At a virtual meeting of the Board of Finance on March 9, the Board discussed the 2022/2023 education and municipal budgets as well as the town’s debt service. The town’s debt service increased by $35 million with the latest round of bonding for the school building projects. The town went to bid in late February, and accepted an offer for $35 million over 20 years at 2.51%. The rate was more than the projected 2%. In early 2021, the town bonded $25 million in its first round for the school projects. There is one round of bonding remaining, which will be for $12 million and will happen in early 2023.
Town Treasurer Terry Friedman and Town Finance Director Olga Melnikov reviewed the situation with the Board and presented various scenarios involving the use of the $2.4 million premium generated by the transaction. Ms. Friedman suggested using $600,000 of the premium to reduce the impact of the debt on the coming year’s mil rate, much as had been done with the previous year’s bond offering. This, she said, would lower the mil rate increase from 4.98% to 4.25%, which includes the town’s total existing school building debt service. The remainder of the premium would be spread out over the remaining term of the 20 year bond.
Ms. Friedman did say that the Board could use its discretion as to how the premium could be applied and that a final decision did not have to be made until the budget is finalized prior to heading to a town vote.
Board Chair Wes Marsh summed up the situation saying, “What our challenge is as a board is what can we do to bring the…tax increase down?…I’m looking at debt service, and can we take any more of this premium and whittle away at [the increase]. Because if we don’t, then we’re going to have to take a lot of money out of payroll and non-payroll for both the Board of Ed and the Board of Selectmen budgets.”
Ms. Melnikov proposed taking $1.2 million of the premium this year, which would drop the mil rate increase to 3.68%. However, she cautioned that doing so would add to the $400,000 premium deferral and would increase the debt service a total of $1.6 million in the fiscal year 2023-2024, which would equate to a roughly 3% mil rate increase in that year.
She did say that there would still be $1.2 million in premium remaining, and that all or part could be allocated in that year to reduce that year’s mil rate increase. Allocating $600,000 in premium in ‘23-’24 would reduce the debt service increase by the same amount which would bring the 3% mil rate increase down to 2% for that year. She also noted that the remaining $600,00 premium could be used in fiscal year 2024-2025. Ms. Melnikov acknowledged that $12 million in bonding would be offered next year, and that the specifics of that (rate, term, etc.) were yet to be determined.
She said that in this way, ultimately, the premium could be used to cushion the impact of the increased debt service on the mil rate in the near term and keep it around 1.5% from 2025-2026 onwards, depending on the variables of next year’s final offering.
She and Terry will do a projection showing the impact of that plan over the life of the bonds and present it at the next meeting.
Conversation then turned to the BoE and BoS budget proposals. The overall tax increase should the education and municipal budgets be sent to a town vote, and if $600,000 of the bonding premium was used, would be 4.8%. Using $1.2 million of the premium would bring the increase down to 3.68%.
Board Member Cheryl Reedy said that she would be satisfied with an increase between 3.00%-3.25%. Board Member Thora Perkins said she would like to see an increase under 3.00%, noting that she felt there was room for reduction in the education budget definitely and perhaps in the municipal budget as well.
There was some discussion about whether the $4.1 million in ARPA funds the town will receive could be used to reduce the amount of capital projects in the municipal budget. First Selectman Pat Del Monaco said that $1.7 million in projects that fall under the guidelines of the program have already been removed from the budget and are being considered by the ARPA working group and the Board of Selectmen. She said she would forward the U.S. Treasury Department’s guidelines to the BoF members for their review.
Several members expressed a desire for more information and metrics on student performance and the various zero education budget scenarios presented. Superintendent of Schools Dr. Pat Cosentino said she would provide numbers at the next meeting.
The next Board of Finance meeting will be Wednesday, March 16 at 7:30 p.m.
By Greg Slomba