For Bonding In 2010, 2011—

Capital Spending Scenarios Leave Little Wiggle Room

By John Voket

A conservative projection of capital financial spending, at least over the next two fiscal years, provides little room before the town bumps against or exceeds its ten percent debt cap for borrowing. That fact became abundantly clear as two capital spending projections were rolled out before the Board of Finance by Newtown Finance Director Robert Tait November 9.

The first series of projections play out under assumptions of either $42 million or $51million five-year CIP totals assuming a 3.5 percent budget increase, while a second scenario uses the same CIP totals factoring a 4.5 percent budget increase.

While all the information is hypothetical until the incoming Board of Selectmen and Board of Education review and possibly readjust capital priorities and requests, it still provides evidence that in the 2010 and 2011 fiscal years, the capital funding well is nearly dry.

In a follow-up interview to his finance board presentation, Mr Tait illustrated the restrained borrowing potential tied to his projections.

“In year one [2010- 2011] with the $42 million CIP scenario factoring a 3.5 percent budget increase, the finance board can pick about $3 million worth of projects from the $21 million currently proposed,” Mr Tait told The Bee. “That same scenario in year two [2011-2012] would allow for between $7 million and $9 million out of the $21 million requested.”

To further illustrate how little room there is for borrowing in the next two years, Mr Tait said that accounting for the current school board’s two top priorities, the two middle school roof projects would consume the entire 2010 allowance for bonding.

The main reason why the town will be left so short for capital bonding next year is because of the high school addition, the finance director said.

“Because the high school borrowing was split over two years [F/Y 2009 and 2010], it only leaves about $3 million for all [remaining] projects in 2010 at the $41 million CIP scenario, and about $6 million in the $51 million scenario,” Mr Tait said.

The projections, carried forward into years two to five, or 2011–2014, give the finance board and taxpayers some idea of what the projected budget increases will be, and at what point the town overextends its borrowing cap.

“If we borrow for a $51 million CIP and factor a three-and-a-half percent budget increase, years two through five will all be over the debt cap,” Mr Tait said. “And with a four-and-a-half percent increase, we will max out the debt cap.”

Even reducing the CIP to $42 million at the more conservative 4.5 percent increase will bring the town dangerously close to exceeding its debt cap in years two and three (F/Y 2011 and 2012), according to the finance director’s worksheets.

Mr Tait was careful to warn that the projected budgets do not necessarily mirror potential tax increases.

“The budget increase takes into account income from the grand list and other sources besides taxation,” Mr Tait explained. “So if we increase our grand list, or take in more in state funding and grants, we could afford this level of bonding with no tax increase, couldn’t we?”

Despite the finance director’s optimistic scenario, finance board Chairman John Kortze is hedging on just the opposite happening. He told The Newtown Bee this week that a recent bond rating downgrade for the State of Connecticut will mean more costly borrowing and less state funding and grants for more affluent Connecticut communities like Newtown.

“With the high school already drawing on our capital spending, and state aid likely to decline as a result of the Moody’s downgrade, Newtown gets less. This is very newsworthy...very scary,” Mr Kortze said. “Fortunately, we have been expecting this and warning about it for three years, so we will deal with it head on.”

Mr Kortze assured taxpayers that because of the town’s current financial management practices, the community will still be able to do some capital projects in the coming two fiscal cycles, “if we can hold to near a zero budget increase, and we keep beating the bushes to find savings.”

Looking ahead to what would be year six (F/Y 2015-2016), the sun comes out, so to speak, as Mr Tait projects a huge drop in debt service as a result of several bond issues retiring. Besides being a good year to plan for “major municipal projects,” Mr Tait said it would be the ideal opportunity to reduce the town’s debt service cap.

This is something the Board of Finance has been discussing for several years.

“It’s a good opportunity to reel in the debt cap to nine percent, plus fund major projects with as much as $20 million to $25 million in costs,” Mr Tait said, adding that the projection should hold steady as long as interest costs remain consistent at four percent or less.