Monday, June 15, 2015

Raise Taxes Or Increase Debt?

Ken O’Brien

At tonight’s meeting the Town Council took up the capital budget. This is a long needed as well as long neglected element of the town’s finances. Its very size is an indication of the extent to which the town has neglected its capital stock.

During the discussion of this matter the Council sidetracked once again into a discussion of its prior decision not to raise taxes.

That discussion centered on whether or not it was wise to incur additional debt obligations. It was estimated that doing so would increase the cost of these projects by an additional $240,000 over the ten year life of the bond. Councilor Steeves argued that it made no sense whatsoever to finance the cost of these projects through debt when it could be done through taxation within the levy limit without the associated interest cost. 

The issue is not so simple. There are situations where one is willing to incur interest costs. Such cases are related to the current financial situation of the borrower as well as the plans the borrower has over the term of the loan.

In the case of Southbridge, as I have repeatedly pointed out, we have a situation where we have the highest rate of unemployment in all of central Massachusetts. Many homeowners struggle to make ends meet. Renters, too, are victimized by increased taxes that are passed along in rent by their landlords. The lack of business also contributes to lowered property values that are only exacerbated by increased taxes not to mention the issues with our schools.

That, in a nutshell, is the current financial situation of the borrower in this case.

By borrowing the money rather than raising it through taxes we incur an expense of about $24,000 a year for each of the next ten years. Simultaneously we forestall an additional burden on homeowners and renters as well as stabilizing property values that would be lowered by increased taxes.

The question then becomes, “What are our plans over the term of the loan?”

Obviously the schools have to be improved. That, however, is the concern of the School Committee. It may be a concern of the Council also, but it is not within their jurisdiction to do anything about (except as concerns their budget).

What is within the jurisdiction of the Council is to undertake concerted and aggressive action to improve the employment opportunities within the town.

Economic development must assume a high priority. With the arrival of a new Town Manager and the departure of the Director of Economic Development and Planning a perfect opportunity exists for this.

The Council must direct the Town Manager to make the hiring of a competent and experienced Director a top priority. Further, they should fund the position at a level that will appeal to serious candidates.

The situation has been well-stated by Kristen Auclair: 

We need to BRING INDUSTRY IN.  Every person I've spoken with holds this tenet.  Unfortunately, we can't force industry in against their will.  Companies look for certain criteria when looking for new locations.  No one single thing will fix this town, it requires a culmination of ideas and resources in short, medium and long-term solution plans.

 The table below represents the late Robert Ady's assessment on site location cost factors.  He was a site selection consultant for many years and is revered as one of the leading authorities on the subject.



There is a movement currently in the works down at the Southbridge Business Center that has been training workers for already available manufacturing positions.  There is an influx of PEOPLE that are unemployed, and infrastructure in its infancy to help train them.  It is an area of opportunity that we can 100% target and work on.

The transportation aspect is difficult.  Commercial Drive is 15 minutes away from the Mass Pike and over 30 minutes from any other major route.  But it isn't impossible.  We need to create a real desire for people to live here.  That can be done in the short term by attracting small business back to Main St and welcoming new industry.  For the long term, we can also petition the state legislation for more infrastructure with a well-thought out plan to action. 

The most interesting here is the taxes portion falling so far in the rear.  By reading this you can see that the 4-5% factor is valued even lower by the IRS Federal Tax statistics.  Our level tax rate and "low" business tax rates are only benefiting the businesses already in town, and not helping to attract anything new. 

On balance the choice is now up to the Council. They have bought some time for the residents of Southbridge. Will they use that time productively or as just another excuse to kick the can down the road?

1 comment:

  1. I once read an article about a very successful business man who was once a policeman. The interviewer asked him how he managed to move so far up the income ladder. His simple answer: "creative use of debt".

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