Borrowing and debt policies discussed

With news breaking about municipalities declaring bankruptcy, most recently Harrisburg, Penn., communities are advised to implement a strong policy to manage debt and borrowing eligibility.

Debt management and borrowing were discussed during a credit and bond rating workshop at the Association of Town Finance Committees Annual Meeting in Franklin on Oct. 15.

Amherst Finance Director Sandy Pooler said communication is essential when writing a town debt policy. From the early stages of development to the adoption of the policy, all stakeholders should be involved, he said.

Pooler also provided tips for creating a policy. Make it long-term, he said, but keep the wording as short and simple as possible.

“A good debt policy will be legally authorized,” he said.

Pooler also suggested reviewing the policy every three to five years to keep it consistent with what’s going on financially in the world.

Debt policies should be presented and publicly debated by the finance committee and the select board, he said. Pooler even recommends putting the policy on the town’s website for review.

Municipal debt is generally inevitable, he said.

“Sometimes things are just too big to pay for,” he said.

Pooler suggested carefully considering how much debt the municipality can take on and for how long.

“It’s a lot like credit cards,” he said. “It’s very easy to get debt and hard to pay it off.”

The length of debt terms is up to 30 years. Municipalities must provide proof that the debt term doesn’t exceed the useful life of the project or equipment for which the town is borrowing.

Knowing the municipality’s limits and an asset’s useful life are key components to staying within the town’s plan, Pooler said.

“Debt can be your ally, if you don’t abuse it,” he said.