FORT WAYNE – The political turmoil surrounding the federal debt ceiling prompted a national discussion on the appropriateness of governments spending more than they collect in revenue.

One local mayoral candidate has tried to bring that discussion closer to home by making the debt of Fort Wayne a major tenet of her campaign. Yet experts argue there are immense differences between federal and local government debt.

In fact, the federal government appears to have nearly infinite borrowing capabilities, while rules and banks make such a prospect impossible for local governments. The appropriate level of debt for a community is based on its revenues, willingness to borrow and general tolerance of debt by officials and constituents.

Fort Wayne, at least by comparison with some other cities, seems to have a fairly reasonable amount of debt. A Journal Gazette analysis of 14 cities and the state shows the Summit City to have a moderately low level of debt when judged on a per-capita basis.

The city’s debt of $406 million means it has $1,600 in debt per resident. That’s lower than the per-capita debt of South Bend, St. Paul, Minn., and Indianapolis. Springfield, Ill., by comparison, had a per-capita debt of nearly $6,500, by far the highest in the analysis.

The city’s per-capita number is even lower than that of the state if all state-linked debt is included. Of the state’s $12.6 billion in debt, state government is responsible for repaying about $5 billion. About $1.35 billion of the debt is for the state’s universities and an additional $1 billion is for Lucas Oil Stadium and the convention center in Indianapolis, which is being mostly financed by increased food and beverage taxes in Marion and surrounding counties.

The debt figures were derived from information provided in each of the cities’ comprehensive annual financial reports. The figures include debt for general government activities and government owned businesses, which typically are water and sewer utilities. This amount was divided by the city’s 2010 U.S. Census population to derive the per-capita number.

Fort Wayne’s total debt used in the analysis does not include some city liabilities listed elsewhere in its financial report. Republican mayoral nominee Paula Hughes has criticized the city for having $516 million in long-term debt, which would make the city’s per-capita debt $2,033.

City Controller Pat Roller said the lower debt number does not include money for pension liabilities being financed by the state or other employee liabilities that would be due all at once only if the city should cease to exist.

Hughes said it made sense to use the lower number when comparing Fort Wayne to other cities because of how the numbers were presented in the reports. She said while the city’s per-capita number is relatively low, she believes it still has a borrowing problem, as do most government entities.

“I think it’s a problem with all communities and government in general,” she said of debt.

Justin Schall, campaign manager for Mayor Tom Henry, said the numbers show the city has been fiscally responsible and Hughes is trying to fabricate a campaign issue out of nothing.

“These numbers show that the mayor has been fiscally responsible which has put Fort Wayne in a better position than most cities,” Schall said in a statement. “While other cities were cutting vital services, we didn’t have to.”

Rising debt

The city’s total debt is less concerning to Hughes than the rate at which it has grown.

Since 2001, Fort Wayne’s debt has more than tripled, growing at a faster rate than any of the other communities examined.

“How is that sustainable?” Hughes questioned.

Since Henry took office in 2008, city debt has grown about 30 percent. In that same time period, the debt in Indianapolis grew by 12 percent.

Roller, however, said there are numerous legitimate reasons for the increase. For one, the city grew tremendously over the past decade because of annexations pushed by Republican Mayor Paul Helmke. The city grew from 205,727 people in 2000 to nearly 254,000, according to the U.S. Census Bureau.

The numerous annexations, from northern Fort Wayne to Aboite Township, required the city to borrow $58.3 million, of which $39.6 million was directly related to annexation requirements for new fire stations and other infrastructure. Roller said most of the bonds for those annexations will be paid off between 2012 and 2016.

The city also reached a resolution with the federal government that led to a $240 million plan to reduce the amount of sewage that flows into area rivers. This agreement prompted a five-year rate increase – and probably 10 more years of rate increases after that – to allow City Utilities to borrow tens of millions of dollars to pay for the projects.

The city in the past decade also has borrowed money to finance Harrison Square – using a variety of revenue sources – and to buy Citizens Square, using income tax revenue.

Roller said it is difficult to accurately compare debt levels and uses across communities because those numbers are typically driven by local decisions regarding annexing and other policies.

“The important issue is can the city afford to invest,” she said.

Henry has said more than 40 percent of the civil city’s debt – not including City Utilities – will be paid off by 2015. Hughes has promised to cut 24 percent of all city debt by the end of her first term.

Debt vs. cash

Paying for big projects often spurs individuals to borrow money, and governments are no different, according to Larry DeBoer, professor of agricultural economics at Purdue University and an expert on local government policy.

To build a new road would require governments to either save for a long time or borrow, but few governments have the ability to pay cash for such large expenditures.

“It’s not exceptional at all,” DeBoer said of municipal borrowing. “The standard way to do it is to borrow for a project, and pay it back over 20 years.”

Roller said it is appropriate to borrow for projects expected to last generations, an argument DeBoer said he generally agreed with.

“Should we be putting all the burden on taxpayers today when we’ve got something generations are going to be using?” Roller asked.

While the politicizing of federal debt may have begun the discussion, DeBoer said it is not appropriate to compare national debt with local borrowing. For one, local governments have to balance their budgets, he said. The federal government does not.

Local governments borrow for building projects, not salaries of their police officers and firefighters. The federal government, however, does borrow to pay its soldiers and buy their weapons. The federal government can do this because it has a nearly infinite capacity to borrow money. Despite the credit rating of the government being downgraded, people still flocked to U.S. Treasury Bonds to avoid the uncertainty of the stock market.

“Fort Wayne can’t do that,” DeBoer said. “If Fort Wayne accumulated too much debt, people would look at it and think, ‘How much are they going to be able to pay.’ At some point, buyers would say ‘Forget it, Fort Wayne.’ ”

The people to decide that would likely be the rating agencies and lenders, DeBoer said.

Standard & Poor’s rating agency has given the city an AA- credit rating, the water utility an A+ credit rating and the sewer utility an A rating. This means the agency believes the units have a strong to very strong capacity to meet financial commitments. The A means the utility is “somewhat susceptible to adverse economic conditions.” A rating of D is the lowest, meaning a unit is in default.

The National League of Cities this month released a statement differentiating local debt from federal debt, stating that city borrowing is an important tool for regional economic development and infrastructure.

“Local and state governments comprise three quarters of U.S. infrastructure spending, and debt financing has been the primary mechanism for funding the nation’s system of public works,” the group said.

Schall, with Henry’s campaign, said debt is an important tool for the city, as it would be for any business looking to make investments to increase future revenues.

“For example, the ballpark has brought more than a million visitors downtown and it wouldn’t have been possible without bonding,” he said in a statement.

Hughes, however, said the city’s debt limits its ability to do important projects. For example, she said the majority of the city’s economic development income tax revenues go to debt payments, reducing the amount of money available for annual projects. By examining the spending of each department with an eye to cutting costs, Hughes said she would be able to reduce the city’s debt.

She offered no specific cuts and has not done so since the beginning of her campaign, other than small ones like the mayor’s salary and take-home vehicle. Hughes said once elected she will form teams of residents that use city services to help look for waste or overlap among city departments to determine where cuts can be made. She said she does not support blanket percentage cuts across the board.

But the next mayor will be forced to decide how to finance the $240 million in required sewer improvements. Hughes has criticized past city leaders for not better dealing with the issue earlier, and she suggested the city reopen discussions with the federal government to try to reduce some of the costs by using newer technologies.

She agreed, however, that it would be difficult to do those projects without additional borrowing.

“I don’t see a way right now,” she said, while adding she would make it a goal to do the work without adding debt.

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