The Board of Finance voted unanimously August 27 to adopt additional criteria to Newtown’s Debt Management Policy, which helps inform and guide officials on the issuance, management, evaluation, and reporting on municipal debt obligations.

The amendments to the policy were made by Finance Director Robert Tait following a lengthy review of past and present debt analyses, as well as an attempt to predict future borrowing patterns.

The debt policy ensures that Newtown not only exclusively utilizes borrowing and the taxation for debt service or interest on that borrowing for capital projects that cannot be otherwise funded from existing revenue, but creates a system to measure the impact of that debt service and proposed borrowing on a one-year, five-year, ten- and 20-year basis.

Currently, the debt policy requires Newtown to maintain a “debt per capita” ratio at or below recommendations by Moody’s Investors Service, one of two agencies the community uses to determine its bond rating.

The bond rating functions similarly to an individual consumer’s credit score, telegraphing the level of risk lenders may face in issuing credit, in this case to the municipality.

Currently, Newtown is one step below the best rating that Moody’s issues, and has achieved a top AAA rating from Standard & Poor’s, the second of three internationally recognized bond rating services.

The approved additions to the debt policy include two new measurement factors:

*The ratio of total bonded debt to the taxable net grand list

*The total general fund bonded debt per capita

In reviewing the suggested enhancements with finance officials, Mr Tait explained that an analysis of debt to the taxable net grand list should be done annually, and that ratio should never exceed three percent. The finance director warned that ratings agencies may be wary of an increasing debt to net grand list ratio over a multiyear pattern and adjust Newtown’s bond rating accordingly.

He clarified after the meeting that although such an occurrence in a single year may be required as long as it does not become a recurring practice.

Mr Tait told the finance board that analysis of debt per capita should also be completed annually, and in context with other ratios — as well as in comparison to other Connecticut communities with similar attributes to Newtown.

During discussion, finance board Vice Chairman Joseph Kearney made and then retracted a motion to lower Newtown’s ten percent overall debt cap fractionally, with an eye on eventually adopting a nine percent cap. But other members of the board expressed concern about several unknowns in the five- year Capital Improvement Plan (CIP) that might require the flexibility of borrowing up to the ten percent cap.

Speaking to The Newtown Bee following the meeting, Finance Board Chairman John Kortze said the enhancements to the debt policy are an attempt to measure and evaluate Newtown’s borrowing practices similarly to the bond rating agencies.

“When we get rated, the bonding agencies always examine a number of criteria,” Mr Kortze said. “One common theme over the years is keeping borrowing below ten percent.”

But he noted that other vetting criteria may change.

“There was a time when Newtown was compared with only other towns in Connecticut, but now we are compared to other towns nationwide,” Mr Kortze said. “These new rating agency guidelines are a function of evolution, especially at Moody’s. As their practices have changed, we’ve tried to keep up with those by making adjustments like the ones approved last week.”

Mr Kortze said since the meeting, he recalled that the Legislative Council had issued a request to advise them on possibly formally lowering the debt cap. So he plans to revisit that subject at finance board’s next regular meeting scheduled for September 14 at 7:30 pm.

Council Chair Mary Ann Jacob recognized in a memo to the finance board that in recent years, the debt cap has declined.

“So we’re actually doing through managing the CIP, exactly what they’re asking us to look at possibly formalizing as a practice,” Mr Kortze said, “ultimately lowering the cap to nine percent.”