Interest on City Debt

 

The interest on the current level of bond debt is $73 million.  In five years, that interest, at current rates would rise to $84 million. If we returne to historical levels of interest rates, say 8%, the interest would double to $164 million at that level of debt. This would be a gradual process as current low interest debt is replaced and does not account for a higher level of debt, which the city plans to expand.

If this sounds far-fetched, read those ballot arguments for Questions 3 and 4, where the city Is asking you to let them sell bonds at up to 9%.  For most of us mere mortals, when interest rates skyrocket on items like homes and cars, we usually to have to cut back the amount we borrow or decide to go without. The city will not have to cut back if you give them this blank check. They’ll just make it up in taxes and utility rates, even if the projects are non-essential.

In addition to the interest on bond debt, the city has $43 million interest on the accrued polices pension liabilities, $23 million on fireman pension liabilities and another $22million in interest on deferred retirement health care benefits. If the amount of these liabilities increase, the interest expense on these items could be expected to increase as well. If interest rates increase as well, the assumptions behind the liability could change too. Since the city recently chose to amortize pension liabilities over 25 years instead of 20, the intent seems to be to kick the problem down the road rather than solve it.

So right now, the interest bomb stands at over $160 million, with likely increases in both total debt and the interest rate on them.  While it can be a guessing game as to what exactly happens and when, most prudent people set something aside to leave themselves a little wiggle-room. Let’s see how Mesa avoids addressing those issues.

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