Simsbury, CT - January 24, 2006

The Regular meeting of the Board of Finance was called to order at 6.07 P.M. in the Conference Room D-172 at Simsbury High School. The following members were present: Chairman Paul Henault, Peter Askham, Nicholas Mason, Anita Mielert, and Kevin North. Member Candace Fitzpatrick was absent. Also present were Finance Director/Treasurer, Kevin Kane; BOE Business Manager, David Holden; School Superintendent, Dr. Diane Ullman; First Selectman Tom Vincent; Board of Education Chairman, Richard Hogan; and other interested parties.

Mr. Henault recapped the last meeting’s discussion regarding the operating budget. He indicated that a 5.6% budget increase for both boards had been discussed, which included some monies for post-employment benefit funding. Also grand list growth was assumed at 1.7% and the tax collection rate at 98.5%, which would generate a tax increase of approximately 4.25%. Mr. Henault asked Mr. Kane if he had some updated numbers for the Board

Mr. Kane referred to his two handouts “Projected Mill Rate” (Addendum I) and “Budgeted General Fund Revenues (Excluding Property Taxes) (Addendum II). The only change on the projected revenues was an increase in investment income, which is now projected at $750,000. Mr. North asked what his assumed interest rate was and Mr. Kane responded that it was 3-3.25%. Mr. Kane also indicated that he had changed the debt retirement number on the mill rate projection worksheet to include a $5 million bond issue that lessens the blow (Addendum III).

Mr. Mason noted that current debt service exceeds the 7% debt policy established by the Board and confirmed with Mr. Kane that this was attributable to the high school renovation project. Mr. Mason wondered, since the Board was trying to get the debt service on other projects (not the high school) down to 5% with the expectation that the high school would add potentially as much as 5% to made a total of 10% at some point, would it make any difference which order the process takes. He wondered if the Board was not being overly constraining in holding to a debt policy that it had already been willing to be flexible with due to the high school project.

Mr. Henault stated that the Board was willing to make the adjustment for the high school due to the size of the project, but that they still wanted to maintain a debt policy that allows for the most favorable bond ratings as possible. Property taxes are still the main source of income and no one was willing to adjust the debt service policy for any project other than the high school

Mr. North stated that things have changed and that the Board is now faced with digesting the $2.5 million funding of post-retirement benefits which is an expense that must be borne by the taxpayers and felt that the Board should focus on getting that problem taken care of before focusing on other issues.

Mr. Henault asked for feedback from the Board of Selectmen (BOS) and the Board of Education (BOE) as to where they were with their respective budgets in light of the previous meeting’s discussions. Mr. Vincent indicated that he had gotten budgets in from the department heads and will be working to get those numbers down within the next five days. He indicated that, although they are still running above 5.6% (having started at 7.1%), they are getting closer to it and believe they will be able to live with the 5.6% number.

Mr. Hogan stated that it was going to be very difficult to get to 5.6% and that they are in the process of working through the budget and that there was another budget meeting this evening at 7:00 PM. He thought that, after informal discussions with other BOE members and the administration, they can get to 5.6% and will be able to accomplish some of the things that they want to accomplish, although not all. Dr. Ullman stated that they see many of the projects that they are currently working on as being multi-year and will take on the piece that can fit into their budget next year knowing that there are future years for them to keep pursuing those same goals.

Mr. Askham asked Mr. Holden to quantify the extraordinary items that have been discussed at previous meetings that are unique to this year’s budget. Mr. Holden stated that fuel oil, electricity, pension and health insurance were expected to increase their operating budget by 2.58%. Also the 4% teachers contract results in a 2% overall budget increase, so these combined items alone would account for an increase of over 4.5%. Dr. Ullman indicated that the 5.6% includes no new staff and that any new staff would be from re-organizing internally. Mr. Askham noted that the staff has increased over last year and Dr. Ullman indicated that they had given up some things to make that happen and Mr. Holden stated that they had also eliminated some certified staff last year and added non-certified staff and delayed start times until January 1^st.

Mr. Henault asked if the square footage in the new high school addition was being fully utilized and Mr. Holden stated that it was. Mr. Holden stated that at the start of the project, based on an assumption of 25,000 square feet per custodian, the new 100,000 feet would require four custodians, but that they have only added two. Their budget projections going forward assume the purchase of additional equipment to make the existing staff more efficient rather than adding more personnel and, in doing so, have also assumed that $635,000 will be available to them in the Capital Nonrecurring Fund. Mr. Holden indicated that they must continue their program of replacing school buses, as well as technology that must be replaced as it is currently operating on the old Windows 95 and 98 platforms and can not be sustained. Further, a $15,000 chariot floor machine will make a custodian able to do the work of three men.

Mr. Askham asked how much had to be put into the fund to bring it up to this desired level and Mr. Kane stated that it would require approximately $500,000. Mr. Askham asked what would be required procedurally to make this happen and Mr. Kane responded that it could go to a Town Meeting to be transferred. Under the 1% rule, it could also be done by a motion to transfer out of reserves, which would be the simpler route.

Mr. Henault asked Mr. Kane if he had any new numbers with respect to grand list growth and Mr. Kane responded that, after speaking with the Assessor today, his conservative number is currently $1.179 billion, which represents approximately a 2.25% increase over last year (vs. the 1.8% rate discussed at the last meeting). Mr. Henault noted that this would mean a 3.41% mill rate increase within the parameters discussed at the last meeting.

Mr. Henault asked the BOE and BOS if they preferred a guideline or a spending limit. Mr. Hogan responded that they would like a guideline as they felt they were comfortable with the rate they had been given and that a guideline was less confrontational and more collaborative. Mr. Vincent agreed.

Mr. Henault asked the BOF members how they felt about a 3.41%-3.69% mill tax increase range. Mr. Mason stated that he was not happy with that and would prefer setting the BOE with a higher number and the BOS with a lower number. He wanted the vote to be split for the two budgets and did not want to do them together.

Mr. Askham’s concern was there might be a false sense that there was “plenty of money around” in view of the OPEB benefits obligation and noted that the $600,000 is just a phase-in and not the totality. He stated that he was comfortable with a guideline of 5.6%.

Mr. North stated that he agreed with Mr. Askham and that it was important to remember that the GASB amount was a recurring number and that, without a phase in, taking on the full number would result in a much larger tax increase. He stated that it should not be assumed that it will be easy going because of what appears to be a favorable tax rate due to the favorable grand list growth and collections rates. He continued to be in favor of a cap and was comfortable with a cap at 5.6%.

Ms. Mielert stated that splitting apart the percentages of the BOE and BOS should be discussed. She felt that certainly the BOE has suffered the effects of far more federal and state mandates. She is thrilled that the proposed mill rate increase is as low as it is. She wondered if they should not move the tax collection rate back to 98% and save the .5% for GASB as, in changing the tax collection rate, they would be giving away the surplus. Since the net grand list growth was so favorable compared with recent years and the proposed mill rate increase was under 4%, as she had previously stated she wanted, perhaps a good healthy GASB reserve could be accomplished as well.

Mr. Askham noted that surplus is used to benefit capital projects in the Town. He also noted that, although the current collection rate is currently over 98%, it as also been under 98% as well and if there is any sort of down turn in the economy, the collection rate will be one of the first things impacted. He stated that it is easy to raise the rate, but harder to reduce the rate. He also reiterated that there are several more years to digest the OPEB obligation.

Mr. North felt that perhaps the Board may be confusing the $600,000 with the appropriate management of surplus. While he would never want to overtax, he did not think it was irresponsible to grow reserves in proportion to the operating budget because those reserves are an integral part of the calculation of the Town’s bond rating. If the collection rate is increased to a level that does not allow surplus to grow in proportion to the operating budget, it will eventually fall below a threshold that the bond rating agencies find acceptable. As long as surplus stays within 8%-10% of the total town budget and there are capital expenditure needs that can be met from reserves, he was comfortable with a 98% collection rate.

Ms. Mielert stated that she did not disagree with Mr. North, but that she was just trying to find a way to make the transition into the GASB obligation smoother for the taxpayer. She thought that perhaps using the $600,000 and 98.5% collection rate might be making it too easy on them and that using $600,000 and a 98% collection rate would be better this year and then 98.5% and $1.2 million next year might even out the steps and give some flexibility.

Mr. North stated that between the last meeting and this meeting he has heard three uses of surplus that have been discussed: a contribution towards the library project, a contribution towards the Central School roof, and a contribution to CNR. He would not be surprised if those three items took the surplus down to 8%. Mr. Askham wanted to know what last year’s tax increase was and Mr. Kane responded that it was $3.5%.

Mr. Henault stated that there would be an upcoming Public Hearing on the six-year capital plan on March 14^th. He noted that the discussion this evening needed to focus on the whole plan and how it fits into debt policy. He pointed out that the Audit Report mentioned that the Town was currently above the Board of Finance debt policy of 7%. He also pointed out, however, that other towns are above that rate and the statutory limit for the Town is $442 million. He asked both the BOE and BOS to discuss their capital plans.

Mr.Hogan stated that the BOE and BOS met jointly a few weeks ago to try to get both boards on the same page with respect to capital projects. One project of concern is the renovation of Tariffville School, which if brought forth at the same time as the library project would exceed the 7% debt policy. At the joint meeting, the BOS asked the BOE to inquire how the BOF would regard the Tariffville School project, given recent changes in the law. Under prior law, public school projects would be brought to the State Department of Education for approval by the General Assembly and then go to the Town and get permission to proceed. However, the law changed and turned this process around. Now, the first thing that must be done is to get local approval and then go to the State General Assembly. For the Tariffville School project, they are hoping to get local approval in May 2006, which would mean that the project would go before the General Assembly in May/June 2007. If the Tariffville project were to not be approved by the Town this year, then the project would not get completed until 2009/2010.

Mr. Hogan pointed out that Tarriffville School is the only school that has not been renovated. There is a great need for the school to be added to, renovated and modernized. Their proposed plan for $6.2 million includes replacing the modular classrooms (which were installed in 1984), adding one regular classroom, special education and tutorial space, adding boys’ and girls’ bathrooms, enclosing the courtyard, renovating and expanding the main office and the nurse’s office, replacing the windows and ventilation and adding a new sprinkler system and making code corrections. Since 1984, the only renovation that has been done to the school is a roof replacement. The kindergarten has been displaced for the last three years due to inadequate space.

The BOE met with the Tariffville community in Spring 2005 and approximately 125 parents expressed very strong support of the school and were very much in favor of the proposed renovations. The BOE has also met with BOS to discuss the need and change in State law. Finally, the BOE has been working on language that would be used to vote on this project so as to clarify to the community that the tax effect of the project would not be realized in the same year as the library project. He stated that they did not want the perception that these two projects are competing with each other. The BOE, from an educational side, sees the library project as being hugely beneficial to students and our town.

Mr. Askham asked, if the project were to be approved and goes to the State, is there any possibility that the State could approve the project earlier. Mr. Hogan stated that it must be approved by Special Act which would be introduced in January 2007 and would typically not be acted on until the last week of the General Assembly session, which would be in June 2007.

Mr. Mason asked if the increase from $4 million in cost from last year’s capital plan to $6.2 million this year was due to the cost escalation factor and Mr. Holden responded that it was due to the State mandating full sprinkler suppression in any moderate to significant renovation of a school facility.

Mr. Henault asked what the impact of pushing all the projects back one year would be. Mr. Holden responded that the new state law would impact those as well. They have put them in the year that they are requesting the funding, but then you must go two years out from that in terms of the actual construction occurring.

Mr. North noted that there is a huge lump that occurs in the first three years of the proposed bonding over the next years and then it drops very significantly over the outer years. He wondered if there might be an opportunity to move some of the projects around so that the bonding level remains more constant as opposed to such front ending. Mr. Holden responded that they will take guidance from the BOF and work cooperatively to manage the timing.

Mr. Kane noted that nothing in the six-year plan fits within the 7% debt policy. He stated that in his projection for the library project, he worked with a 15-year bond rate and he could do the same for the Tariffville project if the Board wanted him to or they might want to consider using some of the reserve.

Ms. Mielert stated that Tariffville is a wonderful school and she does not think it has seen any renovations since her 30-year-old son was in sixth grade. She was pleased to hear that the BOE was pursuing a renovation project there and hoped that, in doing so, would honor the historic character of the building. She also noted that the modular classrooms that were installed in 1984 are ironically the better classrooms. Ms. Mielert felt that this project is desperately needed and that the Town is currently suffering from pent up demand because money was not spent in the days before the high school project. She felt the Tariffville project as well as the library project should have been funded before the high school project was funded. She said that it is as much a mistake to spend too little money as it is to spend too much money and thought it was about time that both the Tarriffville project and the library project got funded.

Mr. Henault asked Mr. Vincent if he had a hand-out that addressed the changes in the BOS six-year plan that Mr. Kane had referred to and Mr. Kane responded that the Selectman is still compiling departmental information and the BOS has not yet received this information.

Mr. Mason observed that, in Mr. Kane’s projections using last year’s numbers, even in the worse year there was a only a $900,000 difference in the amount of debt being discussed and that that was not a huge amount. Mr. Henault noted that these numbers were assuming a fifteen-year bond and that another way to keep the number down is by using surplus. He stated that he had an aversion to going beyond a ten-year bond.

Mr. Henault asked if there were estimates relative to maintenance or staffing increases that would result from increased library square footage such as were done for the high school project. He indicated to Mr. Vincent that such a projection would be helpful for the Board to have when it came time to make a decision.

Mr. Askham asked if the projections included the matching state grant or the funds being raised by the Friends of the Library. Mr. Kane indicated that he has not seen the scope of the project, but would suggest using the whole $6.6 million figure and that the language needs to be very tight as to exactly what funds are being obtained from finance and reserves and that the difference will come from grants and donations. There has to be an appropriation for the entire scope of the work and that it should be forwarded to the Bond Council soon.

Mr. Hogan asked the Board to provide guidance as to how both projects will fit into the 7% debt policy guideline. Mr. Vincent agreed that the BOS also needs similar guidance as they do not want to jeopardize the library project, but know that the BOE also has a need. Mr. Hogan felt that the library would have to take precedence, but wondered if both projects as stated would be within the guidelines. Mr. Kane indicated that the problem is not in Year 1, but in following years. Mr. Henault suggested that the Board has flexibility relative to reserves and the concern should be with the 2007/08 year and any unknowns, such as land purchases, that might come up. Even if one of the projects were to be dropped, there would still be a huge number if a request came in for land purchases. He stated that, if the priorities are the library and Tariffville School, then perhaps they should look more closely at some of the other projects that are on the plan and evaluate the need.

Ms. Mielert asked if the outer year projections were based only on today’s budget and Mr. Kane responded that the projections used a 4.25% per year gross up factor. Ms. Mielert recalled the day when a 12% debt rate was being struggled with and when 7% was a goal, not a cap or a guideline. She did not see how you avoid building a library or fixing a grade school when it is desperately needed and that there is a moral obligation for government to provide services to the people.

Mr. North stated that there are needs and luxuries and that the two projects are needs. He thought that there might be some other projects that could be delayed or eliminated at some point. He felt that the Board should make both projects go forward using the proposed bonding term, but he was not comfortable with the use of reserves. He stated that he had already heard of three projects that were going to use $500,000 of reserves. He said he would like to understand the Memorial Park improvements given the prior discussions with the Recreation Director relative to the surplus of pools in Town.

Mr. Mason stated that he was concerned about future surprises as they are going to happen. He felt that the Board was going to see a full range of wants and needs. He stated that he was encouraged by the reasonable bonding levels and the debt rate was over the limit right now due to the high school project and it will continue to be and he is not concerned with that. He agreed with Ms. Mielert that the order in which the projects come online is immaterial and that the Board is now facing a backlog of projects that should have been done several years ago.

Mr. Henault indicated that he was hesitant to take a motion this evening to accept both schedules as they are not complete. He stated that the Board’s guideline to both boards with respect to the library and Tariffville would be to proceed and take a look at the other two projects (computer upgrades and Memorial Park) and make some decisions on them as to whether they are absolute priorities or could be delayed.

Mr. Mason stated that it was the role of the BOS and BOE to set priorities and it is her observation that the 7% policy guideline has been exceeded, but not by a significant amount and he would not want them to come back with projects removed just for the sole purpose of achieving a 7% debt compliance, but rather come back to the Board and make the case for the projects that they feel are important and the Board of Finance will then make a decision.

Mr. Kane noted that historically the Board of Selectmen has been asked to delay or remove more projects than has the Board of Education. Mr. Askham agreed that for decades much of the capital has been focused on BOE projects and that it is now time to prioritize capital back to the Town side. Mr. Henault summarized that in the years beyond 2006/07 both boards should assume that the Board of Finance has a debt policy of 7%, but if there are compelling needs which require exceeding that level, then they should come back to the BOF and tell them why. In the absence of that compelling need, his advice would be to use the 7% policy for determining what funds would be available. The other Board members agreed.

Mr. Mason made a motion to correct the minutes to say that the motion passed 5-1. Mr. Henault suggested that the Open Action Items be removed as being part of the minutes and be something that the Chairman maintains that can be reviewed upon request. The Secretary was requested to remove all Items except Item #1.

Mr. Henault noted that there was a request for a transfer of reserves in connection with a supplemental appropriation to replace the slate roof at Central School (Addendum IV). Mr. Hogan explained that $200,000 had been appropriated for the roof replacement at a Town Meeting in May. The appropriation of $ 146,006 was based on a professional construction cost estimate. Plans and specifications were prepared, reviewed and approved by the State Department of Education and the Public Building Committee. The project was put out to bid and the bids were opened on May 31, 2005 and they ranged from a low of $213,312 to $252,767. Because the bids exceeded the appropriation, the project was deferred until summer 2006. They have received new cost estimates of $265,045 and are requesting a supplemental appropriation of $125,000 from Town reserves under Charter section 908(c). The BOE unanimously adopted this proposal in January and the BOS in turn adopted it at last night’s meeting and forwarded it on to the Board of Finance for approval.

Mr. Mason expressed surprise with the new cost estimate since it was from the same contractor. Mr. Holden attributed the increase to be a function of the cost of materials and the loss of contractors who traditionally would have bid on the project. The goal is to put the project out for bid in February.

Mr. Kane reviewed his “Financial Performance Report – Six Months Ended December 31, 2005” (Addendum V) with the Board. He noted that the BOS budget was expended 51% for the first six months vs. 52% in the prior fiscal year. He saw nothing alarming in the statements. He noted the Meadowood legal expenditures were lower than last year and that police overtime was tracking very well. The snow removal overtime is higher than last year.

Mr. Henault commented on a previous memo from the Water Pollution Control Authority regarding electricity and asked how they were planning on addressing that expenditure in the current budget. Mr. Kane stated that they may be looking to have the budget amended and will want to come before the BOF in February with a proposed budget.

Mr. Mason stated that he was bothered that only the expense side was being looked at in these periodic reports and asked if there was any way a complete income statement could be provided. Mr. Kane indicated that he could coordinate it with his staff so that income is recorded within a certain time period.

Mr. Askham asked if Mr. Kane was still using a bond advisor and Mr. Kane stated that he was. Mr. Askham asked what strategy was being used and Mr. Kane responded that it would be a 9 year 10 month bond that would go out for competitive bid with an April 1^st bond issue.