Asked & Answered: Why Do Residents Get Tax Cuts When Town's in Debt?

Earlier this month, asked the following in our question about what are the : Why are we getting a tax cut when the Town should be paying down its debt? The money is coming out of Highway Dept (leaf pickup and snow removal) and Sanitation (closing the Recycle Center on Wednesdays), services we need and want. How curious we get an election year tax cut after all the debt furor ....

According to East Hampton Town's budget officer Len Bernard the municipality cannot just pay down debt. "You have to wait until 10 years after the bond is issued and at that point you normally refinance only if you can save money on interest," he said. "Unless of course you sell an asset purchased with borrowed money, in which case you must use the proceeds from sale to pay off the old bond principal."

Bernard said the town can also refinance in advance by selling refund bonds. Here is the rest of his statement:

"We just refinanced bonds from 2002. We sell refund bonds, the proceeds from which are used to pay the debt service on the 2002 bonds until the end of 10th year (in this case 2012). At that point the refund bond proceeds pay the old bonds off and the refund bonds are paid off at a lower interest rate.  The refund/refinance bonds we issued at the beginning of September will save the Town $50,000 per year in interest for the next 8 years ($400,000 in total).  There is a balance between paying off debt (which is usually impossible due to the 10 year rule), maintaining debt at low interest rates (cheap money) and having a stable budget that does not overburden taxpayers.  That is what we strive for and it is what I believe we are beginning to achieve.  Steve Bellone is running for County Exec on tax cuts, yet his Town I would guess probably has as much or more outstanding debt per capita then just about any town on Long Island.  It would not make sense for him to “pay off” debt even if he could if the interest rates are low.  It makes more sense to pay over time with low rates and have stable tax rates."