Municipal infrastructure & equipment upkeep is expensive. City/Town councils or commissions have to make hard decisions every day on how to finance capital projects – the big question is to borrow money or save over time and pay with cash. Sounds much like a personal budget dilemma – and in fact, it is.
Local government officials grapple with the fairness of taxing current residents over several years in order to set aside funds for something they may never be able to use or enjoy – a revamped park, updated emergency equipment or a new town hall. Not all residents are “lifers” – take a look in your neighborhood, how many “for sale” signs do you see? Do you know all your neighbors on a first name basis? How long have you lived in the town? We are a much more transient society than we were 50 years ago.
When a municipality opts to borrow money for projects, they are pushing the payment burden to the future generation – those who will actually benefit from the revamped park or the new fire engine. Of course there is a cost associated with borrowing any type of money, and municipalities, just like an individual, needs to look at the bigger picture and determine which is the most fiscally responsible route to take.
Financing has its benefits
- It’s Immediate. Use now…pay later – just like a mortgage. A mortgage will allow a person or family or business immediate use of the building, yet spreads the cost of that purchase out over several years. Moreover, putting off some municipal projects could end up costing more money if delayed due to inflation or further deterioration of buildings etc.
- Financial burden where it needs to be. Municipalities are like landlords. Most tenants would be unhappy paying higher rent for a new boiler that would not be installed for 10 years. They would want the benefit of the new boiler now – efficiency, lower heating bills etc. Why should they pay now for something that a future tenant will enjoy at a lower rent? Apply this concept to a municipality.
- Economic Development Boost. Better schools, newer emergency equipment, nicer parks – all add to the wow factor of a town and therefor have the ability to foster economic development. Like the saying goes – you have to spend money to make money. Waiting to save money and avoid finance costs could cost more in the long term if economic opportunities are lost.
Helping municipalities decide which route to take is part of our commitment to communities here at Litchfield Bancorp. To borrow or not to borrow gets complicated – we are here to help you sift through the details and make an educated decision.
Commercial Lender, Senior Vice President