Non-Voting Taxpayers: Our Island Home Proposal Not Prudent

To the editor: The Advisory Committee of Nonvoting Taxpayers (ACNVT) recommended against the $100 million proposal for a new Our Island Home (OIH) last March. The ACNVT joined the Capital Committee (CapCom) and many Finance Committee (FinCom) members in concluding this project is not financially prudent. The price tag is now estimated to be 25 percent higher, $126 million, after receipt of bids and inclusion of additional contingencies such as tariffs on building materials and equipment that the ACNVT identified.

Serious additional risks beyond the current construction cost estimate also need to be assessed by the Town and explained to the voters:

1. Congressional budget action under the new Administration in Washington threatens reduction of Medicaid and/or Medicare payments. It is estimated that Medicaid (federal portion) pays approximately 11 percent of personal health care expenditures. Medicare pays 23.2 percent. Any cuts to these programs will adversely affect payments to OIH in the future and the losses will end up in larger local property tax bills with the voters footing the bill.
2. Nantucket depends on the Municipal Bond Tax Exemption to attract investors with low interest rates. Congressional elimination or reduction of the Exemption will raise the cost of the OIH proposal and Nantucket’s other debt hungry capital projects that are funded by Nantucket issuing Bonds. Municipal bonds are generally exempt from federal income taxes making them attractive for investors. Because the interest earned on municipal bonds is typically not subject to federal income tax, Nantucket is able to issue bonds at lower interest rates than commercial businesses. If Congress takes the exemption away, Nantucket’s voters will end up paying the difference in their property taxes.

A prudent review would model these risks in a sensitivity analysis with a best- and worst-case scenario. We are not aware that was done, or if it was that it was made public. A decision to invest capital must wisely consider the long-term cost of finance and the future cost of operation.

The existing OIH provides an appropriate level of care. Adverse consequences from a decision to build an expensive new facility will burden Nantucket’s annual budget in the years ahead and limit the Island’s flexibility to tackle approximately $1 billion of needed Capital Expenditures. Financial prudence to keep Nantucket Nantucket is imperative.

Peter E. Halle
Chair, ACNVT