Simsbury, CT - November 21, 2006

The Regular Meeting of the Board of Finance was called to order at 6:33 P.M. in Conference Room D-172 at Simsbury High School. The following members were present: Chairman Paul Henault, Peter Askham, Candace Fitzpatrick, Nicholas Mason, Anita Mielert and Kevin North. Also in attendance were Finance Director/Treasurer Kevin Kane, Board of Education Business Manager David Holden, Town Engineer Richard Sawitzke, Police Chief Peter Ingvertsen and other interested parties.

Mr. Holden reviewed his first quarter budget analysis (Addendum I) with the Board. He stated that the state and federal grant revenues are on target with projections. He noted that there are three more tuition-paying students than were originally projected, resulting in tuition revenues being approximately $31,000 higher. He highlighted six expenditure accounts that are in variance with projections, resulting in a projected surplus of $18,836. Mr. Holden also provided a staffing variance analysis.

Mr. Askham asked what the current enrollment is and Mr. Holden replied that it is currently 4,957 students. Mr. Henault asked about fuel oil cost projections and Mr. Holden indicated that they had locked in a rate of $2.23 per gallon and are attempting to lock in next year as soon as possible and that they still expected an increase of 8% over last year. Mr. Henault asked about the increase in clerical and paraprofessional staffing and Mr. Holden stated that the certified additions of three math and resource specialists were budgeted and the increase in predominantly paraprofessionals were all funded by special services grants to meet the needs of one-on-one special education paraprofessionals per their Individual Education Plan and none were funded out of the operating budget.

Mr. Kane reviewed his Financial Performance Report (Addendum II) with the Board, noting that the Board of Selectmen operating budget and Special Revenue Fund budgets were all performing comparable to last year at this time. He projected a surplus of approximately $1.2 million at this point, resulting primarily from projections of interest income using current interest rates. Mr. Mason noted that these are projections, not actual financial results, and Mr. Kane replied that revenues always lag this time of year and that property tax revenue is not really known until after the January property tax collection. Mr. Mason stated that he would like to see an income statement on a regular basis. Mr. Kane stated that financials are not prepared and closed to a fund balance on a quarterly basis.

Mr. Henault referred to an Infrastructure Program Application that had been received by the Board of Selectmen from Fiddlers, LLC for the Fiddler’s Green renovation project (Addendum III). Mr. Sawitzke reviewed the project specifics with the Board, indicating that the pre-project assessment of the property was $718,000 and increased to $2.4 million after project completion. He indicated that he had evaluated the eligible items at the request of the Board of Selectmen and had determined that all were appropriate and totaled $75,423.26.

Ms. Mielert asked if there were any rules and regulations that govern the use of this fund. Mr. Sawitzke indicated that the bond language is silent on specific caps and does not speak to ratios, although he usually presents an increase in assessed value to the Board of Selectmen for their consideration as well as work created estimates. Ms. Mielert stated that she would not expect those guidelines to be coming from the bond language, but would expect the Board of Selectmen to create a set of rules and regulations. Mr. Henault noted that the Board of Selectmen has chosen not to act on setting rules and regulations, but that all applications that come before the Board of Selectmen are first reviewed with the Board of Finance and the Planning Commission prior to their acceptance. Ms. Sawitzke indicated that the Fiddler’s project was concurrently referred to Planning.

Mr. Askham noted that approximately $317,000 of these allocated funds has already been spent on four other projects. Ms. Mielert stated that these projects were approved prior to her being on the Board of Finance and asked for the specifics. Mr. Sawitzke stated that the four projects were Apollo’s, Holloway’s, the Maple Tree Café and the Performing Arts Center road access infrastructure. Mr. Mason asked if an application would have been received prior to the expenditures being made and Mr. Sawitzke replied that the program is set up as a reimbursement fund and, therefore, there is no pre-approval process. Mr. Mason asked when the Town was first given notice that a reimbursement request would be made and Mr. Sawitzke indicated that it was in July 2006.

Mr. Mason noted that, per the January 20, 2004 Board of Finance minutes, the Board of Finance had asked that the Town put in place procedures for the use of this fund, but this has never happened. Mr. Henault stated that he had spoken with the First Selectman regarding this issue and that he felt that individual requests coming before multiple boards for approval and being reviewed by Town staff are sufficient. Mr. Henault also stated that it is not the intent of the Board of Finance to micromanage either the Board of Education or the Board of Selectmen and that Board of Finance members each have the opportunity to vote “yea” or “nay” on individual projects as they come up. Ms. Fitzpatrick stated that, in the interest of economic development, she is pleased that four businesses have taken advantage of this program and that the prior submissions (in which the Board asked for more detail) were not as complete as the application currently before the Board. Also, it is clear that the Board of Finance has made a request to the Board of Selectmen that they have chosen not to act on and that is their prerogative.

Chief Ingvertsen made a presentation to the Board regarding damage that was sustained in the center of Simsbury in July 2006 due to a “microburst” weather pattern, which resulted in the base station at Central School suffering a direct lightning hit which traveled back to Police Headquarters, destroying their channel control cards. The repeater system and one control card could not be repaired and the overall cost to bring emergency communications back to normal was $9,424. As the Police Dept. budget has no contingency fund and the Town’s insurance policy has a $10,000 deductible, Chief Ingvertsen was requesting an emergency appropriation of $9,424.

Mr. Henault welcomed the members of the committee that was appointed by the Board of Selectmen to review senior tax relief, stated that they had donated much time and done much research, and that the report submitted (Addendum IV) was quite comprehensive, although the Board might have questions at a later date. Mr. Henault indicated that no action would be taken by the Board at this meeting, but ultimately the Board could make one of three responses: accept the report, reject the report (take no action) or forward an amended report to the Board of Selectmen.

Bob DeSmith, Chairman of the Senior Tax Relief Committee, introduced the other members of his committee and gave the Board an overview of the committee’s report. Mr. DeSmith stated that there is currently a mandated tax relief program in place whose costs are reimbursed to the Town by the State, called the “Circuit Breaker Program”. Further, the Connecticut General Statutes identify several optional program approaches: a tax credit program, a tax deferral program, revaluation and a tax freeze program for residents age 70 or older. The two latter programs were not considered by the Committee.

Mr. DeSmith stated that, in arriving at its recommendations, the Committee was cognizant of cost transfers to other taxpayers in the Town and believed that the proposed plan has a modest impact in this area. Also, the Committee had to consider the Town’s total liability today as well as in the future, such as the effects of the aging “baby boomer” population on the tax base. The Committee also took into account the soft numbers that result from statistical data and aimed for a program that had been “tested” by other towns and was not onerous to administer.

The Committee surveyed 23 towns and found that 8 used a tax credit & deferral program, 6 used a tax credit only plan, 4 used a tax deferral only program and 5 used mixes of reassessment, tax freeze and tax deferral programs. The Committee felt that the Town of Old Lyme most closely resembled the proposal being made for Simsbury; although a smaller community than Simsbury, Old Lyme has more seniors.

Under the Connecticut General Statutes, the towns are given the authority to structure optional programs based on certain criteria, such as age restrictions, minimum residency requirements and limits on the percentage of tax relief that can be offered. As there is a 34% projected increase in the senior population by the year 2020, the Committee also saw the need for a cap as to the Town’s total liability. Mr. DeSmith stated that the prevailing thought is that keeping seniors in their homes reduces the educational costs to a community, although it is not possible to quantify that cost benefit. He also noted that the Town is anticipating a projected reduction in student population, which could, in turn, reduce the education budget.

Mr. DeSmith reviewed the benefits that are currently available to seniors under the Circuit Breaker Program and the proposed additions to those tax credits as well as a proposed tax deferral structure that involves a lien being placed on a property. Relative to limiting the Town’s liability, the proposal sets a limit of ½ of 1% of the prior year’s tax assessment. Finally, Mr. DeSmith stated that, in order to keep the transference of tax costs minimal and in order to provide any more relief, the State must ultimately support the educational burden to a greater extent than it currently does.

Ms. Fitzpatrick asked what would happen in the event that the participation level hit the Town’s liability cap, i.e., how would applicants then be processed. Mr. DeSmith stated that the benefit would be pro-rated, based on the most needy. Ms. Fitzpatrick asked how many households currently were eligible for the Circuit Breaker Program and how many partook of it. Mr. DeSmith stated that currently 104 participate and that it is unknown how many would be eligible, but if national statistics were extrapolated, approximately 300 households might be eligible. Ms. Fitzpatrick asked how the annual income level adjustment would be made administratively, namely would a new ordinance be required. Mr. DeSmith indicated that it would be based on the Social Security Index. Ms. Fitzpatrick asked if the proposed program would replace the existing program and Mr. DeSmith stated that it would. Ms. Fitzpatrick stated that she would like to see an analysis of households that fall into each income category and their corresponding tax bills so as to determine the largest exposure for the Town.

Ms. Mielert asked how the 18% interest rate mandated by the State for tax arrearages could be changed to 6% in the tax deferral program. Colleen O’Connor, Tax Collector, stated that the program assumes that taxes are paid at the time of deferral and that deferred taxes would not be considered in arrears. Ms. Mielert asked if there could feasibly be a scenario where the interest and deferred tax amount could exceed the value of the home and, therefore, pose a loss to the Town. Mr. DeSmith indicated that it would be unlikely as the interest proposed is simple interest and not compounded. Mr. Henault noted that the proposed tax deferral/credit per year could not exceed 75% of the normal tax that otherwise would have been imposed.

Mr. North asked, of the other towns surveyed, how many had programs above and beyond the Circuit Breaker Program. Mr. DeSmith replied that Assessor’s offices in other towns were contacted to see what they were doing and that they tried to focus on towns that were similar to Simsbury. Mr. North asked how the $65,000 income level was arrived at as an upper limit and Mr. DeSmith replied that it was basically a “feel” on the part of the Committee as to how many seniors in Town at that income level are having difficulty paying their taxes. He also noted that other towns go up $95,000 for tax deferral programs. Mr. North clarified with Mr. DeSmith that the Circuit Breaker tax credits currently provided by the State are in addition to the tax credits currently provided by the Town of Simsbury. Mr. North stated that he had questions similar to Ms. Mielert’s relative to the amount of tax deferral in relation to the value of a property and inquired how potential lenders might react to this program in connection with mortgage refinancing. Committee members, as well as Ms. O’Connor, agreed that mortgage lenders most likely would not like the lien factor. However, Mr. DeSmith indicated that, although most deferral plans only have a 5% success rate, the Committee still felt it was a necessary part of the program to offer it as an option. Mr. North asked about the Committee’s assertion that the impact of the program would result in a “$45 per account” impact, i.e., that $45 would be born by each taxpayer supporting the program. Mr. DeSmith responded that the $45 was an average. Mr. Henault pointed out that it would not be a flat rate, but rather would have a .18% impact on each taxpayer’s assessment.

Mr. Askham asked about what current benefits are available to seniors now. David Gardner, Town Assessor, stated that since 1990 Simsbury has had a tax credit program that piggybacks on the State program. The Town program takes the tax amount that is left after the State tax credit and applies the same credit against the balance. The Town uses the same income brackets and raised the highest income limitation in the State brackets by $5,000. Mr. Gardner indicated that, every time the State adjusts the income brackets, limitations and credits, the Town criteria are, in turn, adjusted.

Mr. Askham stated that he suspected that there would be numerous legal implications involved with the deferral program and that he was not comfortable with the lien aspect. He also felt that Old Lyme was not really comparable to Simsbury as there are some property value disparities that create some strange tax situations. Mr. Askham also asked about the $65,000 income level and Mr. DeSmith replied that it was an arbitrary number that was arrived at in an attempt to capture the level at which taxes are difficult to pay. Mr. Askham stated that he was concerned about future demographics and the overall cap; he did not want to be shifting an undue tax burden to his children. Norris Christensen, Committee member, stated that a cap is in the proposal to prevent such a tax shift and that the State limits such a shift to 10% and the proposed plan’s tax shift is ½ of 1%, making it relatively insignificant.

Mr. Askham asked about the plan using a 7-year minimum residency requirement and if that was in conflict with the State’s one-year minimum residency requirement. Mr. DeSmith stated that the Town Attorney thought that it was acceptable to make it 7 years and that the intent was to give benefits to seniors who have lived in Town and not provoke an influx of seniors seeking tax relief. Mr. Askham stated his concern that this restriction had not been tested in the courts. Guy McDonough, Committee member, stated that there is no restrictive language and that one year is not a requirement. Mr. Askham asked if this program could feasibly impact the Board of Education’s study that is done relative to housing turnover and school enrollment. Mr. North stated that he had read a draft of the new enrollment study and that the consultant took into account the age-restricted communities in Town and felt they would result in a marginal increase in enrollment. The study also considered the effects of a potential full build out of the Ethel Walker property (which now will not happen) and the proposed Meadowood project and still projected an enrollment decline.

Mr. Henault asked, from a public policy standpoint, what is the need for this program, given that there is already the Circuit Breaker Program in place. Mr. DeSmith responded that the existing program is inadequate for the rising property tax rates in Simsbury and that residents with income of $65,000 and under are having extreme difficulty in paying those rising property taxes and are, subsequently, choosing to move out. Mr. Henault stated that someone making $50,000 and owns a home in Simsbury would certainly be facing the same challenges, and, therefore, thought a better solution might be to stem the rising increase in the mill rate for all taxpayers, not just seniors. He noted that the Board of Finance has been continually trying to keep the annual increases down (last year’s being 1.99% and the prior year’s being approximately 2.3%) and that the average of 4.5% cited by the Committee was due to two years that the rate reached a high of 7%. Mr. Henault noted that there also was some potential for abuse of the program in an instance where a divorced child with children moves back into the parents’ home.

Mr. Henault also asked what the rationale was in creating a whole new statute vs. amending the program that is currently in place. Mr. DeSmith responded that the Circuit Breaker income levels are very low and their input from seniors indicates that it is inadequate. Mr. Henault asked if the Committee had any statistics on the program currently in place for veterans and if it would be concurrent with the proposed program. Mr. DeSmith stated that the Committee did not gather those statistics, but confirmed that the programs would be concurrent.

Mr. Askham stated that several members and Town staff attended a seminar on November 15^th regarding OPEB. Mr. Kane indicated that he was hoping to engage Bruce Barth to assist in structuring the trust document that needs to be set up. He noted that the next step would be to bring Mr. Barth and the actuaries in for a Special Board of Selectmen Meeting with Board of Finance members in attendance so as to accomplish a “meeting of the minds”. Mr. Barth had also suggested that the Board of Finance take interim control of the trust in its initial phase.

Mr. Askham agreed that a meeting would be a good way to clear the air relative to concerns around setting up the trust. Mr. Henault confirmed with Mr. Kane that it is his suggestion that it is important to hire a consultant to draft the trust document and tackle any problems. Mr. Kane stated that, when a trust is set up, there will be new assumptions relative to required contributions than if the funds are in a reserve; basically, you set up a trust to negate what you have to set aside. Mr. Mason stated that the presentation covered new material, one key area being that the health liabilities are different from pension liabilities. Also, it was clarified that, if all liabilities were to disappear and assets remain, the language in the trust document can make the assets revert to the Town.

Mr. Kane reiterated that it is important to have all Board of Selectmen members in attendance, as well as some Board of Finance members at a meeting. Mr. Mason suggested that it would also be advisable to include some Board of Education members as well. Mr. Kane stated that a new valuation is needed. Mr. Askham asked what this would cost and Mr. Kane said he thought the cost could be as high as $50,000. Mr. North asked if these costs could be funded by the amount set aside last year. Mr. Kane stated that, as they are currently reserves, it would be an option if that is what the Board wants to do. Mr. Henault asked how the Board should be interacting with the Pension Committee. Mr. Kane stated that right now everything rests with the Board of Selectmen, who should defer the responsibility to the Board of Finance and then ultimately transfer management to an advisory committee.

Mr. Mason stated that, due to the level of investment being relatively low, it makes a lot of sense to go with a low cost type of account, such as low cost index funds, so the fees do not negate the income. This means that initially things will not be as complicated as they are with the Pension Committee. Mr. Askham stated that the trust will most likely be set up and funded in 2007 and then it would be necessary to engage the actuary for another study as to required funding so that the Board could have an updated number for budgetary purposes, as it is now appearing that the number will be lower than was originally anticipated. Mr. Henault stated that he would like to know the anticipated actuarial costs before making any motions and asked Mr. Kane to obtain an estimate from the actuaries. Ms. Fitzpatrick encouraged Mr. Kane to promote a joint meeting with the boards and the actuaries.

Ms. Mielert stated her concerns relative to two Power Point presentations that were given prior to the referendum regarding the Ethel Walker acquisition. She felt that it was inappropriate that the Board members were not allowed to review the presentations before the actual meeting and that there had been a significant error in the presentation given at the Special Town Meeting that became a rallying point for those concerned with the tax impact. Mr. Henault responded that he did not agree that the figures were in error and that they were arrived at with Mr. Kane’s assistance. Mr. Kane concurred that the numbers were his calculations and were based on facts at hand.

Mr. Henault also took exception to the statement that the Board members were not “allowed” to see the presentations or that they were being calculated during the last Board of Finance meeting. He said that he stated at the Town Meeting that the assumptions were his and that this is the same approach that has been used at all past Town Meetings and is the same approach as was used by the prior Chairman. He stated that the last minute nature of the presentation was due, in part, to the last minute scheduling of the Town Meeting itself as well as a last minute request from the Town Moderator to reduce his total presentation time to 15 minutes.