Officials Debate Differing Views Of The Town’s Borrowing Outlook

By John Voket

Citing a series of emails distributed to a wide list of recipients, including many public officials, Board of Finance Chairman John Kortze expressed concern this week that the sender, freshman Legislative Councilwoman Po Murray, is “comparing apples to oranges.” The latest, sent on October 15, is hailing a $26 million short-term bond sale that took place in the Town of Avon Tuesday.

The current state of municipal borrowing prospects around Connecticut bears directly on Newtown’s need to finance the town-approved appropriation of $38.8 million for the expansion of Newtown High School.

The fact that part of Avon’s bonding was targeted for that community’s high school may be the only similarity, according to Mr Kortze. Considering the 50 percent-plus interest rate increase the community’s taxpayers will bear for those bonds, the finance board chairman remains concerned that Newtown will face a similar fate when and if it goes out to bond for planned capital projects early next year.

According to reports, Avon was facing a looming deadline to refinance a Bond Anticipation Note (BAN). If the community failed to cover that $25.8 million BAN with new, longer term borrowing, it would have faced default, possibly jeopardizing its AAA bond rating.

While initial fears over the bond sale were calmed Tuesday when Avon learned it had several competitive bids for the full amount, the low bond bidder, Eastern Bank of Massachusetts, offered a rate of 2.4 percent. Mr Kortze said that rate was more than 50 percent higher than Avon’s last bonding initiative, and the bond sale only provided Avon with a one-year extension on the debt.

In Newtown’s case, the town is still scheduled to move forward in January with plans to finance the $38.8 million in borrowing already approved to expand and renovate Newtown High School. An additional request for $6.045 million to bridge cost overruns to complete the originally approved design failed in a referendum October 7.

In another email Ms Murray circulated October 14, she reprinted a release from the Connecticut Conference of Municipalities (CCM) that reviewed Governor M. Jodi Rell’s proposal to assist businesses and municipalities. The governor’s plan, which has yet to be introduced to the legislature, was floated when she met with community bank leaders from around the state.

The proposal would involve a $5 million loan fund administered by the state’s economic development department to help specific small businesses with less than 50 employees in sectors like aerospace and alternative energy retain jobs; increasing a larger loan fund for businesses with between 50 and 200 employees; and calling on community banks to fund another $1 million loan pool for small businesses.

The plan would reallocate another $5 million to help cities recruit or retain businesses tied to developments at municipal brownfield projects, and help communities like Avon facing BANs coming due in 2008 and 2009.

In tendering that proposal, the governor acknowledged that it would be a short-term fix for “municipalities to bridge revenue shortfalls caused by difficulties they currently face in selling bond issues.”

Newtown Finance Director Robert Tait suggested that circulating the email as an inference that the governor’s plan would impact Newtown’s financial picture was inappropriate because Newtown is not currently, and does not plan to become, involved with BANs.

Mr Tait also echoed Mr Kortze’s concern in respect to BANs, pointing out that the State of California just went out for a BAN and paid nearly four percent interest — up from 2.5 percent just a year ago. There may be a possibility Newtown could tap the modest brownfield grant fund for a specifically targeted development project, and that local small businesses might qualify for one or more of the targeted loan polls, but otherwise the proposal offers little access to help relieve Newtown taxpayers.

And it has nothing to do with the anticipated borrowing for the high school or other proposed capital projects, Mr Kortze said.

Ms Murray’s third email, sent on October 9, drew fire from fellow council members, a selectman, as well as the finance board chair. In it Ms Murray points out that recent testimony from State Treasurer Denise Nappier to the legislature has direct bearing on Newtown’s anticipated borrowing for the high school project. Following the testimony, Ms Murray said, “As a concerned citizen (not LC member), I spoke to Sharon Dixonpay from the Debt Management Department of the State Treasurer’s office.”

In the email, Ms Murray relates that “Ms Dixonpay reported that the state is closely monitoring the credit situation and the state has access to the bond markets. They plan to be prudent with the decisions with the interest rate for bonding. There may be some disruption on some of the debt issuance for short-term borrowing but she stated that municipalities should have access to the bond market. She also mentioned that the state has a healthy Rainy Day Fund to help during this mortgage meltdown period.”

Mr Kortze said, “Those comments suggest that Newtown will be obtaining its municipal borrowing from the state, which we are not.” Mr Kortze also pointed out that Ms Napier’s legislative testimony was related exclusively to the state’s pension fund and not to anything related to municipal borrowing or the future availability of funds for projects like the high school.

Republican Selectman Paul Mangiafico responded to Ms Murray’s email saying: “Ms Nappier, as a high ranking public official, must be very cautious of not sounding alarm bells for fear of eroding public confidence. Nevertheless, it is very clear that terms [she used in her testimony] like ‘suspension of redemptions,’ and ‘projected income will not be met,’ and ‘market value of pension funds has declined considerably,’ and cash flow will be OK ‘until April of next year’ are not phrases in and of themselves from our state treasurer that give one a warm and cozy feeling.”

The selectman responded to Ms Murray, saying, “As you pointed out in your note the ‘atmosphere’ that surrounds us needs to be better understood in order for all of us to make intelligent decisions [locally].” Mr Mangiafico continued, “There truly are no ‘free lunches.’ This debt problem of mortgaging the future can only be sustained until the future catches up with us — or our children — and it will.”

Ms Murray’s council colleague Jeff Capeci responded: “While the treasurer expresses guarded optimism through April, I do not think she has a clue when these disastrous financial conditions will turn around; nobody does. Since the forum was held, markets have tumbled to new lows she was not anticipating and that only took place Monday [October 6]! It will be interesting to see if she is able to let the rest of the $488 million in bonds she could not find buyers for last week by her stated goal of the end of October.

“Newtown will not be the only municipality affected by this credit crunch,” Mr Capeci added. “It seems to me the failure at referendum of the additional $6 million is only a minor speed bump on the path to the expansion compared to the financial turmoil gripping the world economy these days.”

Councilwoman Patricia Llodra pointed out that, “Although I am confident in Ms Nappier’s ability to keep us solvent and believe that we are well positioned to weather the storm, I am not foolish or naïve enough to think that we, Connecticut taxpayers, will escape unscathed.” She said Newtown is just one of the many communities tied to financial outcomes at the state level, and the town and its taxpayers “will bear the burden in some ways in some time in the near intermediate future.

“As for the state’s future ability to borrow money, we will know better later this month when Connecticut releases for sale $900 million in bonds,” Ms Llodra continued. “This upcoming issue is ‘new money,’ and includes school construction projects, road and bridge work, etc...all projects which have been already committed to. A caution here, of course, is that two weeks ago Connecticut was able only to sell $88 million of a $480 million dollar bond package. We can’t know right now what that means for Newtown’s projects, but we better be prepared for a bumpy road ahead.”

Mr Kortze concluded, saying that no matter how Ms Murray pastes unrelated financial information together in an attempt to illustrate ties to Newtown’s capital projects and related borrowing, “The truth is we don’t know what the scenario will be when we go to get the money.”

He pointed out that the school district has already proposed tagging taxpayers with an additional $3.5 million in added costs by pushing all its capital projects out at least one year with no consultation.

“Taxpayers expect us to exhaust every avenue we have to save money, and to discuss every scenario collectively to achieve the most savings we can,” he said. In an attempt to garnish outside opinions, the school board has set a joint meeting with members of the Boards of Selectmen and Finance, the Legislative Council, and the Public Building and Site Commission Wednesday, October 22, at the Reed School at 7:30 pm.

And as far as the flurry of emails from Ms Murray are concerned, Mr Kortze said, “Her comments all along have been off base.”