Simsbury, CT - Board of Finance

The Regular Meeting of the Board of Finance was called to order at 6:00 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, Town Assessor David Gardner, Board of Education Business Manager David Holden, School Superintendent, Dr. Diane Ullman and other interested parties.

Mr. Henault recognized Bruce Barth, representative of Robinson & Cole, who gave an overview of drafts of a proposed ordinance amendment and a proposed trust document for a Town Retiree Health Care Trust. Mr. Barth explained that the Trust was designed to meet all the GASB 45 requirements to create a funded vehicle so that the Town can use the higher discount rate to evaluate its OPEB liabilities. The Trust is, therefore, irrevocable, exempt from creditors of the Town, and intended to qualify under Section 115 of the Internal Revenue Code as a governmental trust and, as such, is exempt from all taxation. Mr. Barth indicated that the Trust allows for investment in any appropriate vehicle under Connecticut Trust Laws and provides for the ability to return any excess monies to the Town once all OPEB liabilities have been paid should health care laws change. There is also the ability to divide into multiple sub-trusts within the Trust to allow separate investments and accounting for the Town and the Board of Education. The open items not yet addressed are who the Trustee of the Trust will be, who will administer the Trust, and who will be responsible for investment management and custodianship.

Mr. North asked how many trusts would ultimately be involved. Mr. Barth indicated that there would be one trust with the ability to commingle the assets, but account for as separate trusts if desired. Mr. Mason confirmed that this would involve separate accounts within one trust. Mr. North stated that there is a difference in the nature of the liabilities and, in particular, the police, who have a different retirement eligibility, and he thought that there was some question as to how you understand the relative cost of each if all the liabilities are in one fund. Mr. Barth stated that the Trust allows for separation into any number of groups that are needed and that, if you want to value the liabilities based on groups, it would be the job of Milliman to do so. He knew that the Town and Board of Education pieces had been separated in this calculation, but was not aware if the police portion had been split out. Mr. Kane stated that the initial study broke the calculation into four pieces: Board of Education, Board of Education teachers, police and general government. Mr. Kane thought that the appraiser had rolled all these components into one.

Ms. Fitzpatrick asked what would happen if one sub-trust’s liabilities as accounted for separately exceeded that of another sub-trust since the money is commingled. Mr. Barth stated that the Trust would allow for separate investments within the Trust if so desired, but is designed for commingling for cost efficiency. However, there would be the ability to invest for various groups as the monies grow. Ms. Fitzpatrick confirmed with Mr. Barth that it would be possible to fund any separately determined liability from the commingled funds and/or by supplementing the Trust with funds from other sources.

Ms. Fitzpatrick asked about the Trust allowing for investment in real property. Mr. Barth indicated that it is a fairly general trust provision that goes along with the Connecticut General Statutes for trusts, although admitted that there are towns that have limited those investments. Mr. North stated that the Board intended to adopt a separate investment policy which will govern and thought that the trust document wording should be drafted more liberally.

Ms. Fitzpatrick also questioned the verbiage involving money that stated “solely at the direction of the Plan Administrator” and thought that would be at odds with procedures currently in place. Mr. Barth stated that the intent is to allow for short-term borrowing in an instance where funds may not be liquidated quickly enough to cover expenses. Ms. Fitzpatrick stated that it was the word “solely” that was causing concern as, under current Town Charter, there are no sole money decisions made and thought that the addition of some sort of checks and balances would be appropriate. Mr. Mason suggested the addition of the phrase “at the direction of the Plan Administrator with the concurrence of the Town Treasurer”.

Ms. Fitzpatrick thought that the language in the section regarding commingling of funds duplicates the language in Article 1 and Mr. Barth responded that this was intentional as the first article is more of a preamble and discussion and the later section is more for setting up the trust itself. Mr. Barth also clarified for Ms. Fitzpatrick the difference between Article 10 and Article 11 in that Article 10 deals with expenses and compensation of the Trustee and Article 11 deals with general expenses. Ms. Fitzpatrick also suggested that the phrase in Article 14 that reads “No such amendment shall be made that affects the duties or responsibilities of the Trustee without its consent” be changed to “Town consent” so as to be clear as to whose consent it is.

Ms. Mielert indicated that she had a concern with the phrase used in Article 9 which reads “Except in the case of a contribution that is made by the Town under mistake of fact, the assets of the Trust Fund shall never inure to the benefit of the Town and shall be held for the exclusive purposes of providing benefits to the participants in the Plan …….”. Her primary concern was with the word “never” in that it could feasibly restrict these funds so that they could not be disbursed due to unforeseen changes in the future. Mr. Barth stated that the intent is that, if there are no more liabilities, the money will revert to the Town and that the language would be changed to further clarify that intent.

Mr. Barth stated that the ordinance requires that it must be set forth who will be the Trustee and who will administer the Plan and then State law mandates the appointment of a Plan Administrator. Ms. Fitzpatrick asked who other towns have appointed as trustees and Mr. Barth indicated that it was usually the Town Treasurer. Mr. Askham asked who the trustee was for the pension plan and Mr. Kane replied that it was Wachovia. Mr. Barth noted that it would be a normal progression to start with the Treasurer as Trustee when the amount of money is at a low level and then transfer to an institutional trustee as the monies invested in the trust increase as usually happens with retirement plans.

Ms. Fitzpatrick asked who is normally being appointed as the Plan Administrator. Mr. Barth indicated that other towns are struggling with this issue, but it could be a new board that is created (although he did not recommend that route), a Pension Board (again, not recommended as they have other responsibilities), the Board of Finance, the Board of Selectmen or someone at the Town.

Mr. Henault asked the Board if there were any questions regarding the draft of the amendment to the Ordinances of the Town and there were none. Mr. Henault confirmed with Mr. Kane that the intended effective date is no later than June 30^th and that the ordinance amendment and the trust document would have to be sent back to the Board of Selectmen for adoption. He also confirmed that it had been determined via discussions with the Board of Selectmen that initially the Board of Finance will act as the Plan Administrator. Mr. Barth stated that he would make all the requested changes so that the Board can approve by motion the ordinance amendment and the trust document at its next meeting on February 27, 2007.

Mr. Henault referred to a Proposed Ordinance that was drafted by David Gardner, Town Assessor (Addendum I) in connection with Board of Finance discussions at prior meetings. Mr. Gardner stated that he took the proposed ordinance as originally drafted by the Committee as a starting point and then made adjustments which he summarized in a document titled “Summary Comparison Committee Proposal Re-Write for Board of Finance” (Addendum II). Mr. Gardner stated that he clarified terms such as “effective date”, “tax year” and “principal residence” so as to keep the ordinance consistent with current practices or State programs. He also added a “Definitions” section.

Mr. Gardner stated that he made the residency requirement the same as the statutory minimum (one year). Mr. North stated that nothing obligates the Town to mirror the State’s one-year requirement and Mr. Mason noted that Mr. DeSmith had indicated that the Committee had concerns regarding the use of the one-year requirement and had recommended a seven-year residency requirement so as to target long-term residents and not those recently moving in. Mr. Henault said that, since the State program has a one-year requirement, then perhaps the Town should match it, although he did understand the Committee’s intent. Ms. Fitzpatrick thought that a consensus had been reached and that a legal opinion was needed as to whether the seven-year requirement could be used. Mr. Kane said that using the one-year requirement was more of an administrative thing and that he saw it causing no damage as he doubted that any seniors moving into Town into any of the new senior housing developments would be reaping any massive tax breaks. If anything, the Town would be benefiting from their taxes paid.

Ms. Mielert asked about how the benefit would apply for two unmarried people occupying the same residence and Mr. Gardner replied that the benefit would be apportioned accordingly. Mr. Gardner also noted that he had changed the pro ration period for allocation of any tax credit benefit upon termination of availability of the credit (such as when the house is sold) from the assessment period which commences in October, as suggested by the Committee and used by the State program, to the fiscal year which commences July 1^st as it better corresponds to the actual practice in adjusting taxes between buyer and seller and tends to give the elderly homeowner the credit, rather than the buyer.

Mr. Henault noted that some of the amounts proposed by the Committee had been changed and that two qualifying income brackets had been dropped, although one more had been added to the existing Simsbury program, increasing the maximum qualifying income from $35,300 to $45,300 and eliminating the distinction between a married and single benefit.

Mr. Kane provided the Board with a summary sheet comparing the State program with the current Simsbury program, the Committee’s recommended program, the Board of Finance’s recommended program and the Town of Canton’s proposed program (Addendum III). Mr. Kane also stated that he had forwarded to the Board the Town of Avon’s program, which is similar to the Town of Canton’s program as both towns share the same Assessor, noting that both Avon’s and Canton’s credits are much lower than the Town of Simsbury.

Mr. Kane also provided the Board with an estimate of the cost impact of the proposed adjustments to the program based on the credit applicants under the 2005 grand list using the new 2006 income limits, resulting in an estimated cost of $115,700 (Addendum IV). Ms. Mielert noted that there is enough money set aside in the current budget scenario to cover this cost. Mr. North noted, however, that it is not known how many people are eligible, so this amount is only an estimate. Mr. Kane concurred that it is a “best guess”, but felt that it was a conservative and safe number to use for budgeting purposes.

Mr. Askham asked how the new plan would best be communicated to the taxpayers. Mr. Gardner stated that currently information is provided via Social Services and renewals. Mr. Askham asked if something could be included in the tax bills, but Mr. Gardner stated that this should not be done until the ordinance is actually adopted. Mr. Gardner also suspected there would be newspaper coverage of the change. Mr. Mason stated that eventually a notation might be added to the bottom of the tax bill, such as is done in other towns. Mr. Henault asked about the timeframe needed to implement and Mr. Gardner stated that the ordinance change must first go to the Board of Selectmen, although he is currently taking in applications.

Mr. Henault recognized Diane Ullman, Superintendent of Schools, and Jack Sennott, Board of Education member, who had requested to make a brief presentation on a capital request that might be coming forward relative to computer technology. Dr. Ullman stated that the Board of Education will be completing their budget deliberations either on February 20^th or February 27^th. She noted that a significant component of their budget is a technology plan. Dr. Ullman said that much time has been spent on developing a five-year plan that would responsibly get classroom technology to a point that would put the district in a competitive place with similar districts. Currently, the district is behind similar districts, which puts Simsbury students at a competitive disadvantage. Dr. Ullman also noted that their accreditation report cited a “dual system of technology” at the high school, i.e., some departments that have it and others that do not.

Dr. Ullman stated that there has not been a long-term purchase and replacement program in place in the district and that the Board is hoping to establish one. The Board of Education did have $500,000 in their capital plan for this year, but understands that it will not be going forward this year. Therefore, the technology being proposed and the money to fund it is part of their proposed operating budget.

Dr. Ullman cited references to “declining enrollment” and pointed out that they are declining 35 students next year over seven schools, which does not amount to a very significant decline. However, they are cutting 3-4 elementary teachers in order to address a real class size problem at the high school. They are increasing student support systems. Dr. Ullman stated that the technology piece is critically important and is part of a very responsible five-year plan to bring the district up to a status which will put it in good stead with similar districts around the State.

Director of Instructional Technology, Joncia Lytwynec; Henry James science teacher Susan Ray; Project Lead the Way teacher, Jim Compton and Latimer Lane elementary teacher Brian Marchinkoski gave the Board a presentation demonstrating the impact of Smart Board technology in the classroom. Ms. Lytwynec stated that it is important that the district meet the needs of its 21^st century students, noting that at one time the blackboard was considered an unneeded and revolutionary addition to the classroom. Ms. Lytwynec noted that, although today’s students may appear computer savvy, they are primarily aware of personal use applications, but not how to use technology for learning.

Ms. Ray demonstrated the dramatic improvements that the recent introduction of technology into her science classroom have made. Ms. Ray noted that the technology enables parents to have access to the same material as the students and that she is able to share developed lessons with colleagues.

Mr. Henault asked about the warranty on the Smart Boards and Mr. Holden replied that it is typically one year and Ms. Lytwynec added that the district then enters into three-year maintenance agreements. Mr. Askham also confirmed that accidentally using permanent markers on the boards will not result in irrevocable damage.

Mr. Marchinkoski expressed his enthusiasm for the change that technology has made to his only other option that was previously available to him, namely teaching out of the book. He also noted the ability of the technology to motivate students and provide meaningful learning, particularly with the lower achieving students. Finally, he demonstrated the ability of the technology modules to address the varying abilities of all students in a given class and challenge them at an appropriate level.

Mr. Compton stated that when he first started in the district as a chemistry teacher, it was still a traditional lecture/worksheet/lab/quiz/test method. Now he rarely lectures and functions more as a facilitator as students go through tutorials and the curriculum is very project-based involving reverse engineering. Dr. Ullman noted that she has personally observed intense student engagement in Mr. Compton’s classes, even those who do not usually participate, due to the technology. Mr. Compton stated that the technology he uses in his classroom is the same design software that is used in industry and that he has had graduates come back to him who attend RPI remarking that their assistance is often sought out by their peers as they know how to work with the software.

Mr. Henault asked about the cost of the Smart Boards and Mr. Sennott replied that the Smart Boards are approximately $2,000 and the projector is $3,100, for an approximate cost of $5,000 per classroom. Mr. Henault asked about their life expectancy and Mr. Sennott replied that projector technology does not change all that quickly and what really changes is what is being fed to it, resulting in a lot of Internet access and a need for adequate bandwidth. Mr. Sennott stated that the units are expected to last about ten years and are depreciated over five years.

Mr. Sennott stated that the Board of Education had asked the district to do a technology gap analysis over the summer that involved more than a 12-month look-out and involved some strategic planning. It was determined that it would require $2.5 million to close the gap and achieve the Model Classroom and then approximately $660,000 per year to maintain a five-year replacement policy. Mr. Sennott also noted that the goal of building $416,000 annually into the operating budget to close the gap has not been happening. Instead, the approach has been to do a major project such as the high school and group in as much technology spending as allowed. The Board would like to move towards a regular assessment of what is needed to keep technology up-to-date.

Mr. Sennott stated that the Board of Education can get to the Board of Finance’s recommended guideline of 4.5% only if the technology investment is removed. The Board is requesting a separate consideration for the technology piece so that it can get caught up. Mr. Sennott also noted that there are opportunities to get revenue from sources other than property taxes to pay for some of the technology expenses, such as PTO’s and corporations. Their Revenue Subcommittee, after surveying 45 towns, determined that the levels of using sources of revenue other than property taxes range from .1% to 10% and Simsbury is at the .1% level. The Board does not have a full-time grant writer.

Mr. Askham asked if there was any money in the current Capital Nonrecurring (CNR) fund that could be used. Mr. Holden responded that in the current fiscal year, there is approximately $225,000 for technology and, in addition, there was $450,000 in capital improvements for the network infrastructure, which is going primarily to replacing the T-1 connections. In his initial budget projections for 2007/08, Mr. Holden had approximately $225,000 in the operating budget, $400,000 in CNR and $500,000 in the capital improvement plan, which will not be going forward.

Given the fact that, once a budget is approved, the Board of Education can move money around any way that it wants, Mr. Henault wanted to know how such an add-on arrangement could be structured so that the Board of Finance could be assured that the money was used exclusively for the purpose of technology improvements. Mr. Sennott replied that it would be appropriate for the Board to ask for an accounting at the end of next year before considering the imposition of any restrictions.

Mr. Henault asked where the Board of Education currently stood in their operating budget projections and Dr. Ullman stated that the Superintendent’s budget that was submitted to the BOE last week was at 6.98% and the Board then asked them to come back and show what it would take to get it to 4.5% and she and Mr. Holden are in the process of arriving at that answer, but a percent of it is technology and the rest would be staff. Dr. Ullman reminded the Board that they have cut elementary staff, even though the enrollment is only going down by 35 students. Dr. Ullman also noted that certain adjustments had to be made last year after the operating budget was approved. Class size at the elementary schools in two instances went above the class size guideline and it was necessary to cut back on textbook purchases, etc. and hire two new teachers.

Mr. Mason and Ms. Fitzpatrick noted that all the recommendations that were cited in the recent accreditation report have been in the Board of Education’s radar for quite some time and Dr. Ullman concurred, noting that not all the issues can be addressed in one year on a tight budget. However, the accreditation board will be expecting so see progress when they return. Mr. Mason stated that he had attended the recent Board of Education budget workshop and complemented the Board in the process that they are going through and all the planning that is being attempted.

Mr. Henault asked Mr. Kane to comment on the Board of Selectmen operating budget, which was voted on at their Monday meeting. Mr. Kane stated that the approved budget came in at 6.1% including the GASB funding and 4.38% excluding the GASB amount. The Board of Selectmen also approved a six-year capital plan. Mr. Henault noted that the Board of Finance will be receiving the Board of Selectmen’s presentation on February 27^th.

Mr. Henault asked the Board to discuss the Governor’s budget proposal in terms of potential funding gains or losses to the Town. He indicated that he preferred moving forward holding at the 4.5% guideline, to be conservative and, if there were to be any last minute windfall, apply it as a credit to reduce the tax increase impact on the taxpayers. Ms. Fitzpatrick concurred that it would be best to operate with what is currently known and not spend anything that is not in hand. Mr. Mason stated that there should be better information in a few months.

Mr. Askham asked what additional monies could be potentially received in grants. Mr. Holden stated that there potentially could be an increase in the allocation for Project Choice students from $2,000 to $2,500 per student as well as increases in funding for special education expenses. These funds would be restricted educational aid which would be used as offsets to the operating budget, but at this time, the actual number is unknown. Mr. Askham stated that, in the event the benefit is substantial, it would ultimately result in an increase in surplus that would then be available in the following tax year to supplement CNR and/or offset tax increases.

Mr. Askham asked about the current state of reserves. Mr. Kane provided the Board with a document entitled “Projected Fiscal Year Ended 2007 General Fund Reserves” (Addendum V). Mr. Kane also provided the Board with an analysis entitled “Review and Analysis of the Capital & Non-Recurring Fund” (Addendum VI). Mr. Kane recommended that $300,000 be transferred from reserves to CNR this year. Mr. Askham asked about the projected fund balance as a percent of operating budget and Mr. Kane projected that it will be approximately 8.5% at the end of this fiscal year and that last year’s was approximately 11.5%.

Mr. Henault referred to a letter received from the Simsbury Land Trust and noted that it was discussed and approved at the Board of Selectmen meeting on Monday night. Due to the last minute receipt of the letter, he indicated that the issue will be added to either the February 27^th or the March 13^th Board meeting.

The Board reviewed Mr. Kane’s Request for Proposal for the Selection of an Investment Consultant. Mr. Kane stated that he hoped to get something in the newspaper over the weekend. Mr. North suggested that there should be an explicit statement that the Investment Manager would work in close consultation with the actuary. Mr. Mason thought that, given the small amount of dollars that would be in the trust initially, the RFP was overkill and might not be cost effective. Mr. Kane responded that the price could be negotiated as a fixed fee/variable cost fee. Mr. Henault suggested that the Board members give their comments to Mr. Kane and then could take action at the February 27^th meeting. Mr. Kane thought that pushing it out two weeks would not be a problem.

Mr. Askham referred to an article regarding the potential purchase of the Simsbury Airport. Mr. Kane stated that CIRMA, the Town’s insurance carrier, has indicated that they would require an outside manager to assume the risk in order for them to continue as the Town’s insurer. Mr. North stated that he hopes that any plan that may come forward to the Board involves a better rationale than was expressed in the article as the preservation of small airports made no economic sense for the Town. Mr. Mason thought there might be economic development potential and that there is currently a third-party manager in place at the airport.