Simsbury, CT - Board of Finance

The Regular meeting of the Board of Finance was called to order at 6:00 P.M. in the Main Meeting Room of the Simsbury Town Offices. The following members were present: Paul Henault, Peter Askham, Candace Fitzpatrick, Nicholas Mason, Anita Mielert and Kevin North. Also present were Board of Education Business Manager David Holden, Director of Finance Kevin Kane and other interested parties.

Mr. Mason asked for clarification of a point of order regarding whether or not the approval of minutes may be voted on by Board members who were not present at the meeting. Mr. North stated that Robert's Rules of Order only provide that a quorum be present to approve minutes from a previous meeting. He noted that it has been a courtesy extended to members who have not been in attendance to abstain so long as there is a sufficient quorum present to do so.

Mr. Kane stated that the Simsbury Housing Authority has received a $775,000 grant from the State through the Town of Simsbury for capital improvements to the Owen Murphy senior housing. He explained that contractors will submit bills, which will be forwarded to the State for approval under the "Small Cities Community Block Grant Program". The State, upon approval of the bills, will wire funds to a bank account, from which a payment check will be cut and sent to the contractor. He noted that there will be no Town of Simsbury cash involved and that this is not a reimbursement grant. He said that the same procedure was followed 8-9 years ago for a $500,000 grant.

Mr. Askham asked who would be controlling the expenditures and authorizing the payments. Mr. Kane stated that the Housing Authority would be approving the expenditures and that Brandon Robertson is working with them and that the actual expenditures would be processed through Mr. Kane's office and would be on the Town of Simsbury's books and audited.

Mr. Mason asked if the funds had to be received prior to spending them. Mr. Kane stated that once the vendor invoice is approved, the State then wires the funds. Mr. Mason confirmed with Mr. Kane that there would not ever be a negative balance in the account. Mr. Askham asked if the grant was funded and not tied up in the State's bond package; Mr. Kane responded that the grant was funded.

Mr. Mason asked if there would be an issue as to what work could be performed or not performed. His concern was that a scenario could happen where work was performed, bills were submitted and then items would come before the Board for approval. Mr. Kane stated that the only approval required from the Board would be to set up the fund and that the Board would not be involved in further approvals, which would be the responsibility of the Housing Authority, Mr. Kane, the Town's auditors and any grant auditors. Ms. Fitzpatrick confirmed with Mr. Kane that, when the fund is set up,it would not be fully funded by the grant, but rather funded as the expenditures are submitted and approved.

Mr. Askham asked if there was any mechanism in place to prevent overspending. Mr. Kane stated that he will set up controls in the accounting system so as to prohibit payments if there is no cash available. Ms. Mielert asked if volunteers were being used to commit the Town to expenditures or evaluate bidders. Mr. Kane replied that an outside firm will be administering the grant and acting as a general contractor and will receive a fee for this service. Ms. Mielert confirmed with Mr. Kane that the money is being used to upgrade existing apartments and not add any additional apartments.

Mr. Holden provided the Board with an update on school enrollment statistics as of October 1st. He summarized that there are 39 fewer students than last year at this time and that the projection had been that there would be 44 fewer. He stated that the number of students in grades K-6 and the high school has decreased and that the number of students in the middle school has increased. He also noted that a school-by-school analysis showed that the most significant changes were at Squadron Line and Simsbury High School.

He also provided the Board with historical enrollment data by school, Project Choice, pre-kindergarten and outplaced students and additional data requested by the Board of Education regarding the specific enrollments at Latimer Lane in that the Latimer Lane kindergarten is currently at Tootin' Hills School and the Tariffville kindergarten is at Central School and will be until the Tariffville School construction project is completed. He also provided the Board with enrollment data at magnet and out-of-district programs that is not included in the October 1st enrollment, but do have financial impact on the Town relative to transportation and tuition.

Mr. Askham asked about the 2008/09 projection and Mr. Holden stated that the projections are usually updated in December, but thought that the declining trend would continue. Ms. Mielert asked when it is expected that the Latimer Lane kindergarten will move back and Mr. Holden thought that it would most likely be in 2009/10, the same year in which the Tariffville kindergarten would return to Tariffville. Ms. Mielert also asked about a projection of a 20% student loss that was made a year or two ago. Mr. Holden stated that that projection assumed that none of the proposed developments that were pending at the time would be built out (Meadowood, the Ethel Walker areas and the 55+ housing) and that if these major developable areas were developed, then the projected 1,000 student decline over a ten-year period would be reduced to approximately a 500 student decline over a ten-year period.

Ms. Mielert asked if there are usually any significant changes in enrollment between October 1st and June 1st. Mr. Holden replied that enrollment usually goes up during the course of a year, but not in numbers that he would term "significant" (typically 10-12 students). Mr. Askham noted that there are currently 291 students in kindergarten and 371 in 12th grade and stated that it would appear that the number of students next year could be expected to decline. Mr. Mason noted that the enrollment bubble is in the 7th and 8th grades.

Mr. Henault noted that enrollment is down 100 students since 2004. He also asked how many Special Education students there were and Mr. Holden stated that there are 35 that are placed out of district and that the number in-district is roughly the same as in previous years.

Mr. Henault asked for an update on the Tariffville School project. Mr. Holden stated that a presentation was made to the Design Review Board last week and they agreed that the plan was in conformance with their generally accepted guidelines and that last night the Zoning Commission voted unanimously to approve the site plan amendment. The Board of Education will hear the final presentation from Peter Chow of Oak Park Architects next Tuesday and it is expected that the Board of Education will accept the plans as complete at that meeting. On November 6th, Peter Chow and Mr. Holden will present the plans to the Bureau of School Facilities at the Connecticut State Department of Education, who will then have 4-6 weeks to thoroughly review the plans, make comments and then authorize them to go out to bid sometime around January 1st. The Public Building Committee will then authorize the project out to bid and Mr. Holden expected construction to begin in the spring.

Mr. North stated that Mr. Kane has indicated that, after consultation with the investment consultant as well as Attorney Bruce Barth, who has assisted in overseeing the Trust, it has been determined that, in the initial stages, it would not be necessary to establish a trustee relationship, but rather a custodial relationship. Mr. Kane stated that the Board of Finance is the Plan Administrator and that any bids for custodian that are received will come before the Board.

Mr. Mason stated that he thought that the representative from Fiduciary Investment Advisors was under the impression that he would be making quarterly reports to the Board regarding the status of this fund and asked if that was really necessary given the small level of assets involved. Mr. Kane responded that it is the Board's decision as to the frequency of reports they require or whether reports should be made to a subcommittee and agreed that it would most likely not be needed four times per year. Ms. Fitzpatrick thought that they had left the language in so that it would be part of the contract if needed; Mr. North concurred. Mr. Kane noted that initial meetings when the pension trust was first established were more frequent and then decreased as the committee became more familiar with the plan. Mr. North stated that it is certainly appropriate with fiduciary types of pools of assets that quarterly reports on performance be received, but that it is not necessary that Fiduciary Investment Advisors actually make quarterly presentations.

Mr. North noted that the next step would be to consider establishing and adopting the investment policy statement that was proposed and reviewed by Fiduciary Investment Advisors at the last meeting. Mr. North observed that it would be bad administrative policy for the Treasurer to immediately invest the entire amount of tax revenue when it is received in August into the market; rather it would be more appropriate for the $600,000 (or whatever amount it is in every subsequent year) to go into the trust and immediately start earning money market rates, but for those proceeds to be invested quarterly, thereby achieving the benefit of dollar cost averaging, which would be even more important in this instance as the initial asset base is so low.

Mr. Mason noted that the only step left is to appoint a custodian, which Mr. Kane said could be done at the Board's November meeting. Mr. Henault noted that the establishment of the Trust has been the result of a tremendous amount of work on the part of the Board of Finance as well as Mr. Kane.

Mr. Henault noted that it is the time of year when the Board usually starts discussing issues in general regarding the upcoming new budget year. He stated that, from a capital standpoint, many of the major projects have already been addressed - Tariffville School, the treatment plant, Simsbury High School, a major land purchase. He noted that there is a six-year capital plan which needs to be reviewed for any upcoming projects, noting that Simsbury Farms has been pushed off several times. With respect to operating budgets, he noted that there are union contracts, declining enrollment and State funds on the revenue side to deal with. He stated that the Board must continue to be cautious and look at what is really needed.

Mr. North noted that $1 million of the State grant has already been put into the operating budget to lower the mill rate and thought that it would be appropriate, if there appears to be any unusual build-up in the undesignated fund balance as a result of the Board's prior assumptions, to perhaps use some portion of that undesignated fund balance to reduce future borrowings, not operating increases, and, thereby, give back the remainder of the larger grant to the taxpayers in the form of reduced borrowings. He thought that the Board has made a number of steps in the right direction in terms of managing tax increases and would like to see the Board, as its obligation to the taxpayers, continue to keep tax increases down within the range that has been experienced within the last three years.

Mr. Askham stated that he would like to have the Board set goals, such as a tax increase around 2% and a 10% reserve. Based on declining enrollment projections, he would like to reduce the Board of Education's 4.5% increase this year to be 3.75% next year. He does not want to be overly excited over the extra monies received from the State. He noted that debt service is creeping higher than expected and, unless there is a compelling reason for capital expenditures, the Board needs to slow down the capital budgets. He noted that the Open Space Committee is asking questions as to their allocations. He asked about the elderly tax relief numbers and Mr. Kane replied that the credit is approximately $125,000, which was the budgeted amount, and that it was about $60,000 in the prior year

Mr. Askham stated that he thought there is a lot of confusion about elderly credits, veteran credits and volunteer fire dept. credits. He said that there are other forms of tax relief that are not generally known about and are commingled into one number; he stated that he would like to have a break out of these numbers at the time of the budget hearing, as many people do not know the various components of the number. He concurred with Mr. North relative to the use of reserves in that he would like to use the windfall that will be received in the current budget cycle by putting it back into next year's budget so as to give the taxpayers some relief.

Mr. Mason noted that the Board of Education's technology initiative will need to be grappled with again as it was a four- to five- year plan. Mr. Henault stated that it will be built into their operating budget. Mr. Mason stated that he does not have a target figure in mind, but thought that a 2% increase is more than is needed, given the revenue from the State. He was concerned that the Town is now four months into the current operating year and the Board still does not know what the surplus/deficit was for the last fiscal year. He said that the Board has not seen a set of financial statements from either the Town or the Board of Education since last April/May nor has it received a draft of the annual financials for the fiscal year ended June 30th. He had hoped that these reports were going to be received quarterly and thought that it had been agreed that they would be getting quarterly reports. Mr. Henault stated that, in preparing the agenda for this evening's meeting, he reviewed the items on the agenda and the current financial statement numbers with Mr. Kane and thought it would be sufficient.

Mr. Kane stated that the balance in the undesignated fund balance as of June 30, 2006 was $8.9 million, but was reduced by $3.7 million of appropriations that were made by the Board in connection with the Ethel Walker land purchase, two police officer settlements, the Simsbury Land Trust Master's School land acquistion, playground renovations, and damage to police equipment. The year ended with a balance of approximately $7.6 million, resulting from an approximately $140,000 surplus on the expenditure side and a $2.1 million surplus on the revenue side. Mr. Mason asked if these numbers could be put in memo form and e-mailed to the Board members.

Mr. Askham noted that the auditors are currently at the Town and that all these numbers are currently unaudited. Mr. Mason stated that the Board should not have to wait until December to see the status as of June. He also thought that the issue of over-taxation and the use of a 98% collection rate should again be addressed this year. Mr. Henault stated that the way the Board budgets allows it to have these funds to be taken out rather than bonding and, therefore, it is not a question of over-taxation, but rather what you do with the funds. Mr. North asked if Mr. Kane could also show the sources of excess revenue in his memo.

Ms. Mielert stated that she would like to see more financial reports as they show the results of the Board's policies and if they are tracking as intended. Mr. Henault stated that Mr. Kane does discuss financial standings with him while the auditors are in; Ms. Mielert asked if this information could be shared with the Board. Ms. Mielert thought that the interactive mill rate worksheet that Mr. Kane provided last year was very helpful. She also noted that, as enrollment drops, it will be a difficult but important decision for the Board to downsize the buildings as well as the staff; she stated that it is one of the benefits of portable classrooms, as they can be hauled away when no longer needed.

Ms. Mielert felt the manner in which the six-year capital plan is done does not seem to have any relation to the Plan of Conservation and Development and that the Board of Education does it better. If the Plan of Conservation and Development indicates that there are certain goals relative to open space, protecting the water supply or improving the downtown area, then those goals should be reflected in the six-year plan. She stated that there is a huge disconnect as to how we move forward as a community and that currently the six-year plan seems to be staff-driven and not driven by elected political leaders or the policy boards. She asked the Board for any ideas relative to putting in place requirements for due diligence relative to certain projects. Mr. Henault stated that he felt that the Board has done this in part with regard to certain projects, but agreed that the systemic process needs improvement.

Mr. Askham noted that a needs analysis has been discussed in past years. He also noted that Mr. North has been requesting that a study of Town facilities be made by an outside firm for purposes of an independent needs analysis. He mentioned a new way of budgeting that is gaining momentum called "results-based accountability" and suggested that a study group comprised of members of each board, the Finance Director and Business Manager explore this concept and if it would work. Mr. Mason asked if it would not be a step towards that if the Board considered what was actually spent when budgeting rather than budgeting off of last year's budget. Mr. Askham stated that often unfilled positions can distort the budget at times. Mr. Henault stated that line item budgeting has never been done. Mr. Kane stated that the Board can always change its policy, but will eventually be seeing a large increase in transfer requests before it.

Mr. Mason asked Mr. Kane if the Town currently has an accounting system that a municipality of this size needs. Mr. Kane stated that there are basically two systems out there and both are about the same. The Town has had the Pentamation system since 1999. Certainly larger communities, such as counties, have $1 million packages, but Simsbury is not that large. Mr. Askham stated that another trend is to use internal control auditors and that eventually the Town should be assessing its internal control and making an evaluation as to whether something needs to be added into the budget cycle. Ms. Mielert stated that she would like to have a policy and goals statement before receiving the operating budgets.

Per Ms. Mielert's request, Mr. Henault asked Mr. Kane for a status report on the performing arts center. Mr. Kane stated that he provided a report to the Board of Selectmen indicating that the fund ended the fiscal year in 2006 with a balance of approximately $50,000 and in the following fifteen months, another $50,000 profit was generated, leaving the fund with a balance in September of approximately $100,000. Mr. Kane stated that the fund is similar to the Simsbury Farms fund in that it will probably decrease when the facility re-opens, but that the accounting package will not allow the fund to go negative. Mr. Henault asked Mr. Kane to e-mail the report that he gave to the Board of Selectmen members to the Board of Finance members.

Mr. North asked if it would be appropriate to establish a special revenue fund for the music facility. Ms. Mielert stated that this is another example of a formal policy having been set and then not knowing the subsequent financial performance results. Mr. Askham asked if the fund is subject to audit and Mr. Kane stated that it is.

Ms. Fitzpatrick stated, to the degree that the Board is statutorily empowered to look at any budget within the Town on a line item basis, it has been this Board's policy to not micromanage individual funds; the Board has asked for accounting for Simsbury Farms, as that fund has been problematic. Although the Board can certainly ask for this detail at any time, it has a broad responsibility to make sure that the Town is financially running well, but it does not set policy for managing individual endeavors or funds unless it affects the overall fiscal health of the Town. Mr. Kane reminded the Board that the Town has Special Revenue Funds and funds that are non-appropriation funds and the performing arts fund is a non-appropriation fund. The appropriation funds (such as the General Fund) are set up at a Town Meeting. The Board of Finance and the Board of Selectmen can always decide to make this an appropriation fund and set a budget. Ms. Fitzpatrick asked Mr. Kane to e-mail the Board members a fund accounting for this facility.

Mr. Henault stated that all Board members should have received a communication regarding the e-mail system and said that if anyone has any difficulty accessing the system, then they should contact Rick Bazzano. Mr. Mason asked if there is any way that he can be notified that something has come into his mailbox so that he does not have to keep logging into it to check. Mr. Henault asked Mr. Kane to check on this with Mr. Bazzano.