Let’s Talk TRUTH About Municipal Debt
By Susan M. Halpern
Former Addison Councilmember (1992-1999)
Maintaining a responsible, sensible debt portfolio is a healthy and appropriate part of municipal finance. I’ve written about this before (Municipal Finance is Different From Family Finance – Truth in Addison). Unlike people, municipalities don’t die. So, municipalities also don’t accumulate assets to pass them on to heirs. Rather, municipalities must plan for a theoretically infinite existence, with consideration for future residents who will outlive those making present decisions.
This need to plan for the needs of future residents raises the policy question of whether it is fair to burden current residents with the entire bill for infrastructure that will be enjoyed by future residents. The clear answer is NO. And that’s where municipal debt comes in. It allows the cost of building and maintaining infrastructure to be paid over time in order to match the burden of that infrastructure with the enjoyment of its benefits. For Addison and other municipalities, all of this means issuing debt for projects that will have a significant service length.
To be clear, debt must be managed responsibly, and no one has suggested otherwise. But Addison has clearly done that. Indeed, Addison has enjoyed the highest possible rating from Standard & Poor’s (AAA) for years, and was upgraded by Moody’s from a high rating (Aa1) to Moody’s highest possible rating (Aaa) in connection with Addison’s December 11, 2018 sale of Certificates of Obligation. Having the highest rating from both S&P’s and Moody’s is not to be taken for granted. Only ten other municipalities in Texas stand with Addison in receiving the highest ratings from both agencies. And, having such high ratings is economically favorable, as Addison securities typically sell at a premium.
Voters clearly understand these policy considerations, as evidenced by their approval of bond proposals in 2012 and 2019. I was part of both Bond Advisory Committees, and our study of Addison’s assets was extensive and detailed. In 2019 in particular, we dealt with the aftermath of choices made by prior councils – most notably those led by the toxic ex-mayor – to repeatedly “surf” capital projects. Leaving infrastructure issues unaddressed for someone else to deal with was political cowardice at its worst, and left Addison with many pressing needs.
Addison voters agreed that Addison had much to do to catch up. In May of 2019, voters approved five propositions totaling approximately $70 million. This supplemented the projects that were approved in the 2012 election.
Of course, the approval of bonds does not mean they are all issued immediately. So, the approval of $70 million in projects does not equate to $70 million in debt, and it doesn’t mean that $70 million is sitting around in some bank account somewhere. The bonds will be issued over time, as makes sense given Addison’s financial position, its ability to execute various projects and the costs of financing. Regarding the latter, the current economic climate is extremely favorable, including because of Addison’s superior AAA/Aaa bond ratings.
Here’s the last piece of all this. The fact that Addison issues municipal debt does not mean that it is overspending its budget. Addison does not now, and has not ever engaged in deficit spending. Among other things, Addison’s Charter forbids it. In TRUTH, Addison maintains a healthy and extremely conservative surplus, and is well-positioned to service the debt it has issued and will issue in the years to come. The TRUTH is that Addison is financially healthy, one of many reasons it withstood the extraordinary circumstances of the past year so well.
When negative candidates make claims about deficit spending, they are misinforming voters about the facts. But they are providing valuable information – about themselves. These negative candidates either don’t understand municipal financing, or they do and are intentionally misleading voters about it. Either is unacceptable, and that is important information for Addison voters.
We need candidates and councilmembers who understand budgeting and the role municipal debt plays in the life of any municipality. We’ve had a strong, informed council for four years now, and we need to keep our momentum moving forward.
Stay positive Addison. Stay on the plus side, just like Addison’s budgets.