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Town Manager Matthew Galligan called the meeting to order at 4:40 p.m.
Members Present
Dr. Saud Anwar, Town Council
Chris Chemerka, Director of Finance and Operations, Board of Education
Matthew Galligan, Town Manager
Michael Gantick, Director of Public Works
Patrick Hankard, Director of Facility Services, Board of Education (left at approximately 6:00)
Janice Snyder, Town Council (Chairperson)
Members Absent
Dr. Kate Carter, Superintendent of Schools, Board of Education
Carol Driscoll, Board of Education (Vice-chairperson)
Cary Prague, Town Council (arrived at approximately 5:40)
Richard Stahr, Board of Education
Guests Present
Gary Bazzano, Town Council
Cindy Beaulieu, Town Council
Jeffrey Doolittle, Town Engineer
Raymond Favreau, Director of Parks and Recreation
Clay Major, Facilities Manager
Brian Peck, Fire Department
Matt Rielly, Resident
Scott Roberts, Director of Information Technology
Mike Sullivan, Resident
Walter Summers, Fire Marshal
3. Approval of Minutes Previous Meetings
No motion was made to approve the minutes of January 30, 2013. The minutes will be approved at the next regularly scheduled meeting.
4. Discussion Items
None
5. New Business
TIP Capital Presentation
Town Manager Matthew Galligan gave a brief summary of what has happened to the Capital Projects budget within the past few years. For Fiscal Year 2013/2014, there are zero percent increases in the Town Budget, which means no extra funding for Capital Projects. Town Manager Galligan did some research and TIP Capital provided some lease options. He introduced Mr. Jack Sloan and Mr. Marcus Cardella from TIP Capital.
Mr. Cardella explained his background to the Committee. He has been in the leasing business for many years. His short slideshow presentation (Exhibit A) is geared to give an informative summary about leasing. He will present his slideshow and take questions afterwards. Mr. Cardella’s mission for this meeting was to talk about reducing strain on the Capital Budget while delivering the acquisitions and financing for all Capital Projects. Three basic areas would be covered: types of municipal lending economics, asset types and their financeable life cycles, and matching the assets to the correct type of lending. These leases are not as simple as a home mortgage or car loan.
Mr. Cardella continued his presentation by explaining the types of municipal transactions along with their terms and conditions. There are fixed dollar buyouts, fixed put, fair market value, and step leases to consider. If the Town did lease items, it would have the option to control the payments with terms and structure. He explained this item further with the Committee using a $1,000,000 lease with 60 month acquisition as an example.
Mr. Cardella discussed step payment economics. There is a choice between straight level payments or step payments. Step payments can be used when finances are currently tight, but in the future, some obligations will disappear allowing for higher payments. Mr. Cardella emphasized that TIP Capital is not currently recommending any structures, but that the presentation is meant to be informational.
Mr. Cardella continued his presentation by discussing asset types and culture of use. He started by discussing I.T. assets. Intel founder Gordon Moore once stated “Processor speeds double every 18 months”. TIP Capital bases their I.T. leases off of “Gordon’s Law”. A desktop PC kept for six years costs more to maintain than two new PCs every three years. Electronic assets that are constantly changing and upgrading are leased on Fair Market Value (FMV) over 36 – 60 months. Brick and mortar structures, data centers, pavilions, recreational facilities, sports fields, irrigation systems, etc. are considered to have a long culture of use with little to no upgrades. These assets are typically leased with either fixed puts, balloons, or dollar out. Furniture,
HVAC, generators, commercial lighting, etc. have long lifecycles of usage, and are typically leased with 60 months dollar out, fixed put, and step lease structures.
Mr. Cardella recapped the previous information. Banks will generally shy away from municipal lending, while private lenders are willing to take more of a gamble on what is considered essential use assets. Private lenders only lease assets, and that is it. The types of tailored financing that municipal customers choose are driven by matching the lifecycle and usage of assets. He ended his presentation with his and TIP Capital’s contact information. He then asked if there were any questions.
Chairperson Janice Snyder thanked him for the great presentation. She also asked if there were more copies of the presentation. Mr. Cardella said he could get extra copies. Chairperson Snyder explained to the Committee that this is a way of looking outside the box to get infrastructure back on track.
Town Manager Galligan explained his compatibility issues between the Town’s Microsoft Office 2003 and Microsoft Office 2010, which is being used more often. These issues led Town Manager Galligan to look at other options such as leasing. Chairperson Snyder mentioned that there is a real misunderstanding when it comes to leasing I.T. equipment. Town Manager Galligan did not want people to think leasing is like a mortgage. Mr. Cardella explained a typical I.T. transaction worth $1,000,000 with a 36 month life cycle. Electronic equipment disposal is included in the cost because electronics contain hazardous materials.
Councillor Cindy Beaulieu asked how big the company was and what the funding sources were. Mr. Cardella said TIP Capital is backed by William R. Berkeley Associates and the Guggenheim lenders. They currently have $3-4 billion under management. Mr. Matt Rielly asked how large the company was. Mr. Cardella listed some companies they have private relationships with such as Wells Fargo Bank, JP Morgan Chase, Cincinnati Bell, and Life Sciences Corporation. TIP Capital has been granted clearances in many projects, such as the aerial drone project for Lockheed Martin. Mr. Rielly asked about clarifications about the actual size of the company. TIP Capital has just under $200 million in revenue. Mr. Rielly asked what the largest lease is. Mr. Cardella said they have $15 million with the
Nuclear Regulatory Commission. Mr. Rielly asked if it would be a revolving lease arrangement. Mr. Cardella said a deal would include rate backers associated with asset types. There would be individual line itemization of every asset and its payment. More importantly, a free robust asset tracking package would be included. Mr. Rielly asked if TIP Capital was different from a standard leasing company. Mr. Cardella said the customer is able to decide how to pay down their assets. TIP Capital pays the invoices and makes sure that the leased items work. An approval can be held for 18 months, and extensions can be approved as long as the credit rating has not significantly decreased.
Town Manager Galligan said he was looking at a different leasing system for the copiers in Town. He is tired of being in the dark ages and would like to do a Town-wide lease instead of by department. Mr. Cardella said that TIP Capital is vendor-neutral. The client is the customer, not the manufacturer. He explained that it works better for TIP Capital if the customer does not purchase “wrong”. Mr. Rielly asked how relevant the underlying asset is to the underwriting. Mr. Cardella said it is very relevant for the FMV. Some assets are resold, while others are disposed of according to TIP Capital’s zero landfill policy. They reclaim as much of the item as they can and melt down the rest. Money is made in a number of ways, including the reclamation of precious metals
and reselling.
Resident Mike Sullivan asked what TIP Capital has done regarding athletic fields and/or brick and mortar buildings for municipalities. Mr. Cardella replied that TIP Capital has leased pavilions that have included convection ovens, ice dispensing machines, and things of that nature. These types of structures are tailored on what the end user wants. Astroturf is financed by dollar out. Leasing is the vehicle that municipalities use to smooth out the strain on their budgets. Mr. Sullivan asked if TIP Capital has specifically provided for a lease arrangement for the procurement, installation, construction, and leasing of a complete athletic field. Mr. Cardella said TIP Capital has not leased a complete athletic field, but they have leased a number of assets associated with that. He apologized for
not being more prepared for such specific questions.
Chairperson Snyder said that any specifics should come from either the Capital Projects Committee or the Town Council through Town Manager Galligan. Mr. Sullivan asked if I.T. projects and a complete athletic facility receive the same lease rate arrangement over 60 months. Mr. Cardella said he would make different recommendations because they are very different projects. TIP Capital is able to reclaim more than just electronic items.
Councillor Gary Bazzano said that the asset does not matter because anybody will lease anything based on credit. Councillor Bazzano works for a rolling stock leasing company that loans finances for cars. He does not know anything about cars anymore, but he knows what he leasing out. He asked if the step payment program explained earlier is strictly a fixed amount. Mr. Cardella said it was based upon a fixed amount. If times are tough, the numbers at the beginning can be adjusted for a step lease. However, the step cannot be 10% of the normal payment. The most would be 25%. Councillor Bazzano asked if the rate is based more upon the asset or the credit. Mr. Cardella said it depends on the structure. FMV is based on both credit and the residual. A synthetic playing field
will be based purely on credit because the company cannot take the field back. TIP Capital would finance the turf and lighting for athletic fields, but not the land.
Councillor Saud Anwar said he was interested in the process. He asked if there could be a mechanism to keep the public money transparent. He wanted to keep the Town government very transparent. Mr. Cardella said that he provides a list of vendors that have provided value to their customers. He mentioned that TIP Capital would love to compete for South Windsor’s business.
Chairperson Snyder had Mr. Cardella list the potential Capital Projects for South Windsor on the board. She asked Mr. Cardella if TIP Capital could help the Town finance all of those projects. Mr. Cardella said that all of the items are available with more information needed. Chairperson Snyder asked for clarification on athletic field leasing. Mr. Cardella explained the process, which includes a warranty.
Chairperson Snyder asked Mr. Cardella if he financed the capital projects, does the Town have to bank $3 million every year or is the lease a new out-of-the-box way to finance the projects? Mr. Cardella said it is not a new way of financing projects, but the Town could cycle in and out of assets as needed. Chairperson Snyder asked if there were any vendor restrictions. Mr. Cardella said that vendors have to comply with the Patriot Act.
Mr. Cardella further explained the dollar out loan rates based on assets to Mr. Rielly. Councillor Cindy Beaulieu asked if a municipality is downgraded, are there steps? Mr. Cardella said that the rate is locked in predicated on the municipality’s current rating. Mr. Michael Gantick asked about the rate structure for a dollar out lease versus a bond. Mr. Cardella said TIP Capital cannot do transactions outside certain rate boundaries. It is tax exempt leasing. Bonds generally lump all assets together no matter how long their life cycle is.
Town Manager Galligan said the Town is looking at an increasing mill rate, a reduction in assessments, zero increases in the Town budget, and a Capital Budget of $287,000. Residents are asking what they are getting for services because of the tax increase. He said that during these times, money has to be stretched farther in order to gain any new items. He explained the time value of money.
Mr. Cardella thanked the Committee for allowing him to present. He added that if the Town chooses to take a dollar out schedule and prepay it early, there is no penalty. Chairperson Snyder introduced Jack Sloan, a South Windsor resident, and thanked him for introducing TIP Capital to the Committee. She said that leasing is a new way for the Town to possibly finance much needed projects. She thanked TIP Capital for their time.
6. Old Business
None
7. Adjournment
A motion to adjourn was made by Town Manager Matthew Galligan at 6:22 p.m.; the motion was seconded by Mr. Michael Gantick; and all were in favor.
Respectfully submitted,
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Ashley Summers
Recording Secretary
(Approved 1/29/14)
Attachments:
Exhibit A TIP Capital Slideshow Presentation
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