Finance Board: Keep Debt Costs Within Guideline

By John Voket

After more than two hours of discussion Tuesday evening, with significant comment from every member, the Board of Finance appeared to reach an agreement that the town must do everything possible to keep its self-imposed debt service guidelines in place. And while a few members briefly entertained the idea of venturing past the ten percent debt-to-budget ratio to accommodate projected school spending, the overall consensus was the town’s favorable financial condition would be best protected by maintaining a debt ratio closer to 9.75 or even 9.5 percent.

Tuesday’s special Board of Finance meeting was called to accomplish two specific objectives: to rescind an earlier recommendation against increasing funding for the Hawley HVAC project, and to crunch numbers so members could begin formulating a plan for borrowing and spending on capital projects proposed by both town officials and the Board of Education in the coming years.

In a quick vote, the finance board agreed to “wipe the slate clean,” regarding the Hawley project by voting unanimously to rescind a recommendation against a $2.2 million spending increase. This move effectively prevents the Board of Education from bypassing the finance board and seeking a spending increase from the Legislative Council for a period of 30 days.

Then the finance board turned to a discussion of how to pay for future school district and town capital projects.

Last week at its regular meeting, the finance board continued to focus on possible reasons for massive cost overruns on the Hawley School project, and how school officials arrived at the $41 million number for the high school project. But the finance board agreed it could not begin realistically discussing the impact of these and other school projects topping out at $73 million without data showing the financial impact on the town’s debt service.

While the town’s financial authorities are usually deliberate and methodical, making and weighing numerous calculations before rendering opinions, it didn’t take board members more than a few seconds to project that the top two items on the school board’s capital priority list would tip the town’s debt to budget ratio well over its ten percent cap.

After hearing about the Board of Education’s prioritizing of a $2.2 million increase to the Hawley School HVAC renovation and a $41 million projection for high school renovations and an expansion, finance board Vice Chairman James Gaston quickly did the math, estimating expected debt service increases as they spread out year after year for just those two projects.

“In 2007, adding $5 million in debt service brings us to 9.5 percent,” Mr Gaston said. “But adding $5 million in 2008 brings us just over 10 (percent); adding 10 million in 2009 brings us to 10.8 percent; and another $10 million in 2010 would bring us over 11.5 percent.”

Those off the cuff numbers were borne out by town financial sources during the latest meeting.

As Board of Finance members predicted, preliminary information developed by town finance director Ben Spragg, the town’s bond council at Webster Bank, and a representative from the bond rating agency itself revealed that projected debt service for municipal and school projects proposed through 2011 could double, triple, and in some years quadruple the amount of existing debt service taxpayers are already financing.

Data provided to The Bee by Mr Spragg showed that new or projected interest in the current 2005-2006 budget grew about $1 million above the $6.2 existing debt service for projects scheduled to be bonded in the coming weeks and months. While exiting debt service only crept up incrementally through 2009, where it would hit about $6.4 million, the projected debt service would surge from about $8.5 million in 2007 to almost $11.3 million in 2008.

Based on Mr Spragg’s figures, and incorporating current capital project cost proposals, 2008 would be the first year that projected debt service would push past the self-imposed ten percent cap, exceeding that limit by $1.3 million. But in 2009, projected debt service would be more than double existing debt, and would exceed the cap by more than $2.5 million.

Provided the town’s bond rating remained at its current status, and freezing all future capital spending, Mr Spragg’s data illustrate debt service continuing well above the ten percent cap until 2013. That projected debt service would continue outpacing existing debt service by more than 50 percent, and as much as 75 percent, until 2021 when all existing debt would be retired.

Taxpayers, however, would continue financing current projected capital debt service into 2030.

Finance board member Joseph Kearney compared the town’s current financial situation to a driver approaching a changing traffic light.

“Do we see the yellow light and drive right through it, or do we put on the brakes?” Mr Kearney asked.

During protracted discussions, finance board Chairman John Kortze asked his fellow board members to each present their ideas about how to handle the massive education proposals in conjunction with the town’s self-imposed debt service cap. And one by one, each member attempted to formulate ideas based on the proposed $41 million high school expenditure.

None of the finance board members met with any success.

Some thought the town’s bond rating could withstand a few years of exceeding the cap, while others maintained that the cap should be driven in the opposite direction, creating some flexibility by holding debt service to budget ratios closer to 9.5 percent.

Others suggested proposing a maximum spending limit to issue to the school board and town leaders for all capital projects, and then backing the financing into those budgets. But as the meeting drew to a close, Mr Kortze was forced to settle on having each member agree that the budget cap of ten percent was not to be exceeded for any reason.

He then requested each member review the complete and prioritized five-year Capital Improvement Plan proposal and respond to him before the next meeting with ideas on how to combine project cuts with financing options that would keep the town in safe financial waters.

“I suggest we redo the list from top to bottom, culling out lower priorities, looking at lower numbers for the high school and moving [financing] out a year to see what impact that would have on borrowing,” Mr Kortze concluded. “Let’s try factoring in as much of the school spending as possible keeping under the [debt ratio] cap of ten percent.”

Contacted following the meeting, school board member Andrew Buzzi said he wants his board to be able to give the Board of Finance and the taxpayers all the information they need to make the best informed decisions, with an eye on maintaining the existing level of excellence in both district’s the facilities and programs.

“We need to look into every aspect of these projects to solve the problems before us,” Mr Buzzi said. “When you see our CIP, those are the big ticket issues, and the farther out we’re projecting a project the less accurate those numbers are. The Hawley HVAC project is a perfect example of that.”

Mr Buzzi said there are likely a number of options that could reduce the ultimate cost to taxpayers, especially regarding space needs at the high school. And he is looking forward to discussing those options as the school board moves forward with recommendations for capital project funding.