Borrowing money isn’t necessarily a bold move. In fact, for many people it’s a nervous prospect. Will the bank loan us what we need? Is our credit good enough? How much will it cost? What will we do if the bank says no?
All those questions ramble around in our minds as we sit in front of a lender who types an incomprensible number of key strokes into a computer that we can’t see.
The town of Wendell is considering borrowing money during the next fiscal year to tackle a host of needs that have been building up over a number of years thanks to previous boards that chose not to invest in the town’s long-term future.
Unlike the typical consumer, though, the town of Wendell knows the answer to most of the questions a consumer might have.
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Banks will likely fall all over each other for an opportunity to make the loan to the town. That’s true for several reasons. First of all, unlike most typical consumers, the town of Wendell can control its revenues. To be sure the state and federal governments contribute in several ways to Wendell’s budget, but the town also has its own taxing authority. If it’s necessary, the town can adjust its tax rate to ensure there is sufficient money to repay the loan. Of course, Wendell commissioners also know that it is unlikely they will need to do so because of the timing of this loan and the relatively tiny amount of existing debt the town currently has.
The town knows its credit is good. They’ve asked the Local Government Commission to review their plans for borrowing money before they even make the decision to do so. The Local Government Commission, which rides herd on municipal finances, has looked at Wendell’s financial position and its ability to borrow the amount of money the town says it needs. And the LGC has informally blessed the idea. That’s a sure sign the town is creditworthy.
The town also knows how much it would cost to borrow the money. While the specific interest rate isn’t set in stone, the town knows it can restructure what little debt it has and make the loan payments using money the town is currently using to pay down other loans that will soon be repaid in full. In short, the town would use the money it currently spends paying off old loans to pay off a new loan. That should mean there is no net impact to residents in order to pay the bill.
And what if the banks said no? Well, the town has other financing options, including a voter-approved bond referendum, but the bigger concern would be that the town would go one more year without meeting its obligations to its employees and its residents.
At this point, as Wendell commissioners draw near a final vote on the budget, they will need to steel their own nerves and remember that a vote in favor of the proposed budget is an investment in the town’s future.