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Refinancing Not Good Public Policy
Posted 4-16-1999
This month Westmoreland County government will again do another refinancing of our debt.
This refinancing is done just six months after we refinanced debt to receive a $900,000
savings. The proposed savings is $700,000. On the surface you may think, "why not
take this savings". I would like to share with you why I oppose another refinancing.
You may have read recently that the county
had a $2 million hole in its budget. The hole was caused by an accounting error that had
$800,000 counted as part of the General Fund when it actually resided in a Children's
Bureau account. Juvenile Probation also counted revenues too high and expenses too low,
causing another $1.2 million shortage. However, we can make up that shortfall by taking
$1.89 million from an overmatch of funds the county provided to Westmoreland Manor, a
refund of $549,000 from the Pennsylvania Finance Authority Bond Pool, and a $1 million
excess from our Workers Compensation Trust Fund. This $3.4 million more than offsets the
$2 million. So, from a budgetary standpoint, we really don't need to do this refinancing
at this time.
The most important reasons the refinancing
is not good public policy are, we have refinanced our debt so many times that the
tax-exempt municipal bonds we could offer are now taxable, and we can no longer do a
current refinancing, but must do a forward refinancing. Because the bonds are taxable, a
higher rate of return must be offered to make them more attractive to buyers of the bonds.
Also, with a forward refinancing, the bond buyers must wait several years to begin to earn
a return on their investment, so to make them attractive, we must offer a higher rate of
return. Both of these factors cost the taxpayers money. Because we are tying up all the
bond issues we have, if interest rates are more attractive in the future, those Boards of
Commissioners will not even be able to take advantage of the market to do refinancings.
For too long our county has been issuing
and re-issuing debt rather than instilling discipline in our spending habits. It has
created a burden of debt that will be in place until 2019. it will take years, even in the
short-term, to turn around our budget so that we really spend only what we are taking in.
The reserves we have been using to balance our budget will be gone soon, and things will
be tight in upcoming years.
The issue of bonds and refinancings is one
that often takes on political overtones in our county because we never entertain proposals
from competing investment bankers to compare strategies. By following a strategy that
causes us to pay higher rates of return for our bond issues, we end up spending more of
the taxpayers' money. To me, that is why the repeated refinancings are not good public
policy, and why I am opposed to continued refinancing of our debt. |
