Simsbury, CT - Board of Finance Minutes

Paul Henault, Chairman, called the Regular Meeting of the Board of Finance to order at 6:02 p.m. in the Board of Education Meeting Room of the Simsbury Town Offices. The following members were present: Candace Fitzpatrick, Peter Askham, James Belfiore and Michael Wade. Also present were Kevin Kane, Finance Director, David Holden, Business Manager, Mary Margaret Girgenti, Board of Education Chairman, Richard Sawitzke, Town Engineer, and other interested parties.

Chairman Henault noted that the BOS has approved the ordinance for land acquisition and preservation. Ms. Fitzpatrick stated that she has questions and is disappointed that the BOS took action when the BOF had to table this item due to incomplete information and a time constraint. Ms. Fitzpatrick noted that there had been a consensus for a BOF member to be on the Open Space Committee, and she still feels this is important. She pointed out that originally approval was also necessary from the BOF and this has been deleted. Ms. Fitzpatrick expressed her concern that the inconsistencies may be an issue with the bonding language. Mr. Kane stated that the BOF continues to play the same role in the appropriation of funds and the bonding language supersedes this ordinance. He explained that within this fund there can be different sources of revenue and the funds can be used to purchase development rights and open space. Mr. Kane stated that this fund can only capture contributions and grants and there can be no transfers without approval.

Mr. Askham questioned who determines how the funds are spent. Ms. Fitzpatrick stated that the Open Space Committee and the BOS make that decision. Ms. Fitzpatrick expressed her concern with the section regarding Dissolution of the Fund. Mr. Kane stated that this is consistent with previous actions of the Town. Mr. Belfiore pointed out that the purpose of the fund is to capture donated funds and the bonding process remains the same. He stated that he does not object to including a BOF member on the Open Space Committee. Mr. Askham questioned how revenue from the sale of real estate can be included in the fund without taxpayer approval. Mr. Kane stated that only if it is above 1% would the decision go to the taxpayers. Ms. Fitzpatrick questioned whether legal advice was received regarding the mechanics of depositing revenue from real estate sales into this fund. Chairman Henault requested that Ms. Fitzpatrick draft a letter to the BOS outlining the concerns of the BOF.

Ted See, Bond Counsel with Day, Berry & Howard, distributed and discussed background material regarding his firm. He stated that the Town Charter outlines the appropriation procedure and the provisions with respect to procedures for borrowing. Mr. See stated that the role of the BOF is consistent with the General Statutes. He noted that an appropriation and borrowing authorization goes to Town Meeting and requires the recommendation of the BOF. Mr. See reviewed the statement of statutory debt limitation and stated that the margin for schools is $188 million and the total margin is $311 million. He noted that what is pushing the state debt is local school construction.

Dennis Dix, Fleet Financial Advisor, stated that he understands that the Town is concerned about whether this amount of debt will effect the Town’s credit rating. He stated that Simsbury has a low level of debt at this point. Mr. Dix discussed the process for creating a marketing document when a bid for bonding is put together. He stated that disclosure is important and all information must be disclosed.

Mr. Wade questioned what impact the school project would have on the Town’s credit rating. Mr. Dix stated that the school project should not reduce the rating because the Town’s debt is at a low level and they have a lot of capacity to borrow. He noted that the school project may effect the chances for the Town to upgrade to a AAA rating. He stated that if the Town used 10 year bonds their chances of upgrading might not be effected.

Mr. Askham noted that the current capital plan is a moving target, such as the cost of the sewer plant and the schools. Mr. Dix stated that rating agencies want to see where the Town is headed and if they have a moving target it would have a negative impact. Mr. Askham questioned how they can tie down their 5-6 year capital plan. Mr. Dix stated that they should expect the first year to be relatively definite and the rating agencies understand that the six year capital plan is a wish list and will change. Ms. Fitzpatrick noted that the current six year capital plan equates to $53 million. Mr. Dix stated that it is understood that the six year capital plan is a planning tool.

Mr. Askham explained that the BOF has tried to move the debt service from 7% to 5%. He stated that since some bond issues are nearing completion the BOF determined a figure of $39 million for the high school project, which would equate to a true debt service of 10%. He questioned how this type of debt service would be viewed. Mr. Dix stated that, from an analytical standpoint, 12%-14% of debt service would be considered high. He stated that the emphasis will be on management and having a plan which explains how the Town will get where it wants to go. Mr. Dix stated that if a plan is in place the debt service could go as high as 14%, as long as there is a plan to reduce it back to 10%-9%-8%. He pointed out that if the plan keeps the Town at 14% debt service it will be viewed as a warning sign. He stated that more solidified plans look better.

Chairman Henault questioned whether the maximum term for municipal bonds is still 20 years. Mr. See stated that the maximum term continues to be 20 years and is 30 years for sewer debt, although no town is over 20 years. He noted that the Clean Water Fund financing includes a 2% grant with a 20 year limit, and this financing will effect the Town’s credit because the Town is issuing a bond to the state.

Mr. Askham questioned whether the BOF can send an appropriation proposal to Town Meeting without a recommendation. Mr. See stated that state statute requires that the BOF recommend the appropriation if they are sending it to Town Meeting. He noted that the alternative would be to change the Town Charter. Mr. See pointed out that if the BOF feels the project will have an adverse effect on the Town’s credit rating and will prevent them from doing other projects then the BOF needs to step up and say no to the project. He stated that it is the expertise of the BOF which needs to decide if the Town can afford the project. Mr. Wade questioned whether the BOF can wait to see if the taxpayers vote in favor of the project before they make their recommendation. Mr. See stated that the BOF cannot wait for the vote. Mr. Askham questioned whether, if the BOF does not recommend a project to go forward, they can say what they would recommend. Mr. See stated that the BOF can say what they would recommend and they can have an advisory question on the ballot. He noted that the Town can have a baseline question on the ballot and then additional questions for additions to the project., but the BOF would need to recommend each item.

Mr. Askham and Chairman Henault both expressed their concerns with spending funds which would restrict addressing the capital needs of the Town in the future. Mr. Askham noted that the Town has been spending 1% of reserves and now he is not inclined to spend those funds. He questioned where reserves should be kept as a percentage of the budget. Mr. Dix responded that an A rated community would have 4%-6% in reserves, an AA community would have 7%-8% in reserves and an AAA community would have 10% in reserves. He noted that ability to pay and willingness to pay are the two factors.

Chairman Henault questioned whether the BOS has to recommend the project to the BOF before the BOF begins their due diligence regarding financial impact, holding Public Hearings, and deciding whether to recommend the project. Mr. See stated that the BOS has to set the Town Meeting and he would recommend that they not do so until the BOF has reviewed the project.

Chairman Henault noted that in some towns the BOF sets the amount of the project. Mr. See pointed out that there are many dynamics which include the BOE’s educational standards and the state grant applications. Mr. Askham questioned how the parties can be brought together so that they can move forward. Mr. Belfiore noted that the parties have already met. Mr. See pointed out that the voters are one of the parties. Chairman Henault suggested that the BOF send a letter recommending what the financial capability of the Town is and what the BOF could support. Mr. Wade pointed out that the two school proposals have been done.

Chairman Henault questioned whether there have been any new high schools in the state in the last year. Mr. Dix stated that in Prospect/Beacon Falls they are building a regional high school, but it is not a comparable situation. Mr. Wade questioned whether the state reimbursement rate is expected to decrease. Mr. Dix stated that historically the reimbursement rate has decreased. He stated that there have been discussions regarding prioritization, but it hasn’t happened yet.

Mr. Holden stated that the original state application for $66 million was approved in May, 2000 and they sent their revised submission for $94 million in October, 2000. He pointed out that if the BOF says the project must be $38 million then the BOE will need to resubmit plans to the state. Mr. Holden stated that the BOE expects approval of their revised submission in April/May 2000. He noted that the reimbursement rate for the high school project is fixed at 31.43%, and renovating as new is the same rate.

Mr. Askham questioned how they can make a long term presentable plan. He noted that there will need to be serious sacrifices in order for everything to fit. Mr. Kane agreed that with all of the proposed projects it would be impossible to stay at 10% debt service. Ms. Fitzpatrick suggested that the BOF request that the First Selectman and the BOE Chairman provide an absolute 6 year plan. She noted that the BOE would need to submit 2 plans, one with a new high school and one with a renovation to the existing high school. Ms. Fitzpatrick pointed out that the sewer treatment plant will need to be included in the plan. She stated that the BOF needs to review the items which have to happen in the next six years and look at the tax impact. Mr. Dix stated that they will need to do some serious prioritizing.

Chairman Henault questioned whether anything precludes providing the tax implication to the BOE and BOS without the BOF having received the referral. Mr. See stated that the BOF can provide this information. Chairman Henault questioned whether any boards, other than the BOE, BOS and BOF, should be included in this process. Mr. See responded that these three boards are the primary players in the matter.

Mark Orenstein distributed an outline of the issues he would like to discuss regarding PC replacement. He noted that the life span of a PC is 5-7 years, and the Town needs a plan to replace 15% of the PCs each year. Mr. Orenstein recommended that replacement PCs be included in the operating budget, just like textbooks.

Mr. Askham noted that the CNR fund is available for the purchase of equipment. Chairman Henault stated that some computers were bonded and others where bonded with direct paydowns. Mr. Kane reviewed the previous bonding for technical equipment. He noted that if the Town ceases paying cash for PCs they will need to bond and this will effect the debt service percentage. Mr. Askham questioned whether there is a plan for replacement needs. Mr. Orenstein stated that they need to develop a replacement strategy.

Ms. Fitzpatrick suggested that the BOF request a realistic limited and prioritized 6 year capital improvement plan from the BOS and the BOE so they can show the tax impact to the voters. Mr. Holden pointed out that traditionally the BOE submits their capital plan to the First Selectman before a consolidated plan is forwarded to the BOF. Mr. Kane noted that the capital plan is determined with a lot of input from the individual departments. He stated that the BOS capital plan has probably not changed much.

Mr. Askham suggested that the plans be forwarded to Mr. Dix. Mr. Kane stated that he can run the numbers and forward them to Mr. Dix. Mr. Fitzpatrick pointed out that there will be no prioritization and compromise if there is no change in the six year capital plan. Chairman Henault stated that they need a capital plan that conforms with their debt service to present to the rating agency. Mr. Askham stated that the BOF needs to state their policy. Mr. Kane noted that the BOF may decide which projects will go forward after they hold Public Hearings.

Ms. Girgenti stated that the BOE will begin hearings, regarding the high school project, on November 2nd. She stated that the BOE wants to speak to the public about the proposed school construction tax implications for both the new and renovation plans. Mr. Kane stated that he calculated the tax implications for the capital cost, but not the increase in the operating budget. Mr. Wade stated that it appears the BOE wants the tax implication for the high school construction and nothing else. Ms. Fitzpatrick suggested that presenting the tax figures only for construction is misleading if they do not provide the whole picture. Mr. Wade noted that the BOE wants the marginal dollar for that project and citizens can average their yearly increases and add that to the number. Mr. Askham pointed out that they need to include the renovation of the existing building with the new high school figure. Ms. Girgenti stated that the BOE has the projected figures for renovating the existing high school into a middle school. Ms. Fitzpatrick suggested that providing the marginal numbers and the numbers for the public are necessary to understand the impact of the project. Mr. Askham noted that there will also be an impact if there is a modernization of the existing high school and they need additions to the existing schools.

Chairman Henault expressed his concern that the BOF not come across as endorsing one of the projects. Mr. Kane questioned whether the BOE has an operating budget impact. Ms. Girgenti stated that the BOE has an impact statement for both the renovation and new construction. The BOF requested that Chairman Henault work with Mr. Kane to develop the appropriate financial numbers and items which should be presented to the public.

Mr. Sawitzke distributed memos and maps regarding the purchase of the Iron Horse Boulevard parcels. He stated that on two of the sites the testing has been completed. He noted that the maps include all four phases of the project and the current plan is for Phase 1 construction only. Mr. Askham questioned whether the appraisals support the price. Mr. Sawitzke stated that the Town is paying $1 million for a prepared site which equates to a land value of $800,000. He stated that the appraisals were in the range of $980,000 - $1,100,000. Ms. Fitzpatrick questioned whether the Town will be ready to close when they receive the letter from the state regarding the remediation. Mr. Sawitzke stated that the Town will be ready to close when they receive the remediation letter. Chairman Henault requested that the remediation letter from the state be forwarded to the BOF upon receipt.

Ms. Fitzpatrick moved that the Town of Simsbury has BOF authorization to close the deal for the purchase of parcels on Iron Horse Boulevard when Mr. Sawitzke receives the letter from the State of Connecticut relieving any remediation doubts from his mid. The motion was seconded by Mr. Wade and carried unanimously.