BOARD OF FINANCE
DECEMBER 18, 2007
REGULAR MEETING
1. CALL TO ORDER
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.
2. APPROVE MINUTES
Mr. Askham made a motion to approve the minutes of the November 20, 2007 Regular Meeting. The motion was seconded by Mr. North and passed 5-0.
3. CALENDAR OF MEETING DATES
Mr. Henault asked the Board to review the draft of the Calendar of Meeting Dates for 2008. The Public Hearing on January 14, 2008 will need to be posted as a Special Meeting. There will be a three-board meeting on January 15th at 6:00 (also a Special Meeting) and Mr. Henault indicated that he had spoken with both Jack Sennott and Mary Glassman and that both had agreed to this date. The January 15th Regular Meeting will also have to be a Special Meeting as the time is being changed to 7:30 (so as to immediately follow the three-board meeting at 6:00) and the venue will have to be changed to the Police Conference Room due to a room conflict with the Conservation Commission at that time.
[Ms. Mielert joined the meeting at this time.]
The meeting for the BOS Budget Presentation to the BOF and Approval of Capital Projects on March 18, 2008 was changed to be March 13, 2008.
The meeting for July 15, 2008 was changed to July 22, 2008. It was agreed to keep the August 19, 2008 date on the calendar with the likelihood that the meeting will be cancelled. It was also requested that January 20, 2009 be added to the 2008 calendar.
Ms. Mielert made a motion to approve the 2008 Calendar of Meeting Dates as amended. Ms. Fitzpatrick seconded the motion and it passed unanimously.
Relative to the January 14th Public Hearing, Mr. Henault stated that he would like to have a brief handout summarizing the financial condition of Simsbury, sources of revenue and a 5-6 year history of tax increases. He also thought that SCTV and the Hartford Courant should be contacted to properly advertise the Public Hearing.
4. CRRA
Mr. Kane referred to a letter from Brandon Robertson to Mary Glassman regarding the $35.9 million judgment against the Connecticut Resources Recovery Authority, which was appealed by CRAA. The court increased the award to $36.7 million of which Simsbury's portion is to be about $500,000. It was his understanding that the checks will be cut within the next two weeks. He indicated that it would not be appropriate for the Board to appropriate these funds at this time, as the decision is still under appeal and there is a possibility that the Town may be required to send the amount back.
Mr. Mason asked about the connection with Enron in this decision. Mr. Kane replied that CRRA lost over $220 million investing in Enron and subsequently raised the tipping fees for over 70 towns in order to cover the loss. Mr. Askham added that the Attorney General won CRRA over $100 million in the lawsuit against Enron and that the award to the towns is only a token amount from what CRRA actually got awarded and that CRRA has basically been made whole. Therefore, CRRA raised their tipping fees to cover a purported loss that they did not have and then were reluctant to return the funds to the towns.
Mr. North stated that, since there is no direct way to repay the residential and commercial contributors, at some point the Board should study how the amount can be used to offset tax increases. Mr. Mason asked Mr. Kane where the money will be kept until the court decision is finalized and Mr. Kane stated that he would deposit it in the General Fund.
5. STIF
Mr. Henault stated that there have been many comments and newspaper articles regarding the State of Connecticut's Short-Term Investment Fund and indicated that Mr. Kane had provided the Board with much information about this subject in their agenda packets. Mr. Kane also provided the Board with a copy of the Town's Investment Policy.
Mr. Kane explained that the STIF fund is one of several used by the Town for investments and that it gives a higher yield, but that some of its investments are not AAA-backed. He indicated that some communities have almost 100% of their investments in STIF, whereas the majority of Simsbury's working capital investments are in MBIA PLUS Class (whose investments are all AAA-rated) and that Simsbury's participation in STIF has fluctuated, depending on cash needs. Mr. North asked what the current yield differential was between the two funds and Mr. Kane replied that it was about 10% yield differential. Mr. Kane also noted that the majority of State grant funds are deposited into STIF, so that he ends up using both funds. Mr. Kane summarized the Investment Policy is the Board's and, if they were to so advise,
he would not have any problem with drawing all of the Town's funds out of STIF.
Mr. Kane stated that he had recently withdrawn $3 million from STIF for cash to fund payroll and Town and BOE expenses and that he expected that he would have to withdraw another $3 million by calendar year-end. At the beginning of the year, tax revenues would increase.
Mr. North expressed his concerns that there have been suggestions that the losses from the Fund could be greater than the current credit loss reserves and that the current sub-prime mess is largely the result of a colossal misrating of these securities by the rating agencies. As no one really knows what the risk is at this point, he felt that a 40 basis point positive spread for STIF does not warrant the risk that may be embedded there. Therefore, his inclination would be to transfer the funds out of STIF entirely.
Mr. Mason stated that he agreed with Mr. North, but also thought there might be a similar underlying problem with the MBIA fund. Mr. North disagreed and said that, although there were some Wall Street Journal articles about MBIA having some balance sheet problems, S&P and Moody's have both reaffirmed their AAA ratings for MBIA in the last week.
Mr. Henault asked Mr. Kane where the funds would be moved to if they were to be removed from STIF and Mr. Kane replied that they would be moved to CLASS. Mr. North noted that $24,000 of interest would be lost on an annual basis, which is not material. Mr. Kane said that one community has already moved all their funds out of STIF to another vehicle. Mr. Askham added that, if the rating were to be downgraded from AAA, then the funds would be removed immediately. Mr. Kane concurred, noting that municipalities are usually looking for AAA ratings and are not in the business of taking risks. Mr. Askham agreed that preservation of principal should be the top priority and rate/yield second.
Ms. Fitzpatrick agreed that it makes sense to move the funds out of STIF and perhaps research for investment vehicles other than CLASS. Mr. Henault asked Mr. Kane to review the Investment Policy and see if it still fits the today's needs and the reality of the financial markets and let the Board know if it needs to revise the Investment Policy.
Mr. North made a motion that the Treasurer take action to zero balance the investments in the STIF fund as soon as expediently possible. Ms. Fitzpatrick seconded the motion and it passed unanimously.
6. MCLEAN SETTLEMENT
Mr. Henault referred to a memo from Tom Vincent to the Tax Collector dated November 15, 2007 detailing the tax settlement with McLean (Addendum I). He noted that the settlement affected the Town taxes, but not those of the Simsbury Fire District. The schedule detailed the continuation of the increase of normal taxes due over the next five years. Mr. Kane indicated that there had been a question at the Board's last meeting as to why the dollar amount had decreased on his mill rate worksheet for next year. He explained that the Town is currently going through a revaluation and the assessment is fixed per the settlement. So while revaluation will probably result in property values going up by 20%-30%, the mill rate will the lower and McLean's assessment will be fixed.
Mr. Askham stated that he felt that the settlement is flawed in that revaluation should not give them a tax break. Mr. Mason asked if this could possibly be renegotiated. Mr. Kane thought that was doubtful as this is a court settlement resulting from an appeal made against an assessment made by the Town Assessor. Mr. Askham stated that dollar amounts should have been used rather than an assessed value amount throughout the agreement. Mr. Henault noted that, previous to the settlement, McLean was not paying any taxes.
7. APPOINTING CUSTODIAN BANK FOR OPEB TRUST
Mr. Kane referred to a chart listing details of the four bids that were received by Fiduciary Investment Advisors, LLC from Wachovia, Webster Bank, TD Banknorth and Simsbury Bank relative to providing custodial/trustee services for the OPEB Trust. He noted that Wachovia and TD Banknorth were the most expensive and that Chris Kachmar of FIA advised that, at this point, it would be best to keep things simple and that later on these services can be reassessed.
Mr. Askham, Ms. Mielert, Mr. Mason and Mr. North all thought that they would have to recuse themselves from any vote as they are shareholders of one or more of the four banks.
Mr. North noted that, in the context of the custodial assets, as much as Simsbury Bank & Trust looks like the low cost provider, they only have $50 million in custodial assets, whereas Webster Bank has $2.3 billion, which would suggest on the surface that Webster Bank may have a lot more experience providing custodial services than Simsbury Bank and may have a much bigger team so that there is depth of service. Mr. Henault noted that Wachovia appears to have not given any cost break in connection with already being the custodian bank for the Town's pension funds. He agreed with Mr. North's observations, but also noted that Simsbury Bank is a local bank. Ms. Fitzpatrick echoed these thoughts and stated that it was her instinct to go with Simsbury Bank this year as the dollar amount that is being invested is low and not
a lot of services will be needed in the first two years, so it would make the most sense to go with the lowest bidder.
It was the Board's decision to go with the suggestion of Fidcuciary Investment Advisors, LLC and use Simsbury Bank & Trust as the custodial bank for the OPEB Trust.
8. STATUS OF AUDIT
Mr. Kane stated that the audit is almost complete and that fixed assets are still being worked on. He indicated that the filing would be in December if the Board agrees and thought that it might be too late for an extension. Mr. Kane indicated that there was no change in the fund balance from the draft that was provided to the Board at their last meeting. Mr. Askham asked if Mr. Kane was anticipating a management letter and Mr. Kane replied that he has not yet had a discussion with the auditors, so could not be certain. He also noted that, as the Auditors' Letter will be issued in December, at the auditors' suggestion, only his signature will be on it as the new First Selectman was not in office for the period being audited.
9. DISCUSSION OF JANUARY 14TH PUBLIC HEARING ON 2008/09 BUDGETS
This item was covered during the discussion of Calendar Meeting Dates. It was determined that the Public Hearing will start at 7:30 PM.
10. DISCUSSION OF JOINT JANUARY 15TH BOARD OF FINANCE, BOARD OF SELECTMEN AND BOARD OF EDUCATION
Mr. Henault stated that the Joint Meeting with the three boards will be at 6:00 PM in the Board of Education Conference Room to have a discussion regarding the budget followed by a Board of Finance meeting at 7:30 PM. It was noted that the venue might have to be changed from the Main Meeting Room as there would be a conflict with the Conservation Commission at that time. It was suggested that the Police Conference Room could be used.
11. DISCUSSION ON 2008/09 BUDGETS
Mr. Kane provided the Board with a series of projected budget factors for the Board of Selectmen in which he took the current year budget and trended it forward as to what next year's budget will look like. He noted that the Board of Selectmen has not yet discussed next year's budget and that items such as staffing may change. For any items for which he had not yet received a projection, he used an assumption of a 1.5% increase.
With current staffing, he projected a 3.5% increase in salaries and wages and a 6.4% increase in employee benefits. He noted that consultant projections were for a 10%-13% increase in employee benefits, but that he had adjusted these percentages to reflect savings realized due to plan design and an increase in employee co-pays. He expected a 15% increase in OPEB funding, a 10% increase in workers' compensation expense, a 4.3% increase in pension funding, and a 2% increase in professional services. Mr. Kane noted that the auditing services are coming up for renewal and that he solicited a non-binding proposal for a three-year extension. Mr. Kane stated that energy costs constitute almost half of the supplies budget and he projected that they would increase by 20%.
Mr. Henault asked Mr. Kane, if he had to reduce the increase to 0%, what items would he first address. Mr. Kane stated that he did not know. Mr. Henault asked how much was included in salaries and wages for unfilled positions and Mr. Kane stated that he did not know. Mr. Kane also added that debt service for the improvements at the sewer treatment plant will increase from about $1.9 million to $3 million next year.
Mr. Holden provided the Board with a copy of a memo that had been issued to members of the Board of Education regarding preliminary 2008/09 budget projections earlier in the month. He indicated that three of five collective bargaining agreements had been settled. He projected an 8%-10% increase in health insurance (representing a 12%-13% increase moderated down by increased employee contributions) and a 5%-7% increase in other insurance. He noted that special education and continued out-of-district placement continue to be a major factor. He thought that retirement and OPEB contributions would be a moderating factor going forward. The major issue with transportation expense was the cost of bus fuel. He stated that they will finish meeting with each of the building principals at the end of this week and
will be getting their equipment, building maintenance and staffing requests. He noted that utility costs are a major issue. He said that their oil price is fixed for this year at $2.05 per gallon, but it will be $2.70-$2.75 per gallon for next year moderated by efforts to increase the efficiency of their equipment and the transmission of electricity at an 8%-10% increase.
Mr. Holden stated that they are currently reviewing staffing requirements and are projecting a moderate decrease in 2008/09. Security is a major topic of discussion on the Board of Education in terms of expanding non-certified security staffing in the buildings as well as expanding cameras onto the school buses and would result in a 5.5% to a little over 7% increase. Mr. Henault asked about the difference between certified and non-certified security. Mr. Holden responded that non-certified personnel would have no badge or firearm and would be a clerical/ paraprofessional/custodial individual for checking people in. He added that there have been some major issues in a number of the schools this year.
Mr. Henault observed that perhaps grants for using alternative fuels at the schools should be researched relative to reducing fuel costs, such as the use of fuel cells or solar panels. Mr. Holden stated that it is a component of potential building projects and was used when the emergency generator was replaced at Simsbury High School as part of the high school renovation project and that $26,000 of the cost of that is being paid by CL&P. Also $83,000 was used for energy conservation measures that were incorporated into the high school and are similarly being used in the Tariffville School project.
Mr. Henault thought that solar panels might be a future consideration. Mr. Mason noted that it was suggested for the roof of the library and noted that there are two roof projects coming up. Mr. North added that any considerations of alternative technologies should be done with consultant input to evaluate the cost benefit.
Mr. Henault asked about a recent change in the State's funding of special ed costs and Mr. Holden replied that the former benchmark of five times the cost of educating a regular ed child has been changed to 4.5 times. Mr. Henault confirmed with Mr. Holden that the Town is still required to transport private school students.
Mr. Henault asked Mr. Holden, if he had to reduce the increase to 0%, what items would he first address. Mr. Holden replied that, since 85% of their operating budget consists of staff and benefits, the only area to cut would be staff. Mr. Henault noted that, in light of declining enrollment, the voters may question an increase. He also cited a recent article in the New York Times which addressed the topic of the frustration of taxpayers over declining property values and increasing property taxes. He noted that, over the past few years, there have been minor tax increases (1.99%-3%+) in Simsbury and yet, in the last election, there was considerable discussion around taxes and people said that they still viewed taxes in Simsbury as being too high. He added that, unless there are increases in revenue, the only
thing to address is expenses.
Mr. Askham asked about the teacher's contract and Mr. Holden indicated that it has been filed and is waiting for approval and that the administrators were getting an increase of just under 4% over a three-year period and the teachers would get just under 5% over a three-year period. Mr. Askham asked what next year's increase would be and Mr. Holden stated that it would be around 4%. Mr. Askham asked about the projected enrollment decrease and Mr. Holden replied that it would be roughly 50 students, or about 1%. Mr. Askham asked about the status of the technology expense in this year's operating budget and Mr. Holden stated that, about $500,000 of the $627,330 that was budgeted has been expended. Mr. Mielert asked him if he expected this amount to remain static over the next few years and Mr. Holden thought that it
would remain stable.
Mr. Mason asked how many buses were scheduled for purchase and Mr. Holden said there would be three, but added that the cost per bus has increased $10,000 each due to emissions and safety controls that are now required.
Mr. Henault stated that if the budgets were to have a 0% increase and capital were to be kept where it is, there would be a 2.14% reduction in the mill rate and that the challenge to both the Board of Education and the Board of Selectmen is to demonstrate compelling reasons as to why the budget should be raised and to what amount. He added that the $1 million that was received from the State will be recognized in this year's budget and the Boards must try to keep the increases at a relatively modest amount so that the trend of having relatively low tax increases can continue in Simsbury. As other towns do not have the same discipline, then their relative position to Simsbury will decline.
Mr. Askham reiterated the need for all known and potentially known costs to be included in the capital budget. Mr. Holden stated that they have an initial draft of a 6-year capital improvement plan that has been reviewed with the First Selectman and the Board of Education at their last meeting relative to changes to the draft. He anticipated that the plan would be approved prior to January 15th. Mr. Henault added that the Ethel Walker purchase and the Meadowood land settlement(s) should all be factored into the capital plan for the Board of Selectmen. Mr. Mason stated that both Boards must re-examine and re-prioritize their capital plans. Mr. Henault concurred that the priorities must be set by the respective boards and can not be left up to the Board of Finance. Mr. North added that the capital plans
should be formulated within the context of the Board's debt guideline and, since that guideline has already been exceeded, any assumption that it will continue to be exceeded is an erroneous one.
Mr. Mason asked when the Assessor will have an estimated effect of revaluation on the grand list. Mr. Kane said that he will have the numbers provided to him by the revaluation firm in mid-January, at which point he will have an understanding of the effect, noting that revaluation is only part of the picture as motor vehicles also have an impact. Mr. Kane added that the revaluation letters will be sent out shortly.
Mr. North noted that, per the revised Town Charter, it was his understanding that, in order for them to move forward, all capital projects (other than real estate and economic development) must be on the capital plan for at least two consecutive years. He added that, if it is the Board of Selectmen's intention to recommend that the Town exercise its option on the Meadowood triangle, then it needs to go on their capital plan, noting that the purchase of the property is an option for the Town to decide and is not mandatory.
Ms. Mielert referred to a memo from Rich Sawitzke listing the open space projects for which grant money has not yet been received from the State, noting that three projects alone constituted $1.5 million and asked if those funds would go into the reserves. Mr. Kane stated that the funds would go back into capital projects as he had bonded to cover them.
Mr. Mason asked about the status of Simsbury Farms and Mr. Kane stated that this year's budget reflected a $65,000 cash flow going into the fund and that they had a $35,000 loss. This year's budget process will reflect a $65,000 transfer, but was uncertain if that amount would suffice.
Ms. Mielert stated that there needs to be a policy relative to the growth of the CNR fund and how cash is put into it. Mr. Henault stated that there is an existing CNR policy that addresses primarily what can be put into CNR. Mr. Henault asked Mr. Kane to provide the Board with a copy of the current CNR policy.
12. OTHER BUSINESS
Performance Management Project
Mr. Henault referred to a letter from Mary Glassman pertaining to a request for a grant that was submitted and said that the Town is currently waiting to see if it will be selected for the project, adding that there is an annual participation fee of $5,200 for the life of the project. Ms. Glassman has indicated that she wishes to discuss with the Board of Selectmen and the Board of Finance what the Town's involvement should be in this project.
Mr. Askham gave the Board members a booklet in which he described how the performance management project works and why the Town should participate in it, along with a recap of a class that he attended on this subject, an example of the report that results for a participant and sample of a citizen satisfaction survey that provides results-based accountability. Mr. North added that this project is on CCM's radar.
Airport Feasibility Study
Mr. Henault indicated that Mr. Mason has volunteered to be the Board of Finance member participating in this study. Mr. Mason stated that there is to be a meeting tomorrow to discuss the economics of the Town and to hear a consultant's presentation. Mr. Kane stated that he had met with the consultant today and had passed on to him comments that he has had from CIRMA, the Town's insurance carrier, indicating that they would unsure if the Town would be insurable should they purchase the airport.
Auditor Agreement
Mr. Kane stated that he will forward to the Board members a copy of the auditors' proposal for a new three-year agreement.
Small Tax Bills
Mr. Mason stated that the Tax Collector has indicated that currently the towns of Farmington, Glastonbury, West Hartford and Southington do not issue refunds under $5.00 and that the Town of Old Saybrook is currently considering it. Mr. Kane stated that the Tax Collector has discussed this issue with the First Selectman and may be going forward with a proposal to the Board of Selectmen.
13. ADJOURNMENT
Ms. Fitzpatrick made a motion to adjourn the meeting at 8:00 PM. Mr. Mason seconded the motion and it passed unanimously.
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Paul Henault, Chairman Debra L. Sweeney, Clerk
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