by Tony Palmeri
November 7, 2001
As I have reported on this web site, Oshkosh's municipal debt level is horrendous when compared with cities of similar size. In the November 7, 2001 Oshkosh Northwestern, Karl Ebert reports that the city's 2002 budget will make the situation even worse: "The borrowing will push city indebtedness from 70 per-cent to 80 percent of the city's state-set borrowing limit. That puts Oshkosh among Wisconsin cities carrying the highest level of general-obligation debt."
Unfortunately, city officials do not seem to be interested in confronting the debt problem in a serious manner, choosing instead to engage in "debt spin." Consider this piece of balderdash from Ebert's article:
"Yet per-capita debt service, the annual payment owed by each city resident, ranked only 160th of the state's 189 cities, according to a September analysis of municipal debt by the Wisconsin Taxpayers Alliance."
So, we shouldn't feel that bad about the debt because, after all, in 159 other cities the annual payment on the debt owed by each city resident is higher.
One need not be an Oxford economist to recognize the fallacy of this spin. The fact that the annual payment on the debt owed by each city resident is relatively low only means that we are passing on more of the debt to our children and grandchildren than are the 159 other cities. Thus we have been financially irresponsible in two major ways: (1) building up a large debt in the first place and (2) passing on our debt obligations to people who may not even benefit from those projects for which we went into debt.
The per-capita debt service canard is only the most recent debt spin. Usually when confronted with the debt problem, city officials give us this:
"The reason the city's debt ratio is so high is a long-standing policy of issuing general-obligation bonds rather than revenue bonds to pay for utility work. Revenue bonds are paid for with fee income generated by utilities, payments to tax incremental finance districts and other fee-generating revenue sources. But the city traditionally has shunned revenue-based borrowing because it is able to get a lower interest rate with general-obligation bonds. The general-obligation borrowing for utility projects still is paid for with utility revenue." (from Karl Ebert's November 7 article).
This spin raises many questions. For starters, when did this "tradition" of shunning revenue-based borrowing begin? Who made the decision? Why? Has the city been well-served by this policy? Has the city studied its method of accumulating debt in order to evaluate its success or failure? Is the quality of utility work in Oshkosh substantially better than utility work in cities using revenue bonds? How has general obligation borrowing benefited Oshkosh? What projects can we point to in the city that could be considered proof as to why this type of borrowing is preferable?
In my previous essay on this topic, I argued that "The Common Council should call for a full, independent audit of the city's finances, including a critical examination of the impact of TIF (Tax Incremental Financing) districts on the overall budget picture." The fact that we now know that city officials are willing to engage in debt spin makes the need for such an audit all the more vital. In addition, the following should happen:
Finally, I hope that the Oshkosh Northwestern leads the effort to investigate critically and in-depth the debt problem faced by the city of Oshkosh. As regards the School Board referendum, the newspaper demonstrated that it could have a powerful impact on shaping public policy issues. Yet when it comes to Common Council issues, the paper is too often content to report City Hall spin (whether we are talking about debt, TIFs, downtown development, or a host of other issues) uncritically.
Our children and grandchildren do not deserve to inherit a huge debt burden in the future because we do not have the guts to tackle the problem head on today.
We need debt candor, not debt spin.