City made wise choicePublished 8:32am Wednesday, December 12, 2012
Anyone with a mortgage over the last 10 years has probably refinanced it at least once.
It’s a logical financial strategy; paying a small administrative fee to reduce the monthly payment and the total interest you will pay to the bank over the life of the loan. In this environment of historically low interest rates, anyone who owes money has probably explored the possibility of restructuring his debt to take advantage of current market conditions and improve personal finances.
Another thing homeowners often do when refinancing their mortgage is to borrow a little extra to take care of improvements to their home; whether it be installing energy efficient windows, and heating and cooling systems, or replacing a leaky roof or making other necessary structural repairs.
We’re not talking about borrowing money to build an in-ground pool or a new home theater system, but the stuff to maintain a home so it remains safe and functional for years to come.
Franklin City Council did both, and it is the right decision.
Restructuring the debt to a lower interest rate and a lower annual debt payment, all without extending the life of the debt, is a no-brainer. Borrowing a little extra to make necessary capital improvements may have taken some political backbone, but also required some good old-fashioned common sense.
Those who rail against taking on additional debt need to pay attention. Over the next five or so years, by restructuring about $4 million of its existing debt load, the city will reduce its annual debt service by nearly $500,000. Even after borrowing an additional $2.6 million for making capital improvements, some of which have been put on hold for years, the city will save about $300,000 per year in debt payments.
This means no tax increases for debt-related purposes, and the choice of either paying $300,000 per year toward retiring existing debt or putting $1.5 million into the reserve fund over that five-year period. Either option is appealing.
Certainly, some will argue the best course is to not borrow the additional funds. And in an ideal world, where buildings don’t need to be maintained or vehicles don’t need to be purchased or technology doesn’t need to be upgraded, that would be a valid point.
But part of running an effective and efficient government, just like running a profitable business or managing a family budget, is finding the appropriate balance between trimming costs and using leverage to make capital improvements.
City Hall, in this case, has found the proper balance.