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09/21/2018 11:32 AMAt the Sept. 18 Town Council meeting, Finance Director Anthony Esposito was asked to discuss the town's current debt service (obligated payments for bonded costs) and give the numbers to show how North Branford might undertake future bonding costs for potential projects such as renovating the town's high school building (see related story).
Currently, the town is paying back $27 million in principal and $4.5 million in interest for previously bonded projects, or a total debt of about $32 million, at cost to the town of approximately $4 million ($3.982 million) per year.
As various bonds are paid off, the town's costs will drop off, Esposito explained. The biggest drop will hit in fiscal year 2025-26, when the town will be cleared of $2 million in debt service. He suggested one potential way to make the numbers work on bonding a high school renovation would be to begin permanent bonding for that project in 2025-26. In that scenario, instead of debt service dropping by $2 million, the town would continue paying an annual average of at least $4 million, including the new debt for the high school project.
Councilman George Miller (D) noted that another town project may also need to be bonded in the near future; a police department upgrade. He said that project started off with the council discussing financing $1 million to $1.5 million to provide "the necessary help" to upgrade the building, yet, "...now, we're being given [an estimated cost of] $6 million; and here's how it's going to work. [So] by asking to get numbers, at this point we're being pushed toward a project I don't know that I'm going to support; I don't know if anyone else is either."
Miller said he wasn't sure if the town should be considering additional project debt at this time.
"If we go forward with a [high school project to] renovate as new, and consider the numbers that are being thrown about, I don't see how we can sustain that debt, with a $4 million debt service," Miller said.
For initial funding, bond anticipation "notes" could be "rolled" forward for a period of five years before the town must take on permanently bonded debt for a project, Esposito explained. If that was how the town chose to proceed with funding the high school project, that five-year period would dovetail with the town's 2025-26 debt service reduction.
"So you incur some additional upfront interest costs; but you capitalize that cost into your bonding at the end [and] you could time it so if that huge project hits, it hits in '25-'26. So you would time it so that it fell right into that gap," said Esposito.
Miller also pointed out any significant increase in the town's debt burden effects the town's ability to borrow, as was discussed with the council on Sept. 8 during a bond credit ratings service report . As of Sept. 8, Moody's Investors Service current bond rating for the Town of North Branford is AA2; which demonstrates the town's very strong capacity to meet its financial commitments. Moody's has also removed a temporary negative outlook issued in October, 2017. The outlook had been issued in anticipation of further state budget cuts and costs impacting the town; those cuts and costs did not materialize.
On Sept. 18, council member Thomas Zampano (R) asked if Esposito could provide a "pro-con" document on the idea of potentially extending the town's $4 million debt service to incorporate new project costs.
"We need to see pros and cons either way. If we're paying down the debt, what's the pro-con; if we're not paying down the debt, what's the pro-con. It sounds good in one sense [but] in the other sense it scares me, carrying so much debt," said Zampano.
"That's the threshold question," responded Esposito. "I'm just suggesting if you choose to buy into these projects, there's a way to make it work. If you want to build a police station; if you want to build a high school, we can make it work. The decision to do them obviously rests with you folks."
Councilman Al Rose (R) estimated the cost for a high school "like new" renovation project could be "...somewhere around $30 million," which could increase the town's annual debt service to approximately $8 million, until reaching the $2 million decrease beginning in 2025-26. Rose also pointed out that, about 10 years ago, the town was carrying $6 million in annual debt service (after bonding to renovate both town libraries, work on the Augur property and the renovation/addition to North Branford Intermediate School).
Rose suggested the town may want consider bonding for the needed high school building renovations "...like we want to spend $15 million."
"The people in town can't afford six million a year in debt," said Rose. "That's when we had to start doing nothing else."
"We did have a blip. We had to do a lot of big projects," Esposito said. "It added up. If you choose to do the projects, you've got to pay the bill. If you don't choose to do the projects, obviously we can enjoy that [savings]."
"Unfortunately, we've got to do something," said Rose.