Tarentum Council is taking advantage of low interest rates to refinance debt and possibly borrow more money.
With the interest rates at sub-basement levels, this isn’t surprising. It’s an opportunity many municipalities, school districts, counties and more doubtless will jump to pursue. Like refinancing your home loan to lower your monthly payment while still getting the cash to redo your bathroom or add a deck, it provides a way to do more and spend less in the short term.
It is important to remember, however, that the long-term costs are still out there. Refinance your house and your monthly mortgage payment drops, but you move the payoff date out further, add more interest payments over time and ultimately pay more to cover the money you borrowed — plus a little extra.
Recently the Westmoreland County Commissioners took a similar step, pursuing bonds to cover $125 million in pension debt. A Tribune- Review editorial called this move irresponsible — essentially gambling on credit to try and pay a debt that didn’t need to be paid yet.
But is the Tarentum proposal the same? No. Why not? Because the money is not being used to cover an intangible investment.
According to Borough Manager Michael Nestico, there is a list of very real projects the municipality could do with the $2 million it would have at its disposal. They include: stormwater and sanitary sewer projects that would bring the borough’s system into state compliance, water system distribution projects, bridge and road construction, and a major electrical system development that is likely to be quite expensive but beneficial.
These are the kind of nuts-and-bolts projects, with actual nuts and bolts, that this kind of borrowing is intended to power.
It still has to be used with care. Nestico projects the additional borrowing could cost the borough $70,000 a year in debt service on top of payments that are already at $270,000. It is a significant amount but one he calls “sustainable.”
It is important for government to pay attention not just to what is being purchased but to that kind of sustainability as well. How long will a $2 million investment be something that a community has to pay off? Do today’s projections for tomorrow’s growth or lack thereof make that something that seems doable?
Those kind of questions are important because debt is something that builds in layers. It is quickly accumulated and slowly discharged. With that in mind, it should be exchanged for something worth the long-term cost and not just the short-term savings.
