Correcting the misunderstanding of Carefree water debt

Carefree Water does not have $32.4MM in debt, it has $18.5MM .
Debt is the amount that you pay interest on.
Interest is not debt.

For example, if you were to take out a mortgage of $250k at a 5% interest rate for 30 years, the monthly interest payments are about $1,300, $15,600 annually and $468,000 for the life of the loan. The total amount paid would be over 700k. Your mortgage statement says you have $250k in debt, not $700k. If you had to pay interest on $700k, the total interest and principal would be $1.35mm, and so on.

That’s the way debt and interest payments work.

Carefree water issued debt in the amount of $18.5MM in order to finance the infrastructure needed to bring all Carefree residents into our water system. The annual interest payments are variable through the life of the loan and total $13.5MM. Adding debt and interest payments together the total is $32.4mm. Carefree water debt is not $32.4mm and we are not paying interest on $32.4mm.

In municipal finance, long-term bonds are used to finance long-term assets. Though the bond principal of $18.5MM will be paid down over time, we will benefit over the long term from the useful life of the assets.

Another misunderstanding is who is paying the debt. The rates and charges on the NEW Carefree customers are paying for the new debt. The debt is not being paid from our town budget. The town budget and Carefree water budget are separate and this debt was issued by the water company.

Sheila Amoroso
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