Simsbury, CT - Board of Finance Minutes

The Special Meeting of the Board of Finance was called to order at 6:05 P.M. in the Board of Education Conference Room at the Simsbury Town Hall. The following members were present: Chairman Paul Henault, Peter Askham, Candace Fitzpatrick, Nicholas Mason, Kevin North and Michael Wade. Also present were Finance Director Kevin Kane, Public Financial Management Managing Director June Matte, Public Financial Management Senior Managing Consultant Christine Doyle and other interested parties.

Mr. Henault introduced Ms. Matte and Ms. Doyle from PFM of Boston, MA and thanked them for coming. He asked them to introduce themselves and to assess Simsbury's Debt Policy, review cash flow, discuss the best approach to the high school project bonding and any other pertinent items.

Ms. Doyle stated that they would be serving the Town out of their Boston office along with two other consultants, Jeremy Bass and Emily Abrantes. She added that PFM has an investment advisory team in Harrisburg, PA, and they work closely with them if investment matters come up. In Harrisburg they also have people who can give advice on arbitrage rebate.

Ms. Matte stated that they are financial advisors. They don't underwrite bonds or sell mutual funds. They are not here to make decisions for the Town. They want to work with the BOF to hear its concerns and goals and to put options on the table.

Ms. Doyle stated that they wanted to discuss rating agencies and some preliminary approaches to funding the high school project. She added that they have done an initial review of the Town's Debt Policy and want to talk about the Board's goals before recommending any changes.

She continued with comments on the high school project. She noted that the project is quite large. Possibilities include financing it in pieces or all at once or also doing a BAN and then taking it out later. She noted that rates are extremely low now. She also stated that, from what they've seen, the Town could front a certain amount of the project from cash, at least for the initial design and architectural stages, and then repay itself with a later bond issue.

Ms. Matte questioned how important the rating is to the Town. Is the cost most important, or is it politically important? Ms. Fitzpatrick ventured that cost was the important issue to the Board. Ms. Matte commented on the relative ranges between the AA and AAA ratings in that there is a fairly narrow spread in rates today. She stated that CT is a very well sought after state and gets premium treatment. She added that Simsbury has a good reputation as a well-managed town, so Simsbury actually does better than the national norm for a AAA rated bond. Ms. Matte further commented that Simsbury's Debt Policy is very conservative relative to other AAA towns'.

Ms. Doyle suggested that the Town can consider getting a read on a rating from a rating agency without coming out with a rating. The Town can do an informal "shadow rating" process with them which could emphasize some of its demographic and economic advantages. She mentioned using a leverage amongst the agencies and recommended going and talking to Fitch IBCA, Inc. because Simsbury has a lot of strengths that Fitch would recognize even over the other two agencies. It would be a good strategy to go to them because Simsbury has a good shot at a AAA rating with them. This would put some pressure on the other agencies over time. Ms. Doyle reiterated that in this environment, moving to a AAA would not gain much rate advantage.

Mr. Mason questioned the idea of bonding now to lock in the low rates. Ms. Doyle stated that one of the scenarios they looked at was borrowing a portion of the project in January to take advantage of this rate environment and borrowing the balance later in the project, after having the construction bids.

Ms. Matte talked about the debt per capita compared with growth in Grand List relative to communities of the same size. Ms. Fitzpatrick stated that historically Simsbury has had a very low debt per capita ratio while also having low Grand List growth. She added that that could change depending on how the high school project is approached.

Mr. Askham asked if passing a budget would be considered important by the rating agencies. Ms. Doyle answered that it would be an important indicator and would point to strong support in the community. The rating agencies would be impressed by that.

Ms. Doyle stated that rating agencies like conservative policies to a certain extent, but at the same time they don't like policies that bind you too strongly. Ms. Matte added that rating agencies like to see flexibility.

Ms. Doyle handed out and reviewed a worksheet of debt scenarios (Addendum I). Mr. Kane suggested the possibility of shortening the second issue from 20 years to 16 depending on rates and to fit that to the debt service payments. He also stated that this year they will have to budget debt service.

Ms. Fitzpatrick suggested fixing the date when the Town can safely bond, visavis the State approval and the design bidding process, and then do it as quickly as possible to take advantage of the lower rates. Ms. Matte recommended getting the bond documents all done while waiting for the State.

Mr. Mason questioned the marketing aspect of bonding and the idea of getting better rates by going more national. Ms. Matte agreed that something this size is not going to go to the local savings bank; it's going to get a larger distribution and get as many buyers as possible. Mr. Henault asked about bidding through the internet. Ms. Matte confirmed that they bid electronically creating more competition for the bonds.

Mr. Henault suggested going with the first bond issue larger than the second to attract more lenders and take advantage of the low interest rates, maybe $25 million rather than $20 million. Ms. Matte and Ms. Doyle agreed that that would be a valid option. Mr. Kane recommended waiting till the last minute to decide whether to do one or two bond issues based on the economic indicators. But an appropriate number for debt service needs to be budgeted for the entire amount. Then if only a portion is bonded first, you can take the excess that was budgeted for and pay it into the project. That way the second bond issue will be reduced by that amount.

Mr. Henault stated that decisions need to be made soon because the BOF wants to be able to give, at the November meeting, a pretty good guideline or cap as to where the other two Boards need to go when they start the budget process. Ms. Doyle recommended doing the debt profile first which will give them a tool to layer the scenarios on top of. Mr. Kane stated that the Town may want to include smaller projects in with the high school bonding, with the high school bonded over twenty years and everything else over ten. Ms. Doyle agreed that would be more efficient since the Town will get beneficial pricing on the larger issue.

Mr. Kane agreed that layering the Town's "wish list" on top of the high school project would allow everyone to see what they can afford. Mr. Henault reminded the Board members that their debt policy goal is still 7%.

Mr. Askham suggested comparing Simsbury to other AAA towns before the November meeting to get an idea of what needs to be prepared. Something may have to be done with the Reserve Policy. He brought up the fact that the BOF does not want to use Reserves but that there is still a problem with the self-insurance fund.

Ms. Matte handed out the Fitch Special Report, "Impact of Management Practices on Municipal Credit" (Addendum II). She stated that, rather than looking at the demographics of a town, Fitch feels that the credit quality of a community is not judged by the affluence of the community but how well they manage. This report will give an idea of the types of things they look at.

Mr. Henault mentioned that he will be out of town on November 19th, the date of the next regular BOF meeting, but he would like to have the full Board at the November meeting. He stated that at that point they need a clear understanding as to what type of guidance they're going to give the other two Boards. Mr. Henault added that he would like to have PFM send the Board information for review before the November meeting. Mr. Mason recommended having a workshop meeting before the November meeting. Ms. Fitzpatrick agreed. At the workshop they could review whatever PFM sends and discuss guideline vrs. cap.

Ms. Doyle stated that PFM can send Mr. Kane some things to distribute at the workshop by the end of the week of November 4th, election week. It was decided to have a workshop on Wednesday, November 13, 2002, 6:00-7:30 P.M. and a Special Meeting on Tuesday, November 26, 2002. The Regular Meeting scheduled for November 19, 2002, will be canceled.