In 2009, around the time the U.S. economy was collapsing because buyers who’d taken out exotic mortgages began losing homes they couldn’t afford the rising payments on, the city of Schenectady was building Garage Mahal, a $20 million edifice it couldn’t afford, either.
Like the exotic mortgages that millions of Americans built their dream homes with, the city agreed to an interest-only payback scheme for roughly $20 million in Bond Anticipation Notes for the Bureau of Services garage on Foster Avenue. As Sunday’s Gazette story indicated, low-interest BAN financing is common with municipalities while projects of such magnitude are under way, but borrowers usually pay down some principal, as well as the interest, before converting to long-term bond financing when the project is complete.
The city never did either, and at the end of next year — five years after the initial borrowing, it will essentially have to borrow the full $20 million all over again. The interest rate will be much higher, and so will the city’s monthly interest payments — by roughly $67,000.
The city couldn’t afford that kind of hit even if it wasn’t already $5 million in the hole with about $75,000 cash on hand, but that’s this year’s crisis. How Mayor Gary McCarthy — who was on the City Council when the garage plans were hatched and when the BANs were issued but who says he didn’t know the city wasn’t paying down the principal — will attempt to deal with the garage financing issue at the end of next year is anybody’s guess.
What should be fairly obvious, both to McCarthy and the City Council, is that there can be no further procrastinating when it comes to making cuts to next year’s budget. Even if the city were to get lucky with McCarthy’s various get-rich-slowly schemes (like selling foreclosed houses to contractors on the chance that they will be fixed up and sold for a profit), the results may not show up on the city’s balance sheets for years. It will be bankrupt long before that if it doesn’t stop spending money on all but the essentials — now. Layoffs aren’t pleasant, but the alternative if the city gets taken over by a state financial control board, could be far worse.