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03/15/2017 09:30 AMIn a town currently lacking a strong revenue stream and suffering a steady decline in state aid, how do you pay for capital projects? That’s the question that has been kicked around by town officials lately and a few have begun to put a name on a possible solution: bonding.
The annual capital needs of the town are compiled in the Capital Improvement Program (CIP) and voted on in the budget referendum each year. The CIP program is designed to create one comprehensive planning document for all of the town and public school’s capital needs for the next five years and evaluate possible funding options.
The CIP includes numerous items, categorized by annual expenses, such as roadwork and vehicle replacement, and the Capital and Nonrecurring Expenditures (CNRE) fund, which includes projects such as one-time facilities improvements. This year, in the Board of Selectmen recommended budget, the requested funding level for the CIP is $2,996,306.
Historically, Madison has upheld a “pay as you go” mentality when it comes to capital projects, meaning the majority of projects are paid for out of cash flow. However, as both the town and the Board of Education (BOE) begin work on 10-year strategic plans for their needs in conjunction with the five-year CIP, some town officials have said bonding might be the right way to go for certain projects.
First Selectman Tom Banisch said bonding could help smooth out some of the effects certain capital projects have on the annual budget. While bonding would not be a consideration for this fiscal year’s capital budget, he said this is an idea he wants to look into.
“It is not something where we are going to go crazy and just bond everything,” he said. “It is not going to impact this year’s budget, but we are looking at it right now because we want to know what we are looking at going forward.”
Banisch said bonding could be used for certain capital projects depending on the life of the project, meaning the town wouldn’t bond for vehicles, but that they might consider bonding for roads. Banisch said bonding could also become another alternative as grants from the state start to dry up.
“We pretty much don’t anticipate too much grant money such as STEAP grants and things like that,” he said. “We will continue to apply for them, but I have to be skeptical about the state’s ability to provide that funding.”
BOE and CIP Chair Jean Fitzgerald said with aging facilities on both the town and school side that need work sooner rather than later, bonding might be a better option.
“I believe that Madison is financially strong because we have always taken the position of pay as you go, but unfortunately with all of the fiscal changes at the state, it may have come to a time now where it is more fiscally responsible to bond than it is to pay as you go,” she said.
While Fitzgerald said the “pay as you go” model has worked well for many years, bonding for certain projects might help smooth out tax increases year over year. With bonding, town officials can look at the overall debt service and see when certain projects—such as the high school or the library—are coming off or coming on, allowing the town to plan for when to bond.
“We will have a very clear idea of what the impact will be on the taxpayers and I think that is really important, because we do not want to burden the taxpayers,” she said. “Hopefully the bonding will be a better way to predict what the impact will be on the community.”
The idea of bonding has not been warmly received by all town officials. Board of Finance Chair Joe MacDougald said he thought about bonding for roads when he was a selectman, but said bonding for too many projects can lead to problems.
“That is what most of the towns in Connecticut have done and they have ended up with giant debt pools,” he said. “It is very easy in any given year to collapse taxes by bonding and not putting money in the reserves and then you end up in the long term with these terribly underfund towns because they can’t borrow when they need to.”
MacDougald said he believes Madison to be a fairly debt-averse town and that part of the reason Madison has maintained a AAA bond rating is because the town doesn’t bond very often.
“This is not the first time I have heard this argument and there may be an occasion when we need to bond,” he said. “But I am just always afraid of adding more debt.”