The good news is that debt issued by the Town of Clayton is an increasingly safe bet for investors. And that’s good news for taxpayers, because the higher the credit rating, the lower the interest rate, which means lower interest payments on town borrowing.
The bad news – though far from horrible – is that Clayton government is perhaps too dependent on revenue streams that rise and fall as the economy rises and falls.
In its latest look inside Clayton’s financial house, Moody’s Investor Service pointed in particular to Clayton’s dependence on fees from building permits, which were a great source of revenue – until the housing industry went bust amid the Great Recession.
Moody’s of course could have said the same about sales-tax receipts, which were another steady stream of revenue until consumers slowed spending dramatically during the recession.
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Investors who purchase municipal debt care about revenue streams because they want to make sure they get their money back with interest. Taxpayers should care too because they don’t want to pay the interest rates that would come if investors became wary of Clayton’s ability to repay its debts.
We don’t mean to pick on Clayton here, because every town we know is dependent on unreliable revenue streams, and that’s largely because they are loath to raise property taxes. That reluctance, by the way, comes not from bureaucrats but from politicians, who fear a backlash any time they raise the property tax.
Like those politicians, we’re no fans of tax increases, but neither are we afraid to speak the truth about the property, which is to say that it’s the fairest tax we know of, because people who have more property pay more in taxes. It’s certainly fairer than the sales tax, because a low-income family pays the same rate as a wealthy one.
We know what you’re thinking: “What about renters? They should at least pay the sales tax because they don’t pay the property tax.” Sorry, but we’re not buying it. Every landlord we know factors all of his costs, including property taxes, into the monthly rent. Just like McDonald’s factors its property taxes into the cost of every Big Mac. It’s just good business.
In fact, it’s better than good business; it’s brilliant, because property taxes are also an income tax deduction for people who itemize their tax returns. That means a smart landlord gets his tenant to pay his property taxes and then takes the deduction on his income taxes.
In our experience, property owners carry more political weight than renters, which no doubt helps explain why elected leaders in every town and county prefer even unreliable fees over property-tax increases. We just wish they cared less about what’s politically expedient and more about what’s fair.