Use surplus to pay down debt; it will strengthen city for long term

Tonight the Urban County Council will decide whether to set aside $2.25 million from a $7.6 million surplus in 2012 to give each council member $150,000 for capital projects.

The alternative would be to pay down some of the city's debt or put it into the reserve that's generally called the rainy-day fund, which is set to get $4 million of the surplus.

Acting on the balance tonight is a bad idea. Next week the council will hear about the balance from the 2013 year that just ended. Considering the entire fiscal picture at one time is the more reasonable approach.

But regardless of the timing, we urge the council to forego the projects — no matter how overdue they are — and use the money to strengthen the city's balance sheet.

This is not only the more fiscally prudent course in the short term. It will, over the longer term, enhance the city's ability to do the things the council members and their constituents yearn for.

Here's our reasoning.

Lexington has tripled its debt, from $119 million in 2003 to about $315 million.

As we all know, more debt means more debt payments. So about 11 percent, or $33 million, of the city's current annual $298 million budget is obligated to payments on that debt.

The rainy-day fund will reach $22 million with the $4 million to be added.

None of this is terrible news, really. Moody's, the investment rating agency, just this month awarded Lexington its third-highest rating, meaning we're a good credit risk, so the interest cost to borrow is relatively low.

But Moody's cited two challenges for Lexington's finances: limited financial flexibility — a byproduct of having so much obligated to paying debt -- and reliance on the economically sensitive payroll tax to supply the overwhelming majority of the city's revenues.

Mayor Jim Gray and the council deserve credit for righting our financial ship.

Tough work on employee health care, the police and fire pensions (which accounts for a huge portion of the debt increase) and other decisions has given the community a little cushion.

Gray has not taken a hard stand, at least in public, on the proposal to allow council members to allocate funds within their districts, but he has a stated goal of reducing the debt obligation to less than 10 percent of the annual budget by 2016.

After several lean years, there are projects all over the city that need and deserve investment. We don't question the sincerity of council members who see those needs in their districts and want to offer some help.

And we applaud the proposal that all the projects would come before the full council for approval.

But this is a moment to stay the course of financial restraint, reducing the debt to achieve greater flexibility to invest in projects that benefit the entire community.