The following letter was published in this week’s issue of the Gazette.
To the editor:
What is 2 plus 2? That depends on whether you live in Croton, where creativity is a hallmark of our budgeting process.
That creativity only goes in one direction: to grossly understate the cost of a project. We have seen this for years, but recent examples include the Croton Point Avenue cost overrun, the disappearance of the Gouveia “perpetual” endowment, and the ballooning cost of the DPW building.
There are various reasons for these continuous budget surprises, including lack of foresight and wishful thinking. But sometimes the math is deliberately misleading from the outset. That is the case with the proposed $5 million bond for the police department expansion.
The merits of the police expansion are debatable, but let us assume for the moment that it is absolutely necessary to build a new police facility. The Village Manager says in her Memo of May 29: “If you assumed an additional $5-million bond, at 2% per year interest rate, that would be an additional $100,000 per year.”
If it were our esteemed Mayor making this statement, it would be one thing; when it comes to municipal finance his illiteracy is the stuff of Croton legend, and he really believes some of the whoppers that come out of his mouth. But our Village Manager holds an M.B.A. from one of the best schools in the world and worked for a global bank. She knows better, as does anyone with an ounce of common sense. Even Bernie Madoff’s accountant would know better.
“Unless we are so irresponsible that we are willing to stick future Croton taxpayers with a massive balloon payment in 20 years because we will be retired to some low-tax state, we owe it to the future residents of Croton to set aside money to pay off our debts. For the Village Manager to act as though the borrowed money never has to be paid back is irresponsible both morally and as a matter of generally accepted accounting principles.”
If Croton issues a 20 year bond in the amount of $5M, the village will get $5M in cash (less various underwriting and miscellaneous fees). In exchange it will indeed have to pay out $100,000 per year for the next 20 years. That totals $2 million. But ultimately the bond matures, and then Croton taxpayers need to come up with the $5M we borrowed in the first place.
Unless we are so irresponsible that we are willing to stick future Croton taxpayers with a massive balloon payment in 20 years because we will be retired to some low-tax state, we owe it to the future residents of Croton to set aside money to pay off our debts. For the Village Manager to act as though the borrowed money never has to be paid back is irresponsible both morally and as a matter of generally accepted accounting principles.
Prudent fiscal management is not a characteristic of the Croton Board of Trustees… but we live in hope. So let us assume they don’t want to simply screw the taxpayers living here in 2041, and they set up a sinking fund. Every year the taxpayers will pay $250,000 into an account. After 20 years when the bond matures, the sinking fund will have a balance equal to the bond principal payment due.
The king of England issued perpetual bonds to pay for the Napoleonic Wars. But the Croton Village Manager is not the king of England, and those police bond buyers are going to want their principal back when the bond matures. It may be that we need to increase spending on the Croton police department. But let us be honest for once about what that will cost.
Assuming a 20-year bond at 2%, the cost of the Croton Police Palace is not $100,000 per year that the Village Manager claims but rather $350,000 per year. The lifetime cost is not $2 million but $7 million.
Having a project end up costing three and a half times what we were told it would cost is typical “Croton math.” In this case, the fake numbers are clear to all of us from the outset. It may indeed be that we have no choice but to spend millions of dollars. But we should not deceive ourselves yet again: the math is what it is.
The Village Manager and Village Treasurer need to stop deliberately understating the cost of projects to Croton taxpayers. They can start by giving us a realistic budget and annual cost for the police department expansion.
Paul Steinberg