This may seem surprising, but debt is good. Or rather, some debt is good.
The cost of the work that must be done to maintain our community—repairing and replacing water pipes, paving roads, renovating older buildings, building new schools—is beyond the scope of the general operating budget to absorb all at one time. Borrowing enables us to do the infrastructure work we need to do when it needs to be done. Conversely, a community with no debt is a community that is not investing in itself. Just as you invest in your home—fixing things when they break, doing maintenance so they last longer and work better, replacing the roof or the fuse box when necessary—we must constantly invest in the City of Melrose.
The key is careful debt management: If it’s bad to have no debt, it’s worse to have too much. Just as we have a capital improvement plan, we also have a plan to manage debt, and it relies on two simple principles:
- We limit the amount of debt so that debt payments amount to no more than 5% of the general operating budget in a given fiscal year.
- We have structured our debt management plan so that approximately 80% of existing debt will be paid off in 10 years.
The graph above shows this: The lower line is currently bonded debt, and the upper line is borrowing that has been authorized but hasn’t been bonded yet, such as the school modulars.
We plan our capital expenditures so that new debt comes on as older debt is being paid off, so the net effect is that we are not using more than 5% of the operating budget to pay for it. We are replacing existing debt with new debt, rather than simply piling up debt and putting the City’s future on a credit card. This allows us to tend to the City’s current needs while limiting the debt liability for future administrations, allowing them the flexibility to borrow money—or not—without imposing an extra burden on taxpayers.