STONE HARBOR – During its meeting Sept. 20, the Stone Harbor Council authorized the issuance of up to $26 million in bond anticipation notes for a wide variety of projects.
One resident, Susan Royes, used her virtual connection to the meeting to raise questions about what such a large sum would do to the borough’s existing debt levels and its credit rating.
Chief Financial Officer James Craft explained that there would be no new debt as a result of the resolution and no change to debt service amounts. Reconciling Craft’s comments to a large list of potential spending plans for millions of dollars is not easy for all taxpayers.
A bond anticipation note is not what we typically think of as a bond; it does not involve long-term debt. It is a short-term interest-bearing security issued in advance of a larger, future bond issue. It is a form of security often used by municipalities to generate funds for capital projects in advance of the need for a larger, more comprehensive bond issue.
The resolution is only the authorization to issue such notes, but despite what may have been the interpretation, the notes, if issued, do constitute short-term debt and do carry interest payments. It is just that such debt is short-term and usually refinanced with new debt. Typically, the maximum length for bond anticipation note financing is one year or less.
In theory, the short-term debt would be absorbed by the issuance of long-term bonds, once, as Craft explained it, the number of projects is narrowed. In this way, bond anticipation notes are often followed by new long-term debt. The question then becomes how the borough is going to manage its long-term debt in ways that eventually release debt service payments for other uses.
The fact that someone questioned the resolution during public comment is not surprising.
Mayor Judith Davies-Dunhour has frequently spoken about the need to address Stone Harbor’s high level of long-term debt. In the 2022 budget, debt service makes up 21% of the general fund budget appropriations. Debt service payments have been at 20% or more of total general fund appropriations for over a decade.
Questions about how and when the municipality engages in long- or short-term capital debt instruments are likely to continue as the borough faces the need to finance flood mitigation projects outlined in its Flood Mitigation and Storm Sewer Master Plan.