Greenwich Debates Bonds as Town’s Buildings CrumbleAnnie Linskey and Michelle Kaske
The hedge-fund enclave of Greenwich, Connecticut, is embroiled in a debate about whether to overturn a policy of avoiding long-term borrowing that has roots in the Civil War.
Home to billionaires such as Ray Dalio and Thomas Peterffy, the top-rated town returned to credit markets in 2007 to sell bonds after a 74-year, self-imposed hiatus. It operates under a policy of limiting debt backed by its general fund to maturities of five years or less. The approach reduces interest payments while constraining the scope of projects that can be done at once.
“There’s no doubt that they’re pretty unique,” said William N. Lindsay, a director at Independent Bond and Investment Consultants LLC, a Madison, Connecticut-based group that advises Greenwich and other towns in the state. “With the wealth they have, they can afford to do things a little differently.”
Greenwich, a community of 61,000 about 35 miles (56 kilometers) northeast of New York, last week sold the most debt in its 358-year history. The offer of $85 million of one-year notes to pay for a high-school auditorium and work on a fire station came the day after residents gathered at Town Hall to discuss the borrowing policy. The Greenwich League of Women Voters sponsored the meeting.
As infrastructure ages and municipal interest rates remain below a four-decade average, the bond limits have prompted Democratic leaders to press for longer-term credit. They want to tackle more projects at once, including fixing a leaking municipal pool and overhauling a civic center with cracks on exterior walls.
Officials nationwide face a dimmed appetite for debt after the 18-month recession that ended in 2009. The $3.7 trillion municipal-bond market is poised to shrink for the fourth straight year as localities borrow less.
Greenwich also sold $45 million in longer-term bonds on Jan. 16, including five-year general obligations to yield 1.12 percent. That’s about 0.17 percentage point less than benchmark munis, data compiled by Bloomberg show.
The bulk of the issuance, $28 million, comes due by 2019. The balance is spread from 2020 to 2034 and is earmarked for projects that aren’t repaid with general-fund revenue, including a nursing home that receives federal money.
The five-year ceiling on borrowing backed by the general fund means few large projects can be done at once without hitting Greenwich’s $210 million debt limit, according to Democrats who support overturning the curb.
They point to aging structures like the Eastern Greenwich Civic Center, which the town acquired in 1966, and which has cracks in its facade and chunks of concrete missing from exterior walls. They also note the seaside Byram Shore Park, where town documents say the pool has a “continuous leak.”
“There’s an opportunity for improvement here in terms of addressing our older buildings a little earlier than before the end of their useful lives,” Mary Lee Kiernan, a Democratic member of the Board of Estimate and Taxation, told about 50 residents in a standing-room-only meeting at Town Hall on Jan. 15.
“If we delay beyond the useful life, it’s going to cost taxpayers more to replace these buildings, and it can impact town services,” she said.
Stretching debt payments over 10 or 20 years spreads out the cost of projects, matches an asset’s debt with its lifespan and enables the town to lock in low interest rates, she said.
Twenty-year general obligations yielded 4.55 percent on Jan. 16, below a 40-year average of 6.3 percent, according to Bond Buyer data.
Kiernan, along with five other Democrats on the taxation board, have failed to make the case within local government. On Sept. 24, they couldn’t secure the seven votes needed to overturn the current borrowing policy, though they continue to push their views in public forums.
Joseph Pellegrino, a Republican member of the 12-member tax board, defended the current borrowing practice at the Town Hall meeting.
“If you could finance everything with cash, you would,” he said. “Then you wouldn’t have any expense going to a third party.”
Borrowing limitations aren’t blocking the projects, he said. The town doesn’t have the staff to oversee so much work, and a cumbersome permitting process slows improvements, he said. He also said the town is arranging private funding for Byram Park repairs and has earmarked money in a future budget.
“We get done everything we can possibly get done,” he said.
First Selectman Peter Tesei, a Republican and the city’s top elected official, didn’t immediately return a call for comment on the debate.
Greenwich is among the nation’s wealthiest towns with a top credit rating, with $719,873 of taxable property per capita, according to Standard and Poor’s. The median figure for top-graded communities is $157,536.
The municipality is home to 23 hedge funds, including AQR Capital Management, the world’s 15th-largest in a 2012 Bloomberg ranking. Banks and insurance companies employ 22 percent of residents, according to a profile on the town’s website.
“They do a fair amount of pay-as-you-go financing and they keep their debt issuances short,” said Paul Mansour, head of muni credit research at Conning. The Hartford, Connecticut-based asset manager oversees $9 billion of local debt. “It’s just a different philosophy.”
While the town would find demand for long-term debt among investors such as mutual funds, it doesn’t need those buyers because the state’s tax levels stoke individual investors’ appetite for tax-free debt, Mansour said.
Connecticut’s per-capita tax burden of $6,984 in fiscal 2010 was the highest among U.S. states, according to the Tax Foundation, a nonprofit research group in Washington.
Like many familiar with the town’s history, Pellegrino alluded to Greenwich’s past struggles with debt.
“A lot of the older generation does not want to go down that road again,” he said.
Greenwich began racking up debt during the Civil War and by January 1933, bond payments consumed 27 percent of the budget, according to the town Historical Society. That year, Greenwich created a representative government, and one of its first acts was voting to fund capital projects on a “pay-as-you-go” basis.
In 1954, the community paid off the last of its Civil War-era debt, declared a “year of jubilee” and burned the final $1,000 bond at a town meeting, according to a New York Times article published at the time.
The stigma against borrowing persisted into this century. In 2004, when Comptroller Peter Mynarski was interviewing for his current job, he uttered the word “bond,” only to be hushed.
“If you want to be hired, don’t use the ‘B’ word,” the interviewer said.
Across the municipal-debt market, localities plan to sell $6.4 billion of long-term debt in the next 30 days as 10-year benchmark munis yield 2.65 percent, the lowest since November. The interest rate compares with 2.78 percent for similar-maturity Treasuries.
The ratio of the interest rates, which shows relative value, is about 95 percent, below the five-year average of 101 percent. The lower the figure, the more expensive local debt is compared with federal securities.