FORT WAYNE – Mirroring the ongoing feud regarding the national debt ceiling, Fort Wayne’s mayoral candidates Wednesday attacked each other over how much the city owed and whether the amount is problematic.

Mayor Tom Henry, a Democrat, and Republican challenger Paula Hughes offered widely divergent views on city debt, with each accusing the other of misleading the public.

The city last week issued its comprehensive financial report for 2010, which lists the city’s total long-term debt at $516 million. Hughes cited the report to once again criticize city debt – which has served as the overarching theme of her campaign. She pointed out previous financial reports show the long-term debt has more than doubled since 2002, outpacing the debt growth at a national level.

“City debt is out of control,” she said. “This administration has taken debt to a whole new level. It now exceeds a half a billion dollars.”

Hughes said she was particularly concerned by the amount of debt tied to income tax revenue, as that limits the money the city can annually spend on projects. The city set aside about two-thirds of its $21.8 million economic development income tax budget this year to finance debt.

Henry, however, said Hughes’ number is inflated and includes debt for City Utilities and some debt that is being paid by the state. City government owes $176.6 million – a slight drop from 2009 – and the mayor said nearly 42 percent of that will be paid off by 2015.

Hughes’ debt total includes more than $230 million owed by City Utilities, which while overseen by the mayor, is a separate business entity based on user fees instead of taxes. Henry said water and sewer services are offered outside the city limits, and the state has some oversight on rate increases.

The utility’s debt increased last year by about $30 million, mainly to help finance a federally mandated $240 million plan to remove raw sewage from area rivers. The utility borrowed an additional $30 million this year to change the way it disinfects water – also required by a federal mandate.

The sewer work required a five-year rate increase, but the utility has stated it will not need to raise water rates to pay off the debt for the disinfection change.

Hughes said both utility and city debt should be considered as one because they both affect the city’s financial health. She also said the utility is included in the city’s $180 million budget – a claim that is not accurate.

Henry criticized Hughes for including $88.8 million in pension liabilities in her debt total, despite the fact those costs are paid by the state. Hughes acknowledged that number is not a city liability, but it is a number that was included in previous debt totals, so it was left in to be consistent. Had the number been dropped, the city and utility total would not have exceeded a half-billion dollars, as she said it does.

Aside from arguing about the level of the city debt, both candidates offered vastly different takes on the role that borrowing money plays in city government.

Hughes said her goal would be to eliminate all city debt so the city can begin paying for things on a cash basis. She noted the city should have done more planning toward fixing its sewer problems so it wouldn’t have needed to borrow so much money. Eliminating debt would free up more money annually to finance projects, eliminating the need to pay interest.

While she has vowed not to raise taxes, Hughes said she would not lower taxes until all the debt is paid.

Henry, however, said it’s appropriate for large communities to have some debt, noting any large company would have some debt as it continually makes investments. He said making those investments often require debt, and it would be unreasonable to expect the city to be debt-free.

“Debt is good if the rate of return is better than the interest,” he said, while noting the city’s bond rating is able to secure favorable interest rates.

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