Simsbury, CT - Board of Finance - January 16, 2007 (Special Meeting)

The Regular Meeting of the Board of Finance was called to order at 6:02 P.M. in the Main Meeting Room at the Simsbury Town Hall. The following members were present: Chairman Paul Henault, Peter Askham, Candace Fitzpatrick, Nicholas Mason, and Anita Mielert. Member Kevin North was absent. Also in attendance were Finance Director/Treasurer Kevin Kane, Town Assessor David Gardner, Deputy First Selectman Joel Mandell, Library Director Susan Bullock, Director of Planning and Development Hiram Peck and other interested parties.

Mr. Henault stated that the Town Charter requires to Board of Finance to have two public hearings, which are typically used for operating and capital budgets. However, it had been suggested at the end of last year’s budget cycle that it would be appropriate to have one earlier in the budget cycle. Mr. Henault noted that the reason the Board of Finance usually does not have public audience is that the majority of issues that the Board deals with are referred to them by either the Board of Education or the Board of Selectmen, both of which have public audience, so it is assumed that any proposals that come to the Board of Finance have already gone to public audience.

Robert Kalechman, 971 Hopmeadow Street, asked how the Board was going to ask the taxpayers to find the money to give $14 million to Ethel Walker, lower seniors’ taxes (without addressing veterans’ tax relief), fund Board of Education spending over which they have little or no control and provide seed money to apply for private grants, such as the Laura Bush Award. He wanted to know who had paid for two recent trips to China by Board of Education members and wanted to know how the Board of Education had used an $838, 000 State Education Grant. He cited the proposed purchase of the Simsbury Airport as “corporate welfare at its worst” and noted that $5,000 had been used to study if a private airport owned by the private sector should be purchased by the Town. Mr. Kalechman asked where was all this money going to come from and stated that “accepted tax increases” of 4%-4.5% that the Board usually presents to the taxpayers is not needed. Finally, he asked how many capital projects the Town had and what was their cost plus interest and what bonding company had been asked to bid on Simsbury’s 2007 bonds. He also stated that it was inappropriate to burden the younger residents and the working class with the tax offset that would result from senior tax relief.

Robert DeSmith, 29 Madison Lane, stated that he was at the meeting to answer any questions regarding the senior tax relief proposal currently before the Board and noted that portions of the proposed program are revenue neutral over time and encouraged those with any questions to read the Committee’s study which is available at the Town Hall.

Michael J. Rinaldi, 32 Pinnacle Mountain Road, stated that Board of Finance is a stabilizing factor for the Town and that the Board has been a little too generous in recent years. He felt that, since Simsbury is now the sixth highest taxed town in Connecticut, it is time for the Board to start looking at the inflation rate and set a limit for the budgets. Mr. Rinaldi stated that there is no relation between the quality of education and the dollars spent per student and that increasing the education budget does not automatically improve the quality of education. He thought that it was important for the Town to support education and tax relief, but within reason. He urged the Board of Finance to promote restraint to the Board of Selectmen and the Board of Education.

Joan Coe, 26 Whitcomb Drive, stated that Simsbury is one of the highest taxing authorities in the Valley. She said that it is time to hold the line on budgets and that there should be no more “off line budgeting” by making additions from the General Fund to “make things work”. She stated that there should be a cap on cost of living and that the Board of Finance needs to set a real cap, not a negotiated one. She felt that the school district is losing ground and throwing money at it is not making things better and that Simsbury is losing potential new home buyers to other area towns due to its high taxation.

Julie Meyer, 3 Eastview Drive, thanked the Board for offering public audience and suggested that it should be at every meeting. She asked what the impact of the Library project, the Tariffville School project, and Ethel Walker purchase would be on future capital projects. She also noted that, although she does support senior tax relief, there are many enrichment programs that have been cut from the schools and wondered how Simsbury will stay competitive and maintain its property values while other area schools move ahead.

Mr. Henault stated that the six-year capital plan that was presented to the Board last year had no capital projects slated for 2007/08 and that there were some in 2008/09 and forward. With the insertion of the Ethel Walker purchase, he thought that it was doubtful there would be any capital funded in 2007/8 absent a compelling need.

John Glover, Squadron Line Road, asked for more public audiences during the budget making process with more advance notice as to the issues at hand. He noted that anything the Board of Finance does involves money out of people’s pockets. He stated that he has been asking the Board of Selectmen for five-year budget projections and their impact on the taxpayers, but has not received a response.

Helen Peterson, 20 Long View Drive, asked Mr. Henault to enlarge on his comment regarding the six-year capital plan and how the Town has tried to prepare for the eventuality of a land preservation project such as Ethel Walker. Mr. Henault replied that the Ethel Walker project in particular was not on the six-year capital plan that was presented last year; however, when such a project presents itself, the Board must look at their ability to bond and what it does to tax increases. When the Town Referendum indicated that the project was going forward, the Board looked at the six-year plan and found that there were provisions for open space acquisition on it.

Ms. Peterson stated that in the 1990’s planning for open space acquisition involved setting money aside, but that the funding was used for other projects that came forward. She felt that the Town should always be planning for and setting aside funds for eventual land acquisition. Mr. Glover noted that priorities and pocketbook issues do change over the years.

Mr. Askham referred to Mr. Kane’s memo dated January 16, 2007 entitled “Fiscal Year 2006/07 and 2007/08 ‘OPEB’ Annual Required Contribution (ARC)” (Addendum I). He noted that the cost of medical premiums has decreased actuarially, resulting in an ARC obligation that is much lower than was originally projected. Mr. Kane stated that the $600,000 set aside in a special revenue fund will amount to approximately $625,000 with interest by the end of this fiscal year, resulting in an unfunded amount of approximately $30,000 should the trust be set up by June 30^th. Mr. Kane noted that funding is on target for the current year as well as on a budgetary basis for the next fiscal year.

Mr. Mason asked why the Board of Education piece was so much lower than the Town portion and Mr. Askham responded that it was because the expected payouts are lower as they have less retirees and the current employees are contributing a higher level of premiums, but that this number will increase farther into the future. Mr. Mason noted that the amount that will have to be budgeted in 2007/08 for this purpose will be significantly less than was originally discussed. Mr. Kane indicated that the amount will be approximately $597,000. Mr. Askham commented that clearly there will be no budget pressure this year, but that the amount is a moving target and, if medical inflation increases by only 1%, the effects are dramatic. Mr. Kane concurred.

Mr. Askham summarized that the goals at hand are to set up a trust by year-end, develop an investment policy and hire an investment advisor, have a lawyer draft an ordinance and decide on the number of trusts. Mr. Kane noted that an investment advisor, in addition to assisting the Board with investment policy, can make recommendations on indexing and how to do things correctly. Mr. Henault asked if the Board could have a draft ordinance by its next meeting and Mr. Kane thought that it would be possible.

Mr. Kane reviewed his letter dated January 18, 2007 regarding proposed 2007 bond financing (Addendum II). Mr. Mason asked if the next bond after this issue would include high school wrap-up costs and Mr. Kane replied that he thinks it may not be needed as the amount appears to be less than $100,000.

Mr. Askham asked about the Library bond and if bids had come in. Susan Bullock, Library Director, stated that there were three low bidders and that the basement portion came in right around the budgeted amount. Mr. Kane indicated that there were eleven bids ranging from $4.6 million to $5.8 million.

Mr. Askham asked, if the Ethel Walker purchase is contingent upon fund-raising by an outside party, what would happen if the fundraising goal is not achieved. Mr. Kane stated that he can not bond without a signed contract. Ms. Mielert asked when the closing date was and Mr. Kane responded that it is his understanding that it is to be on or before April 1^st, although he does not see any language to that effect in the Town Meeting notice and he is not sure what happens if the closing does not happen by April 1^st. He noted that an appropriation is good for three years under Town Charter.

Ms. Mielert asked what the original authorization was for the Simsbury High School Auditorium renovation project and Mr. Kane stated that it was $712,000, of which $230,000 has been expended to date. The project was stopped before the installation of the air conditioning when it became apparent they would be going over budget. The bonding is so that the project will be completed as far as the original appropriation allows.

Mr. Henault referred to Mr. Kane’s mill rate projection that he provided to the Board at their last meeting. The projection was based on BOS/BOE budgets increasing at a 4.5% rate, a grand list growth of 1% and resulted in a projected tax rate increase of 4.78%. Mr. Henault noted that there are a number of things driving this projection that could change. He also noted that last year’s tax increase was 1.99% and the prior year’s was 3.25%. The issues to be considered in connection with arriving at this year’s budget include school enrollment, medical cost inflation and union contracts. The Board of Education gave a presentation at the Board’s last meeting with a preliminary request for an increase of 5%-8%.

In Mr. North’s absence, Mr. Henault distributed a summary of current economic factors such the as Consumer Price Index, interest rates and unemployment rates (Addendum III) which the Board also needs to take into consideration in its deliberations. Mr. Henault noted that it appears that the grand list growth will be less than was hoped for due, in part, to re-valuation and cited the necessity of looking at the actual dollar increase vs. the percentage increase. Some unknown factors include State revenue and elderly tax relief.

Mr. Askham stated there should be a long-term goal to keep tax increases under 4% and that last year’s 1.99% rate was due to a windfall. He suspects that it will be very difficult to hold this year’s rate at 2%. Mr. Askham indicated that he favors setting a guideline for the increase in BOS/BOE budgets (both with the same percentage) and would like to see the tax increase kept to a range of 2%-3%. He asked Mr. Kane about the conveyance tax that is supposed to expire and could cause a loss of revenue of approximately $300,000. Mr. Mason stated that, even if the conveyance tax remained, lower activity could cause the revenue to decrease. Mr. Henault agreed and cited lower housing permits issued in November in all area towns. Mr. Henault also noted that the gas crisis has had an effect on revenue from auto taxes due to fewer car purchases.

Mr. Mason stated that it is difficult to keep the budgets to the inflation rate as different inflation rates exist. In reviewing the Board of Education’s preliminary request for an increase ranging from 5.6%-7.13%, he wondered if it would not make sense to break the budget up into pieces and look at higher rates of increase in areas where there is little control and set a cap or guideline on the remainder, arriving at a blended rate of 4%-4.5%. He feared cutting significant programs in the process of capping. Mr. Mason favored setting different cap rates for the Board of Selectmen and Board of Education budgets. Mr. Askham felt that the primary driving factor in the Board of Education budget is the teachers’ contract and it is hard to justify going above that contract rate.

Ms. Fitzpatrick stated that the Board of Finance’s goal is to maximize programs and services without putting an undue tax burden on the taxpayers. She said that it is disappointing that the revenues will not be as high as last year and this means that it is unlikely that there will not be as low a tax increase as last year. However, if the percentage remains in the 4% range without seriously damaging services on either side, then the long-term goal is achieved and the Board has tread the delicate balance for another year.

Ms. Mielert felt that there are currently too many moving parts to set a number and asked Mr. Kane what shape the current budget year was in at the six-month point. Mr. Kane stated that there are rate increases in energy, but the impact has not been felt as usage is down. Police overtime is up from last year; there have been several police retirements and new hires. Mr. Kane indicated that the current year budget is in favorable shape due to low energy usage and snow removal attributable to the unusually warm weather, but that costs are rising.

Ms. Mielert stated that the economic indicators give a feel for how things are, but do not provide a formula for budgeting. She noted that there is a projected 20% decrease in the school population over the next ten years, but that there are still some catch-up issues for next year relative to class size and technology issues. She felt that it was worth discussing separate percentage recommendations for each Board.

Mr. Henault recognized Joel Mandell, Deputy First Selectman. Mr. Mandell indicated that the Board of Selectmen had not completed all their budget workshops yet, but that he wanted to speak to the issue of a split cap whereby the two Boards are given different rates to adhere to. Mr. Mandell stated that he and Mr. Vincent are extremely opposed to the concept of a split cap and noted that historically there has always been good cooperation between the two Boards and asked that the Board of Finance not pit one against the other. Mr. Mandell said that he has heard references to the Ethel Walker project “penalizing” the Board of Selectmen. He does not want the Boards clashing and stated that both Boards will live with whatever the Board of Finance recommends. He noted that both Boards must deal with issues over which they have little control, such as labor and energy costs.

Mr. Askham asked what the average labor rate increases were in recent settlements and Mr. Kane replied that most were in the 3%-3.5% range, excluding step increases (which could be 2%). Mr. Kane noted that there are proposals out there for additional positions to support the land use commissions. Mr. Mandell noted that the new contracts all include a higher rate of employee contribution towards medical premiums.

Mr. Mason stated that he appreciated Mr. Mandell’s point, but was concerned about the large amount of fixed building maintenance that the Board of Education has to deal with. Mr. Mandell stated that this maintenance is something that has existed for years and nothing new to this year and felt that hard facts would need to be looked at and setting different rates would do nothing but cause conflict. Mr. Henault noted that a split rate is a topic that the Board discusses almost every year and ultimately decides not to do. Mr. Kane pointed out that the OPEB liability affects each of the Boards differently and Mr. Askham suggested that the OPEB number should be stripped out of the respective budgets and added back in at the end as was done last year.

Mr. Peck stated that the Elegant Banquets facility (now known as Riverview) is in the process of completion of plans and anticipates construction commencing in the spring. The Hoffman facility (Best Buy and three auto dealerships) is currently in the Planning process dealing with land use and coverage issues and has not yet gone to Zoning. The Dorset Crossing application has not yet been officially submitted to Planning. Mr. Askham noted that none of these projects would impact the 2007/08 budget.

Ms. Mielert noted that a spending increase does not necessarily result in the same percentage tax increase on a one-to-one basis as there are other sources of revenue to tap into. She cited last year’s spending increase of 5.6% with a tax increase of 1.99%. Mr. Henault noted that in some years it has been a 1:1 ratio and Ms. Mielert concurred that this year it will probably be a closer ratio as the grand list growth equals the Ethel Walker cost for the year. Ms. Mielert also noted that the Board of Education budget is approximately four times the size of the Board of Selectmen budget and cutting a percentage point off the Board of Selectman budget involves a far smaller number than cutting a percentage point off the Board of Education budget and a percentage point has a much greater impact on a smaller budget.

Mr. Kane displayed a spreadsheet on an overhead projector and the Board then explored the impacts on the projected mill rate of various rates of budget increases ranging from 4.25% to 7.13% and assuming different tax collection rates (98% and 98.5%) as well as varying levels of senior tax relief (the existing cost of $60,000 and potentially expanding the program to costs of $120,000 and $350,000). At Mr. Askham’s suggestion, Mr. Kane also moved the OPEB obligations to be an add-on figure after the fact similar to last year’s budget so that the OPEB number did not get overly inflated by the spreadsheet calculations. Ultimately, a 4.5% budget increase, assuming current revenue projections of $597,000, grand list growth of 1%, a tax collection rate of 98%, and $120,000 in senior tax relief, resulted in a projected tax increase of 3.06%

Mr. Kane also indicated that he had spoken with David Gardner, Town Assessor, and Mr. Gardner indicated that the grand list growth in property was essentially negated by a decline in motor vehicles. He also indicated that Mr. Gardner has already taken in two-thirds of the Billingsgate and Powder Forest construction on a prorated basis via the land values. Ms. Fitzpatrick noted that, therefore, the grand list is pretty much at a level the Board should use conservatively for budget purposes.

Mr. Henault stated that the Board of Selectman must also be comfortable with the budget numbers; they must be able to live with a given guideline and must support a certain percentage of tax increase. There would need to be compelling needs to exceed a guideline. Mr. Henault stated that he had a problem with raising the tax collection rate as it impacts potential surplus. Mr. Kane stated that the last audit report stated a collection rate of 98.65% and that the Tax Collector is indicating that last year’s collection rate was 99.32%. Ms. Fitzpatrick indicated that her concern with raising the collection rate is that the Board needs to historically remember that, perhaps the Town’s surpluses are healthy at the moment, but it is something that should be re-evaluated at every budget cycle. Mr. Askham noted that the Ethel Walker project has reduced the levels of reserves from 11% to 7.5%. Mr. Mason noted that this year could generate an additional $2 million in reserves.

Mr. Askham stated that last year was an unusual year and that, unless there was exceptional grand list growth, it would be difficult to duplicate. He indicated that he was comfortable recommending a 4.25% budget increase as that is the teacher contract rate that is driving the Board of Education budget.

Mr. Mason made a motion to set a budge increase guideline for both Boards at 4.5%. Ms. Fitzpatrick seconded the motion. Ms. Mielert commented that this year’s State session is a long one and the Board may not know the status of State revenue until well after the mill rate is set in May. Mr. Henault stated the Board has five days after the referendum in which to make a decision. Ms. Mielert stated that the 4.5% scenario spreads the pain around evenly and that 4.25% would be too strict and could cause too many cuts for the Board of Education. She thought that a 3% tax increase is not wonderful, but it is also not outrageous. The motion passed 5-0.

Mr. Henault referred to a package that he had asked Mr. Kane to prepare regarding the Town of Canton’s proposed Elderly Tax Relief program and how it compared with Simsbury’s proposal (Addendum IV) that the Board is currently considering. Mr. Kane highlighted the points of comparison for the Board, stating that Simsbury’s current program costs approximately $59,000 and Canton’s proposed program is expected to cost $35,000. At the lower end of the spectrum, Simsbury’s program gives a higher benefit than the Canton program and Canton’s program gives a higher benefit at the higher levels. The Canton program stops at $35,300, which is the State program, and Simsbury’s program stops at $40,300, which is the State program plus $5,000. Mr. Henault noted that the Town of Avon’s program is very similar to the current Simsbury program.

Mr. Henault recapped his thoughts on the current proposal. He favored better advertising of the current program in place, expanding the current program at the lower bracket, utilizing the State-mandated one-year residency requirement (vs. the 7-year requirement in the proposal), concerns that the cap could result in benefits being pulled back, concerns that the inflation adjustment did not make sense as the State periodically adjusts the income brackets, and a concern that the deferral portion of the proposal would be onerous to administer by the Town.

Mr. Askham stated that the current program already exceeds the State guidelines by one bracket and the proposal’s suggestion to go up to $65,000 is a bit much and perhaps one more bracket might be more appropriate. Mr. Askham thought that the dollar amounts should be looked at in the lower brackets (i.e., what the average taxes are at that level). He also was not sure that the dollar restrictions in the upper brackets were appropriate either and possible increases should be considered. He was not certain that the program should differentiate between married and unmarried. He felt that the deferral piece would be awkward to administer and put a burden on Town administrative staff, potentially causing a need to increase staff. He was not comfortable with the Town holding a lien on someone’s house.

Ms. Fitzpatrick stated that, although she understood the desire for the tax deferral program, she agreed with Mr. Henault and Mr. Askham and was not in favor of the deferral proposal. She felt that it is important to better reach the neediest in the lower brackets and to increase the benefits at those levels. She stated that she would support adding one income level increase to $45,300, but not to the $65,000 level. Ms. Fitzpatrick noted that the Board needs to be careful about shifting the tax burden to the younger taxpayer.

Mr. Mason stated that he had concerns about the deferral program as well. His concern regarding the current tax credit program is that the maximum credit allowed under the State program as well as the Town program is generally the number that is being hit, not the percentage ranges. Therefore, the goal of the proposal was to augment the current program by going to the higher income brackets. Mr. Mason stated that most participants fall into the middle income brackets and are hitting the $250 maximum.

Ms. Mielert stated that she likes the idea of getting rid of the distinction between married and unmarried. She was in favor of the 7-year residency requirement as the intent was to provide the benefit to the people who had lived in Town and paid taxes and now wanted to stay, not someone moving into Town to be closer to their children. She thought a credit of $250 being given at the proposed upper income levels would not be a deciding factor as to whether someone remained in Town, but would serve as a public policy that is a gesture indicating the Town’s well intent. She did not like the deferral portion at all and felt that it was cumbersome and felt that few seniors would buy into anything that undermined the value of their home.

Mr. Askham asked Mr. Gardner if he knew how many residents currently qualified under the current program, but were not taking the credit. Mr. Gardner stated that a recent AARP national study using a southern population sample indicated that the participation rate is approximately 25%-35% of those qualified and that the Committee’s report indicated that Simsbury had a higher level of participation than the national average. Mr. Henault asked Mr. Gardner to prepare a report for the Board with these figures.

Mr. Henault summarized that the Board is in agreement on removing the married/unmarried designation as far as the Town program, has some issues regarding the residency requirement and number of income brackets, is not in favor of the deferral portion of the proposed programs, and needs to determine the right amount of money to allocate to the Simsbury program. Ms. Fitzpatrick stated that she would like to know the economic cost of increasing the program by one or two brackets as well as a forecast of subscribers based on existing use plus better publicity. She is concerned that the Board has no idea as to what the program could ultimately cost. Ms. Mielert stated that, in addition to guessing at the cost, the Board is also guessing at the benefits to the Town of seniors staying in their homes and contributing to the community.

Julie Meyer asked the increase in the special education budget. Mr. Henault responded that Dr. Little had provided the Board with projections about three years ago. Ms. Meyers expressed concern over the lack of computers able to run Windows 95 at Latimer Lane School and noted that the infrastructure for schools to be able to communicate with parents is not there and that the technology upgrades being requested are not outrageous. Ms. Mielert responded that the Board does not struggle with understanding the need, but rather the various funding mechanisms to finance that need.