Assumptions underlying 2013 tax impact estimate
For years ending June 30, 2016 and 2017, tax amounts will be less as borrowing will ramp up through the use of Bond Anticipation Notes. Payments on full borrowing will begin in the year ending June 30, 2018.
Depending on variation in these terms, which will be determined at the time of borrowing, the tax impact could be slightly more or less. Terms of bonding must be approved by the Board of Selectmen, who are advised by the Town Manager, Treasurer and its financial advisors.
- It is possible that the debt could be carried for 30 instead of 25 years, which would lower the impact per taxpayer, although this would cost the Town (and taxpayers as a whole) more in interest over the term of the bond. It is highly unlikely that the term of the bond would be less than 25 years.
- “Level service” borrowing means that principal and interest payments are structured to be equal for each year of the term. This contrasts with “equal principal” structure, in which payments are structured so that an equal amount of principal (and resulting interest) is paid in each year. This approach pays down debt faster, and so results in lower overall cost to the town and taxpayers as a whole. It would increase payments above the estimates above somewhat in the short run, but payments would decrease over time to be less than the estimated annual amounts above.
- In the past, the Town has bonded most large projects using the equal principal approach.
Assumed debt terms:
- $87 million of borrowing
- 5% interest rate
- 25-year term
- “level service” borrowing terms
Terms underlying July 2015 borrowing and tax impact
- $60 million borrowing (remainder of project cost to be borrowed in fiscal 2017 and later)
- 38% interest rate
- 30-year term
- “equal principal” borrowing terms*
Tax impact of the total project cost will depend in part on the terms of the borrowing(s) undertaken in the future to fund the project cost over $60 million.
* In “equal principal” borrowing, payments are structured so that an equal amount of principal (and resulting interest) is paid in each year. This approach pays down debt faster than “level service” borrowing (principal and interest payments are structured to be equal for each year of the term).