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Water Board debates 60/40 debt-to-reserves approach for capital projects
Summary
Board member Michael Roomberg suggested capitalizing large future investments at a 60% debt / 40% reserves ratio, arguing debt is a cheaper financing source and reserves represent homeowner equity; Town Supervisor said municipal finance law limits adopting private rollover loan practices.
At the April 15 meeting of the Town of Red Hook Water Board, member Michael Roomberg outlined a recommended approach to capital financing: use a roughly 60% debt and 40% reserves mix for major future investments.
Roomberg said the 60/40 split is common among privately held utilities regulated by state public utility commissions, where debt is typically cheaper than equity. He explained that because the Town has no private shareholders, the equivalent of 'equity' would be cash reserves and that reserves should be treated as homeowner property. He urged balancing sufficient rainy-day funds against holding excessive customer cash that would shift costs to current homeowners for investments future residents should bear.
"It is common amongst privately held New York State public utility commission regulated utilities to capitalize themselves using a combination of debt and Shareholders equity of 60% debt and 40% equity," Roomberg said in the minutes. He offered to provide further mathematical detail if the board wanted to pursue the approach.
When Roomberg asked whether the Town could adopt private-sector financing practices such as repeatedly rolling loans into new loans, Town Supervisor Robert McKeon said municipal finance law differs from private-sector law and explained why the Town cannot use that specific rollover practice. The minutes record McKeon's clarification without quoting statutory language or citing specific municipal finance rules.
Board members did not record a formal vote on adopting a fixed debt-to-reserves policy; the discussion was recorded as guidance and a recommendation to consider capitalization targets when planning large investments. Roomberg also discussed the policy's implications for reserves and future customers. The minutes show follow-up actions for the Town Supervisor to check insurance coverage and to provide additional financial clarifications to the board.
The minutes do not list dollar amounts for the Tank Rehabilitation project or a timetable for applying any new capitalization rule. The board asked for additional information and did not adopt a binding policy at the meeting.
