Model local debt management policy makes sense

[jullysan]

There is a new twist on managing local government debt that should be watched closely. Tennessee Comptroller Justin Wilson has issued a model debt management policy for government agencies. It will be important to follow its adoption by local government entities such as Jackson, Madison County and other West Tennessee communities. It could substantially change how they do business and keep the public better informed.

The state comptroller of the treasury is a constitutional position that is filled by the state legislature. Wilson was elected by the General Assembly in 2009 and is expected to be re-elected for another two-year term by the 107th General Assembly. One of the comptroller's chief duties is to audit state and local government agencies. Wilson has extensive experience in the law, government operation and finance.

Wilson proposed the model debt management policy to the state Funding Board, which adopted the proposal. Local government operations will have to create an official debt management plan based on the model and submit it to the state by Jan. 1, 2012.

The model proposes four key guidelines:

# Debt transactions should be clearly understood by local decision makers.

# Citizens should be able to get a clear explanation of all debt transactions.

# Steps should be taken to avoid conflicts of interest among parties involved in debt transactions.

# Debt costs and risks should be clearly disclosed.

In addition, the model contains provisions such as not allowing a debt to extend beyond the useful life of any asset, and no debt can be extended without specific justification. The model also recommends that government operations set limits on the total debt they can assume.

The impact of the new rules will be felt throughout the state. Conflicts might arise where local governments have been managing debt well using methods other than those prescribed. Others might find themselves facing restrictions they never had to deal with in the past.

The model policy guidelines make sense. We especially like the concept of establishing a debt ceiling. That would require public knowledge if local officials decided to borrow more than they originally agreed to, and they would have to justify it to taxpayers. We also like the idea of requiring clear explanations to the public when debt is taken on.

Local government debt mostly has been a low-profile undertaking understood by a few people. Many times, local debt transactions are merely rubber stamped by elected bodies without a full understanding of what they were approving. The new requirements should help codify local debt actions and should keep the public better informed.