Rhinebeck, New York: Microcosm of Municipal Bond Tensions

Municipal Bonds, Risk
Eighty-six percent of the proposed budget increase is due to employee benefits.

I have a house near Rhinebeck, New York.  If you've never been to Rhinebeck, it's in New York's Hudson Valley, about two hours north of Manhattan.  Set in bucolic rolling hills, it is horse and farm country but has become increasingly popular with the ultra-high net worth Maserati set.  It is also a setting for municipal bond tensions.I recently received the Rhinebeck Central School District 2018-19 Proposed Budget.  After review, it seemed emblematic of what is going on at municipalities across the country:

  • Employee benefit costs are high and rising;
  • Debt service costs are rising;
  • Other services are being cut, including:
  • curriculum development;
  • teachers;
  • occupational education;
  • co-curricular activities;
  • maintenance.

Unlike many larger municipalities, Rhinebeck is not in fiscal trouble.  However, you can see the tension building.

Table 1:  Municipal Bond Tensions Explained: Rhinebeck Central School District 2018-19 Proposed Budget

municipal bond tensions

Eighty-six percent of the budget increase is due to employee benefits.  (I'm not saying these benefits aren't well earned or should be cut.)  Debt service plus employee benefits account for 111 percent of the budget increase.These increases (and the other service cuts) create what economists call an overlapping generations ("OLG") problem.  OLG fights are breaking out all over the country as pensioners are demanding their promised benefits and the current working population has to figure out how to support them (usually with fewer numbers).  The hard way out is to raise taxes.  The easy way out is to issue debt.In Rhinebeck, employee benefits sum to $10 million (30 percent) of the proposed budget.Can the Maserati set afford the Camry pensions?

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