Municipal Debt

First Posted: 9/26/2009

There have been many comments and questions recently implying the city of Mount Airy is in debt up to its ears or at least beyond any reasonable limit that taxpayers would in general approve. That implication is not true, and I would like to explain the facts in a way folks can understand. Most citizens simply do not understand the rules and guidelines under which municipal governments operate, including how they incur and pay off debt. Our debt over the past few years has been and still is very conservative and continues to be a model that other cities use as a guide.
Any debt for purchases or services that we have incurred, and that extends for four to five years, has been reasonable, in our existing boards opinion, when it did not impact the budget or the current tax rate and when it was for something we believed was needed at the time. That debt is the basis of an evaluation by the board prior to approval, and citizens should understand that all debt must be approved by the elected board. This is done via a formal resolution by the board for each borrowing or installment purchase.
Any debt for a term of over five years or involving any type of real property must be approved in advance by the Local Government Commission. The LGC is an arm of the State Treasurers office and the purpose of this commission is to oversee all local government debt. For the LGC to approve a requested debt obligation they consider the local economy, the history of tax collections, the history of all infrastructure collections including water and sewer, and other fees for services. They also consider existing debt and that government entitys history of debt payments, and also if the request is within the limits that their commission have established as reasonable. Approval by the LGC is a great indicator to banks and other financial institutions that the facts have been reviewed, that the LGC believes the debt would be sound, and that repayment should be handled according to the terms of the projected loan.
The LGC, like most financial institutions, also calculates a number they believe should be the maximum debt level for the particular government entity. Several guidelines apply to this calculation, and one they consider is that the debt be a maximum of 8 percent of the appraised property value within the municipality. The total annual budget and many other factors as indicated above also enter into this calculation. We recognize from this conservative calculation the LGC uses that our long term debt level should not exceed more than the mid-$60 million level.
The City of Mount Airys current long term debt is less than $21 million and has been less than $10 million for many years. Our recent debt incurred for the water and sewer lines installation in the newly annexed area was carefully evaluated by the LGC, and based on the anticipation of new customers and resulting revenues, was approved as a conservative and proper debt. It was not anticipated that water and sewer service fees would be required to increase any due to this annexation.
Now I could write multiple pages regarding all the ins and outs of municipal debt and what I believe to be conservative and reasonable for the taxpayers I was elected to represent. However I trust the above brief summary should indicate we are NOT in debt anywhere near the limit of what is considered reasonable and that the boards members you have elected have been very conservative and very careful to only approve debt they believed was critical for the growth and in the best interest of our city.
For our city to continue to grow and provide opportunities for our current citizens, and our future citizens, it will be absolutely necessary to utilize borrowed funds for certain projects. To have an excellent credit rating and history of conservative debt with internal controlled limits is really a great asset. Folks that are opposed to any type of municipal debt are really saying that they are opposed to growth and simply want to circle the wagons and wait for our problems to take care of themselves. Your elected officials have a long history of disagreement with that opinion, and believe that a decline in our quality of life will certainly be the result if that policy is followed to that extreme degree. We want to be proactive in doing what is necessary to maintain facilities and operations in order to maintain the level of services our citizens deserve.
Jack Loftis is the mayor of Mount Airy.

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