The idea of paying off one debt by incurring another debt seems like the kind of maneuver just about everyone should avoid.
Yet, when we’re talking about local governments’ pension debt, such a two-step seems to make perfect sense. Especially at a moment when interest rates are just a shade above zero.
Maybe that’s why we found ourselves nodding along in affirmation during past propositions proffered to the Grand Traverse County board of commissioners to address the county’s lumbering pension debt by issuing bonds. Commissioners at multiple junctures in recent years waved off pension bond plans over concerns similar to ones we normally would espouse about paying for debt with more debt—decisions we disagreed with for a number of reasons.
That’s why we were happy to see the board support such a proposal this week.
Commissioners who voted to move toward issuing pension bonds Wednesday cited the millions in savings the county will realize by filling the pension coffer with borrowed money, then paying back the bond debt at a steady rate over an extended period.
They also pointed toward the extraordinarily low interest rates the county will pay for those bonds.
The former—the part about steady payments—is especially important. Grand Traverse County’s tens of millions in pension debt grabbed statewide attention a half-decade ago when local officials disclosed the fact that the county had saved less than half of the amount of cash it will need to fulfill pension obligations. And in order to meet a 2034 deadline to have that debt paid, the county faced a steep ramp of annual payments that would progressively pinch the local government’s annual budget.
County officials and commissioners have worked since that time to address the debt, sending additional payments each year, and filling the pot to about the 60 percent mark.
But the looming and tightening vise on the county budget lingered.
The bonding plan—beyond saving taxpayers as much as $15 million in the next 13 to 14 years—also will provide budget stability. Instead of facing rising annual payments, should the county follow through with the bonding plan, we should be able to pay off the debt at a stable, reasonable pace.
No current county commissioners or administrative staffers created the behemoth debt problem they face, but they are responsible for digging out of the hole without decimating county services.
Thankfully, they appear set to address their ticking debt bomb with a common sense solution.