Town To 'Bite the Bullet' To Retire Debt Sooner

By: Ed Maroney

Selectman David Currier, shown voting at the Oct. 16 special town meeting, said last week that the town should take out shorter-term bonds to reduce interest payments.

ED MARONEY PHOTO

ORLEANS $29 million.

$3.96 billion.

Some pretty big numbers were discussed at last week's selectmen's meeting.

The $29 million is the amount the town will borrow next month to pay for the new police and DPW/natural resources facilities and a slew of other projects ranging from the recently completed Rock Harbor bulkhead work to replacement of water mains on Beach Road.

The $3.96 billion is the assessed value for this fiscal year of residential, commercial, industrial, and personal property in Orleans, a new record surpassing the fiscal 2008 peak of $3.91 billion.

With the numbers came decisions for the town's elected leaders. Should the bonds for borrowing be front-loaded with higher payments to reduce debt service? And should part of the tax burden be shifted from residential to other classes?

After presentations by Assessor Kenneth Hull and Treasurer Scott Walker, the selectmen decided to maintain a single rate of taxation among all the classes and not grant residential or small business exemptions by shifting costs. They also agreed to bond the $29 million in projects over 20 rather than 30 years, a step that would reduce interest payments by millions of dollars.

In his talk, Hull said there had been a 3.4 percent increase in valuation, 2.4 percent due to market value and 1 percent from new growth. “We're seeing quite a bit of new construction and quite a bit of renovation,” he told selectmen. With the tax levy increasing about 8 percent, he said, the tax rate per thousand will rise from $6.33 to $6.63. The total amount to be raised from taxes on all classes of property is $26,276,656; estimated receipts and other revenue sources are expected to total another $11,070,319 to meet total anticipated expenses of $37,346,975.

Hull recommended against a percentage shift of the tax burden from residential to commercial properties. At the maximum allowed (50 percent), the residential rate per thousand would drop to $6.36 while the commercial would soar to $9.94. At those rates, the owner of a house valued at $550,000 would pay $151 less in taxes and the owner of a commercial property valued at $265,000 would pay $877 more.

The assessor said those values are typical for the classes. “Residential values are skewed,” he said. “The average assessment is $728,000...because of waterfront properties. Approximately 30 percent of your properties have some water element. If you look at non-waterfront-influenced properties, the average is $550,000.” Likewise, the condominiumization of properties such as Lowell Square means it is not valued at, say, $2 million but instead is represented by 10 individual owners whose units average around $200,000.

“I believe that basically is the essence of the decision you need to make this evening,” Hull told the board, “whether or not the savings of $151 on residential properties is sufficient for the increased tax of a commercial property being close to $900.”

Selectman Mefford Runyon asked if there was any rationale, other than just shifting the tax burden, for commercial properties to pay higher rates than residential ones. “About the only thing they have in common is that they sit on land,” Hull replied. “Some would argue the reason for the split is that commercial properties generate income and residential properties don't. I'm not sure I buy into that thinking.”

The new tax rate will not consume the town's entire tax levy limit, leaving an untapped margin of $1,435,000.

Later in last week's meeting, Finance Director Cathy Doane spoke about why Walker was asking the board for its view on terms for the borrowing. “Typically, it's the treasurer's decision how to go about bonding this,” she said. “The reason we brought this to the board is that both of us are new in Orleans and we wanted to know what appetite the board has to support a higher tax rate earlier to pay these off, knowing the projects that are coming down the line.”

Walker said he had moved up the borrowing from next February because “the Federal Reserve is considering raising rates. We'd like to get in under the gun.” He wanted the board's take on a proposal to fund the two big-ticket projects – the DPW and police buildings – over 30 years on an “equal principal” basis through which principal payments are higher in the early years, thus reducing total interest costs.

“With equal principal, you pay the same amount of principal each year,” he said, “and pay off the loan sooner. It tends to be the most prudent way, the most fiscally responsible way to borrow. It does entail some greater impact on the tax rate now,”

The selectmen looked over 20-, 25-, and 30-year scenarios for borrowing for the DPW and police buildings. The projected total cost under an equal principal plan for a 30-year span was $42.7 million, whereas the amount for 20 years was $40.2 million.

That got Selectman David Currier's attention. “At town meeting, there was a woman who said not to be penny wise and pound foolish. I think it's penny wise and pound foolish to not do 20 years equal principal. It seems that the people who were here to approve (the spending) should be the people who pay for it, not the people 30 years down the road. Front-load it and pay it off.”

Selectmen Chairman Jon Fuller said he thought Currier's idea “has a lot of merit. In the long run, we'll save more money. People living here now and settled have a better ability to pay that increase than someone who just moves here, especially a young family.”

At the outset of the discussion, Selectman Alan McClennen noted that Orleans is one of 52 out of 351 communities in Massachusetts with a AAA bond rating (and is in the bottom 20 for tax rates). “The last time I looked,” he said, “our bonded indebtedness was sixth-tenths of 1 percent. Of the 52, we're in the bottom third in terms of debt. If we go ahead, which we have to do, we'll move into the median of communities with AAA bond ratings.” McClennen said the next significant borrowing will be for wastewater projects and “for that, we have been working judiciously to get us to the point where there is no interest payment” for such work.

The 20-year plan will “whack the tax rate right now,” Selectman Mark Mathison said, “but everybody should know and understand that the tax rate will get whacked no matter what. This is what people in this town have been voting for. They get what they're voting for. Doing it this way saves millions in interest and we get to the break-even point in eight years. To me, it makes the most sense to do 20 years and bite the bullet now.”