Finance Bd. Member Expresses Concern—

Smaller Budgets Will Impact Capital Projects And Debt Cap

By John Voket

Board of Finance member Joseph Kearney’s concerns about possible declining future budget growth and its ties to proposed capital projects were underscored this week when Finance Director Benjamin Spragg presented a revised chart, or “matrix,” illustrating how the cost of those projects would impact the town’s self-imposed ten percent debt cap.

The current spending plan, which taxpayers approved after three failed referendums, represents 4.5 percent growth in the budget. In years past, that budget growth has been projected and figured at six percent.

But Mr Kearny became concerned earlier this year that a repeating scenario of annual budgets coming in under six percent would force the town to eventually trim capital projects and related borrowing measurably in order to protect the debt cap.

That cap, representing no more than ten percent of the annual budget in debt service, has been consistently recognized by Moody’s Investment Service, the rating agency responsible for issuing three bond rating upgrades to the community in recent years. Those upgrades have translated into increasingly favorable rates for borrowing to fund capital and other projects, thereby saving taxpayers millions compared to other neighboring communities that are borrowing at higher rates due to lower bond ratings.

“I did this primarily to illustrate, and perhaps to force a discussion of, the current budget realities facing the town and its effect on the capital expenditure guidelines being used by the Board of Finance,” Mr Kearney told The Bee after Tuesday night’s meeting. “Those guidelines have served the town well in our reputation with the ratings agencies and, ultimately, the investors of the town’s bonds, so its important that we have that discussion.”

Mr Spragg explained that an estimated six percent growth has been a standard element in projecting the revenue side of the annual budget for some time. But his revised matrix proved plainly that if a trend of growth consistent with the 2007-08 cycle continues, and the town proceeded with all approved capital projects as proposed, the debt cap would be cracked as early as the 2010 fiscal year.

Based on his revised projections, Mr Spragg’s worksheet showed that despite retiring some existing bonds in the process, the need to acquire bonding would quickly escalate to more than $2 million above the borrowing cap by 2013. Provided no new capital projects were introduced between 2008 and 2015, the escalation would not be reigned back under the ten percent cap until 2016.

The other issue, which was briefly discussed at this week’s finance board meeting, is proposed spending in excess of $30 million for middle school renovations, which is not yet included in the matrix accommodating six percent annual budget growth.

Mr Kearney sees this as a wake-up call to taxpayers, who must either accept escalating taxes to fund the capital projects they require, or a willingness to accept fewer or less expansive projects while the community controls its borrowing to reduce the likelihood of a bond rating downgrade.

“Ultimately, if the growth of the town budget is less than six percent, then the town must reexamine the capital spending priorities and amounts, or further spread out the timing of those expenditures if we want to stay within our guidelines,” Mr Kearney said.

Finance board chair John Kortze said Tuesday that it is paramount that the school district and the Board of Education have a solid projection of capital costs for all proposed projects within the five-year CIP cycle, including the middle school renovations and expansion.

In discussing the 4.5 percent matrix, the finance board members concurred that it would not be practical at this time to adopt such a significant adjustment in its budgeting process. Mr Spragg suggested that the incoming administration might be challenged to control spending while keeping the ten percent debt cap intact with a six percent projected budget growth.

The finance director cited a 4.9 percent payroll increase for the school district’s teaching staff, an industry trending 10.9 percent projection for health care cost escalations, and the first $2 million payment in debt service for $20 million in bonding for the high school expansion, adding that those combined costs alone would approach or exceed 4.5 percent in budget growth.

Mr Kortze said it is critical for taxpayers to know where the town stands financially, both today and in the next five years and beyond.

“We’ve had declining rates of budget growth in recent years because taxpayers are not as willing to write the checks,” he said. “Our budgets are predicated on six percent growth, and it would be hard to go down to 4.5 percent because of all the fixed costs.”

“To his credit, Joe [Kearney] wanted to point out these overhead costs — they are the 800-pound gorilla in the room,” Mr Kortze concluded. “It’s hard to roll back budget growth to meet taxpayer expectations considering what is already baked into the cake.”