Daily Tiverton Truth Flash

Tiverton’s Debt Is Not Like a High-Interest Credit Card Balance

Among the many promises for new gambling revenue being made by people who want control of that money is that they’ll pay down the town’s debt.  Typically, they’ll compare that proposal to paying down high-interest credit cards, but that analogy doesn’t really apply.

The first thing to note is that the town’s debt is mostly in bonds, which is a very different kind of debt than credit cards, or even a mortgage.  People buy bonds as an investment, so the town can’t simply pay them off.  When they purchased the bonds, investors negotiated terms for whether and when they could be paid back and what other conditions would have to apply, and every bond sale could have multiple different requirements.  According to Town Treasurer Denise Saurette, nobody has yet requested a full analysis of how the town would go about paying the bonds off.

The second thing to note is that interest on bonds is fixed, and the rates Tiverton currently pays range from 2.18% to 5%.  Consequently, it may not make sense to pay the balances off, whether the town were to invest the money or leave it in taxpayers’ accounts to pay off their own high-interest debt.

To be sure, Tiverton has other debt, too — most significantly, lease payments for vehicles and street lights.  According to a spreadsheet from the treasurer, as of the beginning of this fiscal year in July, the town owed about $1.2 million on these items, with just under $100,000 of interest yet to be paid.  Even though the interest rates on this debt are as low as 1.5%, paying it all off at savings of roughly 8% might be worth it.

Before making that decision, however, we should note that a big chunk of the debt will be paid off or due to be paid off next year anyway.  If we made the decision to pay this debt off in the next budget, we would pay an extra $740,000 or so to save $70,000 in interest, with (theoretically) an annual tax reduction of about 0.4%.

This might be worthwhile, but it should be done as part of a plan, not simply as a sounds-good promise from people trying to get you to vote to give new power to the Town Council.  At this point, it isn’t even clear that the language on the ballot will allow the Town Council to pay off existing debt with gambling revenue.

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Justin Katz

Justin Katz is a writer and researcher focusing on Rhode Island policy and politics. For more about Justin, see our About page. justin@justinkatz.com (401) 835-7156.

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