Finance Board Narrowly Passes $3.5m Bond Request, Process Violation Debated

By John Voket

 “I don’t question the motive, I question the judgment,” said Board of Finance vice-chair James Gaston as he refused to support a request to recommend a special appropriation to bond a $3.5 million Fairfield Hills demolition and parking lot project. He was joined in his opposition by Martin Gersten, but after about an hour of debate, the measure passed on a 4–2 vote.

The board voted along the identical lines to support the refunding. This motion was not technically required for the special appropriation to go to bonding, but validated that the proposed underwriting of the uncharacteristic funding process was nonetheless a refunding.

The measure aims to lower the taxpayer burden by transferring underwriting for a parking lot and demolition project at Fairfield Hills from a private bank loan to bonding.

First selectman Pat Llodra told The Bee prior to the meeting that if the measure subsequently failed at either the council stage or before the public in the town meeting, that the town would continue to carry the existing loan.

“If it fails, we continue to pay the loan at about six percent interest,” the first selectman said. “But we’re doing this to refund the issue through a bond that will save the taxpayers $1.1 million at a rate of about 3.6 percent.”

While it was determined that the process by which the original lease-based operational expenditure was flawed, Town Attorney David Grogins said in his opinion, the handling of the unique funding process was legal. Mr Gaston, himself an attorney, along with Mr Gersten, argued that to make the process right and transparent, the entire refunding request should be built into the CIP process, and should be ranked and presented along with all the other projects being proposed for funding by the Board of Selectmen.

The missing link, which marred the original process by which the town negotiated to pay for the demolition of a building and the installation of landscaping and permanent parking between the new municipal center and the Newtown Youth Academy, was tied to a local CIP regulation.

Mr Gaston pointed out that by regulation, and because it involved a lease arrangement, the arrangement should have been reviewed by the finance board. But it was never presented.

Instead the issue was approved by the Legislative Council, and built into the 2008–2009 budget as an operational lease, with the caveat that all annual lease payments would require annual approval.

Through amendments to resident Peter D’Amico’s Newtown Youth Academy lease arrangement, the Board of Selectmen agreed in June 2008 that developer Peter D’Amico would act as the general contractor for the demolition of Greenwich House and installation of permanent lots and related landscaping.

As a private developer Mr D’Amico originally arranged for private underwriting from Newtown Savings Bank at the market interest rate, which would be passed along for reimbursement by the town. But if the town was eventually able to bond for the sum with a municipal interest rate substantially lower, it could then pay Mr D’Amico back all at once while incurring a lower interest rate.

Herb Rosenthal, then the first selectman, said at the time that the town had enough money to cover at least the first installment or two to repay Mr D’Amico at the higher interest rate. Without a subsequent municipal loan, Mr Rosenthal said future installments would be paid through the annual operating budget over the course of 20 years.

“Or, the thought was perhaps to get approval for a loan to pay him off at once,” Mr Rosenthal said. The idea prevailed, and Mr D’Amico received the go-ahead to complete the demolition and parking.

Paul Mangiafico, a Republican selectman at the time, liked the possibility.

“My thought is to accept the proposal,” he said, looking favorably at the conditions for a lease rearrangement to make the deal possible. “And, we pay it off in a year. We bond the money, borrow it at 4.5 percent, and have our cake and eat it too, so to speak.”

During this week’s meeting, each member of the finance board expressed a desire to see mechanisms put in place to ensure this hybrid arrangement never bypassed their board in the future. Mr Grogins, who attended the meeting, said that this would likely be achieved through a charter revision.

Mr Gaston said despite assurances that this leaseback arrangement was virtually a one-of-a-kind situation, he could not support the measure.

“I’m not comfortable saying the end justifies the means. Checks and balances have not been followed,” the vice-chairman said. “I’d like to see it tagged to the CIP; I’d like to see the (records) of costs; I’d like to see what we bought for $3.5 million.”

Mrs Llodra, who was in attendance at the finance meeting along with Finance Director Bob Tait said that while the finance board’s approval was not required to move the measure, she wanted it fully vetted up to this point. Mr Tait added that time was of the essence to try and get the measure approved because it was already in process for refunding, and was set to pay off a temporary note which is coming due in February of 2010.

“It’s such an anomaly,” Mrs Llodra said of the original leaseback transaction. “There is nothing in the charter to address it. That’s why we plan to address it going forward.”