Ruth Platner: Surplus Should Be Used To Pay Long Term Debt
The following was sent to the Charlestown Town Council and is shared with us here by the author Ruth Platner. Ruth is a member of the Charlestown Planning Commission.
Charlestown’s Budget Commission and town government have been fiscally conservative for many years and that has resulted in one of the lowest tax rates in the state and made Charlestown one of RI’s most solvent towns.
There is much misinformation now circulating about the proposed budget, characterizing payments of debt obligation to the police pension as frivolous spending. Our new Town Treasurer has provided information that money put into the pension system will earn more long term than holding it in the surplus account.
A generation ago, town councils made promises to pay pensions to the police force. Those promises may have been easy to make, but eventually the promises must be kept. Charlestown may be ahead of other Rhode Island towns in paying down its debt to the Police Pension, but we still owe significant funds. The proposed budget contains an almost $1 million payment to Charlestown’s account in the police pension fund and other debt. This is not new spending; it is a partial payment of this debt.
The amount of debt payment this year is about the same as last year. It appears the Budget Commission is simply following the same prudent financial policies.
The argument Councilor Carney gave that we should return the Police Pension debt payment to the surplus so it can be spent on a future capital project or other spending as directed by popular survey results, is a false argument. These funds represent a debt, no matter where they are stored. They are not an asset. At some point they have to be paid to the pension fund and the Town Treasurer has given us a good reason to put them in the pension fund now rather than a savings account.
I preferred the budget that came from the Budget Commission, the changes proposed by Ms. Carney in April did not lower the tax rate, they just moved more money into surplus. Perhaps instead of moving those to surplus, the Council could put them into a short term (one or two year) account to deal with revenue shortfalls caused by COVID-19? I do ask now that you keep our debt payments on track and not move these payments as well back into the surplus account.
In the short term, moving money into surplus does not lower the tax rate, but using some of the surplus to pay down debt, does lower taxes in the future.
Thank you for your consideration,
You can learn more about the author, Ruth Platner, at her profile page.
May 4, 2020 @ 11:27 am
The wise decision made by the Budget Commission is to pay down any unfunded pension liability deserves wide support from voters. Many towns, fire districts and even states have risked pension solvency by putting off such payments. Now with the positive revenue forecast Charlestown has the opportunity to either catch up or pay forward this important pension contractural responsibility or debt.
May 4, 2020 @ 10:39 am
Thanks Ruth for an excellent explanation with sound logic – paying off our debt is the responsible strategy!
May 4, 2020 @ 9:50 am
“A generation ago, town councils made promises to pay pensions to the police force. Those promises may have been easy to make, but eventually the promises must be kept.” I do not believe that this statement is totally correct. Way back the town was informed by the town treasurer that there were “unfunded” expenses/liability as far as the police department went for their retirement both in severance pay and with their pension fund. This can has been kicked down the road for many years by many town councils. These debts are “contractual agreements”, and “not” promises as stated in this article. The police officers have a legal and binding agreement (contract) with the town that the town is legally obligated to fulfill. These officers worked and paid for their pensions as part of their contractual agreement. This has been the police officer’s 401K that they have paid into over the course of their careers; this is not a free benefit for being a police officer!! I believe there is a misconception among the public that municipal workers, including police and town employees, get “free” pensions, this is totally incorrect they pay into the pension fund as part of their contractual agreement with the town. This is not unique to only Charlestown, there are other towns and cities who face the same situation of pension debt. These men and women put their lives on the line every day for the citizens of the town (especially in this COVID19 environment), this ought not be a “political football” on whether to pay or not to pay the pension fund, the debt ought to be paid! And….if the debt is not presently paid down, exactly when does the town address paying it down; or, is the town again going to kick the can down to the road so the next council can deal with it?
May 4, 2020 @ 8:53 am
Thanks to Ruth and to Bonnie for both of your clarification.
My opinion is that it is generally/almost always better to pay down debt than to operate on deficit funding.
I would agree that the town revenues may well be somewhat down this year due to reduced tourist and other out-of-town folks spending less time and money in our town this summer … and maybe next summer too … who knows. So the prudent course of action would be to budget for this. I have faith that the town council, town management, and budget committee are all smart and wise enough to do this.
May 4, 2020 @ 7:03 am
What future capital projects? Are they more important than paying off debts? We are not going to walk out of this pandemic and pick up where we were in December. To carry debt into an uncertain financial future is irresponsible. We must change our thinking about income sources and grant availability until things settle out in the future. Why carry debt into that uncertain future?
May 4, 2020 @ 2:49 pm
The police protect us, we need to protect them. Let’s not gamble with their retirement, they have earned every Penney, and deserve more! Meeting our obligations is the least we can do!