Town debt loads vary widely - Wallingford stands out locally for low debt, high credit rating

As published in the Record Journal Tuesday July 12, 2011

By Robert Cyr
Record-Journal staff
rcyr@record-journal.com
(203) 317-2224

When it comes to municipal finances, debt can be deceiving. It’s not always an indication of the fiscal health of a city or town, although it’s certainly a contributing factor.

Meriden is larger and less affluent than Cheshire, but Cheshire has a higher debt load. It also has a higher bond rating.

“There’s a whole series of considerations that go into how a city is rated,” said Meriden Finance Director Michael Lupkas.

Beyond debt, rating agencies look at a city or town’s demographic makeup, ability to pay, fund balance as a percentage of expenditures, and leadership, Lupkas said.

Managing debt is a matter of ongoing payments and keeping up with growth by maintaining buildings and infrastructure, according to several local municipal officials.

Meriden’s debt of $77,888,000 is the accumulation of every project that has been borrowed for over the past two decades, Lupkas said. The city is slated to pay off $11,930,000 of principal and interest in the budget year that began July 1.

The city paid down $12.4 million in debt last year, he said. Moody’s Investor Service, the credit rating agency that assesses the economic health of communities based on debt and fiscal management, gave Meriden an A1 rating, the fifth-highest mark.

“We do feel that over the past several years Meriden’s financial position has changed dramatically for the better,” Lupkas said. “We do think that an upgrade of one to two notches is fully within our reach.”

Recent large bond issues in Meriden include a $2 million project to replace police radio equipment, $975,000 to finally close out financing for the new Lincoln Middle School, which opened in 2005, and $1.8 million for the closure of a landfill, Lupkas said. Money has also been borrowed for road work, replacement of dump trucks, property purchases and park upgrades.

The city is also in the planning stages of a $216.7 million project to renovate the two high schools.

Only one area community has garnered the highest bond rating, Aaa. Wallingford was ranked highest by Moody’s recently after the sale of three bonds totaling $4.8 million.
 
Higher ratings equal more favorable interest rates when towns issue bonds.

Wallingford’s $42 million debt is shared by 44,881 residents, amounting to $935 per person, said Comptroller James Bowes. About two thirds of the debt — 67 percent, or $28.2 million — was generated by school projects.

“You have to figure the more kids you have, the more schools need expansion, and the more people you have, the more roads you need,” he said. “In terms of debt per capita, we’re pretty good — in the bottom half of communities in the state.”

Wallingford paid $3,351,000 on its debt last year and is scheduled to pay $3,340,000 from this year’s $141 million budget, he said.

Southington Finance Director Emilia Portelinha said the town paid $7,014,225 on its $73,148,000 debt last year and will pay $8,373,436 this year. The amount of debt for each of the town’s 42,534 residents is about $1,719.

Larger projects that created debt include school renovations, some more than 10 years old, totaling $18 million in work at three elementary schools. The town also recently borrowed $11 million for upgrades to its wastewater treatment plant, she said.

As with Meriden, Southington is also planning an expensive school renovation and expansion project — if approved by voters in November, the town will spend $85 million on its two middle schools.

Cheshire Finance Director Patti-Lynn Ryan said the town’s $79,818,731 debt is mostly for school projects more than a decade old, and does not include the $30 million that will need to be raised to complete a total overhaul of the wastewater treatment plant.

“We’ll probably have to start financing that shortly,” she said.

Debt for school projects, some completed almost 20 years ago, totals $14.5 million, she said. The town paid $9,996,609 against its debt last year; this year $9,824,610 is marked for that purpose. Divided by Cheshire’s 29,142 people, each person holds $2,738 of town debt, she said.

Is Connecticut too deep in debt for rail project?

As printed in the Record Journal Sunday August 15, 2010

Originally published online at CTMirror.org - “State borrowed from capital program to keep budget afloat” 

CTMirror.org is the Web site of The Connecticut Mirror, an independent, nonprofit news organization covering government, politics and public policy in the state.

 

Nearly $600 million borrowed from future capital projects to help state government pay its bills has thrown a wrench into Gov. M. Jodi Rell's efforts to bond another $260 million for the planned New Haven-to-Springfield commuter rail line.

Rell canceled Wednesday's scheduled State Bond Commission meeting after leaders of the legislature's Finance, Revenue and Bonding Committee questioned why the $580 million in short-term borrowing - approved in April 2009 when the state was more than $1 billion in deficit - still hasn't been repaid.

And Rep. Vincent J. Candelora of North Branford, ranking House Republican on the committee, said he was unaware the financing had been sought to keep the state's checkbook in balance, and not to finance capital projects.

"There wasn't any discussion about borrowing for our cash flow at the time," Candelora, whose finance committee leadership post also makes him a member of the bond commission, said Thursday. "I don't want there to be any secrets or surprises out there."

Candelora and his fellow GOP lawmakers already have criticized both Rell, a Republican, and the legislature's Democratic majority for ordering $2 billion in borrowing over the past year to cover government operating costs.

Despite having nearly $1.4 billion in the state's emergency reserve, Rell and the legislature agreed last fall to borrow $1.05 billion to cover the 2008-09 budget deficit. This enabled them to use the entire reserve to support the 2009-10 and 2010-11 budgets.

The governor and legislature then agreed to borrow again this past May, approving another $956 million in financing for the current budget--an amount that has been cut to $700 million by recent surplus projections.

And if the state effectively advanced itself another $580 million in April 2009 that will eventually be used for capital projects, why does Rell need  another $260 million for the rail project now? Candelora asked.

"I believe it is imperative that the commission members have adequate information prior to its vote," Candelora wrote this week to Rell, warning he was prepared to vote against further borrowing at the bond commission's Aug. 11 meeting. The panel, which is being asked to approve $520 million in new general obligation bonding for projects, including $260 million for the commuter line, has been rescheduled to meet Aug. 17.

Rep. Cameron C. Staples, D-New Haven, and Sen. Eileen M. Daily, D-Westbrook, then sent e-mails to Rell, indicating they shared many of Candelora's concerns.

The governor's office issued an statement this week indicating the meeting had been delayed because of lawmakers' concerns about past borrowing. "All of us, including Representative Candelora, the other lawmakers and my administration, deserve to have this extra information before we move ahead," she wrote.

That borrowing was authorized by Rell, and performed by state Treasurer Denise L. Nappier, in accordance with emergency provisions spelled out in state law. The treasurer is empowered, with the governor's approval, to borrow funds when the state coffers are at risk of running dry.

Nappier submitted a plan in early March 2009 to Rell, which the governor subsequently approved. The "first line of defense" in that plan stems from a procedure commonly followed when state government finances road repairs, new building construction or other capital initiatives.

The bond commission routinely allocates a fixed amount of borrowing, to be repaid over 15 or 20 years, for such projects. But in the early stages, a relatively small amount of the funds might be needed for tasks such as architectural designs or engineering studies.

This fraction of the total project budget typically is borrowed, at lower interest rates for short terms such as one or two years, through bond anticipation notes.

When the state is ready to move ahead with the bulk of the project, it issues long-term bonds, and uses the proceeds both to repay the anticipation notes and to pay for the remaining work.

Nappier's plan called for the bond commission to approve $700 million for future capital projects, which it did in April 2009.

The treasurer then used bond anticipation notes to effectively secure an advance of $580 million, to improve the state's cash flow.

"That plan was reviewed by the governor and shared with the General Assembly," Nappier wrote this week in a response to Candelora, adding it allowed Connecticut to borrow at rates ranging from 0.47 percent to 1.15 percent. "Had the BANs not been used in FY 2009, to aid the state's overall cash position, other methods of cash flow borrowing, more than likely at higher interest rates, would have been necessary to ensure our ability to meet the state's obligations."

This system works because of state government's common cash pool, a system that effectively mingles tax revenues, receipts from fees, licenses and penalties, federal grants, and proceeds from borrowing, in one big account.

Originally scheduled to be repaid in June 2010, those notes were extended for another year. Nappier added in her letter that she plans to issue long-term bonds next June to borrow the full $700 million authorized for capital projects back in April 2009, and to use those proceeds to repay the short-term notes.

But what about the $580 million used to shore up state government's operating budget last year as tax receipts ran low? Is all of that funding effectively still available? If so, why does the Rell administration need more borrowing?

"You want to be able to see how this $580 million fits into the whole context," Staples said. "The treasurer's letter provides some information, but it doesn't provide us with all of the context we need."

"If we were going to borrow even more money for (operating costs,) this is something that should have been debated by the legislature," Candelora said.

Staples added committee leaders would be seeking to meet with Nappier in the next few days to better understand the common cash pool.

Candelora and Rep. Craig Miner of Litchfield, ranking House Republican on the Appropriations Committee, questioned during the regular 2010 legislative session whether the state's operating budget effectively was borrowing from its capital projects to stay afloat.

About 27 percent of the funds in the state's cash pool at the end of January 2009 came from bonding, while that ratio had jumped to 52 percent one year later, said Candelora, who sponsored a measure enacted this year that requires the treasurer to issue monthly reports on the state's cash balance starting in October.