Most people at one time or another have had to sit through interviews with bank officials as part of the application process for mortgages, business loans, or personal lines of credit. But what happens when tens of millions of dollars are in play and global bond rating agencies are asking the questions?

That is what several Newtown officials had to do January 12 ahead of the town’s next round of planned bond refunding. First Selectman Pat Llodra, Finance Director Robert Tait, and Economic Development Coordinator Betsy Paynter spent about an hour on conference calls with Moody’s Investors Service and Standard & Poor’s responding to a series of questions posed by those agencies.

While a number of questions were posed well in advance by the rating agencies, in a unique twist according to Mr Tait, those rating professionals had all the answers in hand before they ever sat down for their respective phone interviews.

The finance director told The Newtown Bee that it is rare for municipalities to provide answers in writing ahead of their prebonding interviews.

“The agencies always send their questions in advance so we can be better prepared, but they said that they rarely get the answers in advance,” Mr Tait said. But Newtown’s CFO believes providing the replies before the conference call gives rating officials an opportunity to fine tune any remaining questions they may have, and generally makes the conference calls go smoother and more efficiently for all parties involved.

Apparently, providing the answers didn’t hurt — both Moody’s and S&P have reaffirmed Newtown’s bond ratings, and while Moody’s took no action to raise the communities rating to perfect AAA status matching the current S&P rating, neither agency acted to lower Newtown’s standing either.

The upcoming refunding or refinancing of debt on a number of municipal bond offerings is expected to generate at least $925,000 in interest savings. Mr Tait said the exact savings should be known by month’s end.

Both agencies request information about current contract negotiations, any change to financial policies since the town’s last bond rating reviews, the status of Newtown’s fund balance, and any major economic changes, which prompted a brief review of new commercial developments by Ms Paynter.

S&P also wanted to know Newtown’s justification for the general fund operating surplus in the last fiscal cycle.

Moody’s, on the other hand, developed about twice as many queries, seeking specifics about why the town was refunding qualified bonds and how the current unissued debt would be spent.

Representatives at Moody’s also wanted to know whether construction on the new Sandy Hook Elementary School had commenced; whether the grand list had begun to stabilize; and budget drivers including a pointed question about declining school enrollment.

Enrollment Concerns

Regarding the enrollment question, Mr Tait responded that in November 2014 the town received an enrollment report performed by consultants at Milone & MacBroom.

“The districtwide and school specific projections in this report are meant to serve as a planning tool for the future,” Mr Tait responded. “The report states that K–12 enrollment has declined 16.5 percent from its peak of 5,609. Current enrollments are at the historic [30-year] median level of just under 4,700. While high school enrollments have remained steady, the smaller grade cohorts currently in the elementary, intermediate, and middle schools have not yet matriculated up to the high school level.”

Mr Tait said the consultants recommended using a medium growth scenario, which anticipates a strengthening housing market and economy. In the medium growth scenario the K–12 enrollments change was projected at -16.4 percent in the first five years; -3.8 percent in the second five years, and -22.7 percent in the ten years beyond.

The finance director also informed Moody’s that the district is in the midst of a facility use study.

“If it is determined that a school should be closed this will most likely be in fiscal year 2016-17 (the same year the new elementary school comes on line),” he wrote. “Declining enrollment has already started to affect the Education budget. Staffing levels have been reduced mainly through attrition. This has greatly helped in keeping the tax rate increase low in these economic times.”

Future enrollment also showed up in another answer when Moody’s asked to review next year’s top “budget drivers.” Mr Tait’s response:

*Student enrollment — this has a positive effect on the budget and town finances.

*Employee medical benefits — this represents around 10 percent of the total budget. The medical claims experience has been very positive. The medical self-insurance fund, fund balance continues to increase. It will be at around 25 percent of medical claims at the end of this fiscal year. Increased employee contributions and medical plan changes have helped keep town costs down.

*Pension costs are around 1.3 percent of budget. The town has begun to switch employees (new employees) to a defined contribution plan. So far, this includes nonunion employees and Parks & Recreation union employees. Contracts currently in negotiation include this item in discussion. We are confident that all new employees will be on the defined contribution plan in the near future.

*Taxable grand list growth — the town has been experiencing a ½ percent growth over the last few years. We are expecting an increase in grand list growth over the near future due to forecasted economic development.

Audit High Points

When given an opportunity to point out specific positive points in the latest town audit, Mr Tait noted that:

*Newtown continues to increase its general fund, fund balance. We have done this with conservative budgeting (not overestimating revenue estimates and underestimating expenditures).

*Newtown enterprise funds (sewer & water) continue to have a good financial position.

*Our medical self-insurance fund has maintained its good net position (20 percent of claims).

*Our pension funding ratio is 99 percent for the town plan and 87 percent for the police plan; the town funds its annual required contribution at 100 percent.

*Our debt service is now closer to 9 percent of total budget (down from close to 10 percent).

*Tax collection rate continues to be above 99 percent.

In response to S&P’s question about the operating surplus in fiscal year 2014, Mr Tait replied:

“The reason for the general fund operating surplus is mainly using conservative numbers in coming up with revenue estimates. For example in the property tax account — motor vehicle supplemental I used the prior year estimate amount even though the mill rate was higher due to revaluation — so the estimate should be larger.”

To be conservative Mr Tait said he kept the same estimate of $600,000, while the actual was $841,982. In the property tax account — interest and liens — the finance director used the prior year estimate amount of $425,000.

“The actual was $581,696 due to the improving economic climate, (particularly) improved collections on delinquent accounts,” he said. “I also do not budget an estimated amount for miscellaneous grants. The actual amount for miscellaneous grants was $92,105.”

Once refunding savings have been identified, Mr Tait with the approval of the Board of Finance, will distribute those savings across several fiscal cycles to help maintain the town’s self-imposed nine percent debt cap.

“This will help keep that debt service budget flat over the next five years,” Mr Tait said. “We were already planning to keep it flat, but now it be flat and lower.”