short-term suggestions, including a job freeze, a search for an alternative health insurance provider, and greater advocacy at the state level for fairer PILOT funding for Middletown. As an example, the Mayor’s budget proposes $77,800 for a Grantwriter versus zero from the Finance Department. Maybe we wait on that? And the Mayor agrees that some of the fault lies with the state government, by pointing to the one bit of property tax relief we will see from the city this year – a reduction in automobile taxes – as a big cause of our municipal woes. But in his message the Mayor also argues that “it is our own poor past decision-making, not just Hartford’s present failures, that is coming back to haunt us.” I’m going to agree with him on this. But maybe from a different perspective. According to some public records, we are currently carrying around $290,000,000 in bonded indebtedness in Middletown. We are obligated to pay down 10 percent of it, plus interest, each year. The reason for this is that – unlike many communities – we float ten-year bonds instead of twenty-year bonds. That’s because we can pay a lower interest rate on a ten year bond than on a twenty year bond. For example, last week municipalities paid on average 3.1 percent on a 10 year bond, but 3.8% on a 20 year bond. But here’s the problem for taxpayers today. If you pay off a $290,000,000 bond over 10 years, it costs taxpayers $29,000,000 in principal payments each year. But if you pay it off over 20 years, it costs taxpayers $14,500,000 in principal payments each year – and most of the difference could be used to lower property taxes. So, what’s the catch? If you float a 20 year bond, you still owe half the principal after ten years and are pushing off that half, plus interest, into years 11-20. Here’s a simple example of the way a ten-year versus 20-year payoff works:

So you can see that (1) you save a LOT - almost $107 MILLION - during the first ten years but (2) you still pay a lot more in years 11-20. But we have to consider one more thing, which is called by economists “discounting.” Using the Mayor’s proposed budget, you would rather have the $500 in tax relief today than to wait ten years to get it, wouldn’t you? So, you have to discount the value of those future savings. Using a typical conservative 3% discount rate, almost half of the long-term savings from a ten-year bond disappears:

So, here’s the problem. The justification for 10-year bonding is fiscal prudence, but I would argue that the unintended consequence has been exactly the opposite recently. When you retire an average of $29 million each year, that becomes a hidden treasure chest for city officials when they propose new spending or new bonding. You can fill that gap with new bonding – like a new call center – or new spending equal to your interest savings – like a new Grantwriter – and to the public it still looks like “present level” spending. But it’s not – present level spending would subtract that money from the base and force decision-makers to make tougher and better thought-out decisions before they make major expenditures. Consider some of the expensive policy choices we’ve made in recent times: • We have built three new high schools during the time when Xavier, Mercy, and Vinal have been in their present locations. • We have built a new middle school which is likely to need an expansion sometime in the next ten years. • We have rehabbed part of an old school as a community center which for a good part of the day serves as a center for active seniors and an after-school center for kids, while we also use another old school as a senior center. • We have provided millions of public dollars to the YMCA to enable it to become a more active community center. • We have considered and planned for a new or renovated library, with residents asking for it to include services that might otherwise be found in a community center. • We have been planning for a new city hall and a new fire station, while also approving a new call center. • We turned down a new boathouse on the river, but put $10 million into a restaurant. I’m not arguing the wisdom of any of these individual choices. But suppose we were to look at everything together as a community? Might we come to some different conclusions than we do when we just fill the $29 million treasure chest? • We have underutilized Catholic schools in the community. What if we gave families more opportunities (yes, that might mean vouchers) to access them and what if we agreed to a new public charter school and took some heat off of our public schools? Maybe we wouldn’t need to expand or rebuild them so frequently. • What if we agreed to have the YMCA be our community center in the future? • What if we combined a new firehouse with a new 911 call center? • What if we thought more broadly about city hall and the library in combination? The problem I see is that we haven’t really thought broadly and inclusively about our community for a long time. I have argued that the Long Hill Estate Authority tries to protect its business enterprise (primarily weddings) from the public who created it. Others have argued that the Library Board has made a lot of recent changes without public input. Others have argued that Route 9 is being redesigned without enough input from Middletown residents. Others have argued that we’ve gotten a bad deal on recycling and trash disposal. And others have argued that the city conducts too much of its business behind closed doors. What matters today isn’t how we feel about any of those things. It is how we might use this time – and the Mayor’s invitation – to start working together to build the Middletown we want. And how we can start planning today for a way to ease the long-term tax burdens on us all.