TOWN OF SOUTH WINDSOR
SPECIAL WORK SESSION MINUTES
TOWN COUNCIL MONDAY, FEBRUARY 25, 2013
COUNCIL CHAMBERS TIME: 7:00 P.M.
1. Call Meeting to Order
Mayor Delnicki called the meeting to order at 7:00 p.m.
2. Roll Call
Members Present: Mayor Thomas Delnicki
Deputy Mayor Gary Bazzano
Councillor M. Saud Anwar
Councillor Cindy Beaulieu
Councillor Ed Havens
Councillor Kevin McCann
Councillor Cary Prague
Councillor Janice Snyder
Councillor Keith Yagaloff
Also Present: Matthew B. Galligan, Town Manager
Dwight Johnson, Town Attorney
David Panico, Bond Counsel
3. Public Participation
Mr. Mike Sullivan, 24 Jared Court came before the Town Council and requested that the public be allowed to ask questions later on in the meeting.
4. Communications
None
5. Town Manager’s Report
None
6. Items for Discussion
Attorney David Panico from Robinson & Cole came before the Town Council and presented a Power Point presentation regarding 63-20 Corporations, as shown in attached, Exhibit A.
Answering questions from the Council, Attorney Panico explained that one of the rules of a 63-20 Corporation is it has to be a public purpose and needs to be formed for that purpose. The purpose needs to be found in the State Statues. The typical structure would be that the payment of the bonds would come solely from the lease payments from the building that is being created so the Town would have the authority to enter into leases of facilities for public purposes. This is a financing
ITEM:
6. A. (Continued)
mechanism that can be used for any type of a public purpose whether that public purpose is shared in use with public users who would rent it from the Town or the Town is using it.
Mr. Galligan told the Council that Attorney David Panico who is Bond Counsel from Robinson & Cole is not charging the Town tonight. Attorney Dwight Johnson who is Town Attorney for the Town has a retainer agreement with the Town, and Mr. Dan Marsh is being paid with a grant the Town received from the State. He gets paid a monthly fee whether he works on 1 project or 30 projects. The 63-20 Corporation is being discussed tonight because it was requested by three Council members which is normal practice.
Attorney Panico stated that a 63-20 Corporation is run on a non-profit basis. This is not saying that the people who build the project will not get paid or individuals who work for the corporation. With a 63-20 Corporation, the Town does not put its good faith and credit behind the bonds. If there were a default on bonds, the Town would not be responsible for that default. If there was a lease with the Town, that lease could be made subject to appropriations. This financing mechanism is a payment obligation. It is not legally binding on the Town but to fail to appropriate, would be considered by the credit rating agencies. There are usually provisions put into the lease documents regarding non-appropriations.
Answering questions form Mayor Delnicki, Attorney Panico explained that it would be very unlikely that a 63-20 Corporation could sell bonds without one or more long term contractual obligations of the Town or others that would secure most of the expected debt service of the bonds. The Town should consult with its Financial Advisor and/or Underwriters regarding a financial inquiry. Attorney Panico then explained that although the Town would not have any legal liability if it were to walk away from a 63-20 Corporation, such a default could be taken into account by Rating Agencies who rate the Town’s general obligation bonds. Lease payment obligations are a payment obligations and the failure to make such a payment on a lease would not reflect well on the Town’s credit rating. Attorney
Panico explained that the stronger the lease is, the lower the interest rate. The longer the lease is, the more debt service the lease payments cover. All of this will affect interest rates and the essentiality of the project will also affect it.
Attorney Panico stated that he did not charge the Town for the time he has spend answering questions regarding a 63-20 Corporation because this is considered business development, or investment time unrelated to specific financing.
Attorney Panico went on to say that included in the budget for the project there are typically two rent components. One is called the base rent which is usually sized to match the debt service on the obligations and the bonds. The second component is called additional rent which usually pays for insurance, auditing, financial statements and utilities. These budgets are set annually by the Board of Directors.
ITEM:
6. A. (Continued)
The payment is usually an annual reset mechanism in the lease based on a budget and there is a provision for a reserve. Under the lease there is a prepayment option where the money would typically be used to repay the debt on the bonds. A 63-20 Corporation is usually specific to a project so when a resolution is drafted it would also be specific to a project.
Deputy Mayor Bazzano stated that he felt that tonight’s meeting was to learn about 63-20 Corporations and not necessarily specific to any certain project.
Councillor Beaulieu explained to the Council that she does not know how anyone could take a position on any projects at this time because no numbers for any projects have been brought forward and if there are no numbers it would be very difficult for a Council member to take a position on a project. Tonight’s meeting is about learning how a 63-20 Corporation works.
Answering questions from Councillor Beaulieu, Attorney Panico answered that the Town has the ability to dissolve a 63-20 Corporation if the Town does not like the direction the 63-20 is going. If the 63-20 Corporation were dissolved, any bonds that are outstanding would need to be repaid or be defaulted on.
Attorney Dwight Johnson explained to the Council that based on a preliminary analysis it was concluded that prevailing wage would be required as part of a 63-20 Corporation. More research could be done on this issue if the Council decides to pursue a 63-20 Corporation further in the future.
Attorney Panico stated that he does some work in New York as Bond Counsel. In New York he has worked on constituted authorities rather than 63-20 Corporations which are similar.
Councillor Snyder stated that it is important to note that the council is not looking at a 63-20 Corporation at this time for any specific project, but is reviewing this mechanism as a financing tool for the future. Councilor Snyder questioned what the challenges would be of using a 63-20 Corporation?
Attorney Panico explained that the down side of using a 63-20 Corporation would be that the interest rate would be higher than general obligation bonds.
Council members reviewed the process of a 63-20 Corporation.
Answering questions form the Council, Mr. Galligan stated that the Town does not have any 30 year leases at this time and does not have a policy for a 30 year lease.
ITEM:
6. A. (Continued)
Attorney Panico stated that a 63-20 Corporation can be create strictly by the Town Council. The 63-20 Corporation going to bonds can only be authorized by the Town Council and can be done with a referendum. The Statutes specifically reference that the Town Council can add conditions or other requirements to the ordinance either creating the authority or the 63-20 Corporation or as a condition to the bond issue.
Councillor Havens said he would not support this type of financing because he believes the Council should never do a project unless the citizens participate in the vote.
Councillor Anwar questioned if there were any other disadvantages of a 63-20 Corporation other than what was stated previously? Attorney Panico explained that there is a whole range of things that could go wrong when using a 63-20 Corporation but many of them would exist no matter what type of financing is used.
Mr. Galligan explained to the Council that the Council would appoint the Board for the 63-20 Corporation and that Board would create by-laws that would have to be followed for the process of the entire project. A 63-20 Corporation is specific to one project. If there were a second project that was going to be done, another 63-20 Corporation would have to be created.
Attorney Johnson went on to explained that it is not unusual for State law to trump a municipal charter or ordinance because Connecticut municipalities have power only by virtue of State legislative action, therefore, the State Legislature always has the power to add to or to subtract from the powers that a municipality has. This is why it is believed that a referendum would not be necessary if it was decided to finance a project through a 63-20 Corporation.
Councillor Yagaloff felt that a 63-20 Corporation could be utilized under the right circumstance and an appropriate project that is of high priority.
Councillor McCann stated that it was explained that a separate Corporation is created for each project, so the project itself is crucial to the support of the Council and Town. The Council needs to determine what a project will consist of before financing is decided on. If a project could be done that could use revenues to offset costs of the facility, Councilor McCann stated he would be interested in hearing about that project and feels the Town Council should consider something like that.
Mr. Marsh from the National Development Council came forward and stated that the National Development Council is a 501C3 that is able to do development projects on behalf of municipalities. To date the company has done over $2.3 billion dollars worth of financing with about 50% of which used a 63-20 Corporation on behalf of bonds. Mr. Marsh went on to explain the process of using a 63-20 Corporation, concluding that a 63-20 Corporation is a very effective tool when used under the
ITEM:
6. A. (Continued)
right circumstances. It is not universally perfect for every situation but it is one that is used regularly in a lot of areas of the country. A 63-20 Corporation can actually save a little bit of money because it eliminates some of the fees associated with governmental issuers. It also provides a convenient way to revert assets to a municipality.
Councillor McCann questioned if the issuance of a 63-20 bond would have an impact on the credit rating of the Town? Attorney Panico answered that the issuance alone of the bonds would probably not affect the rating, it would depend on the amount because a Rating Agency would look at a lease obligation somewhat similar to a general obligation bond issue. Mr. Marsh added that it is not the bond itself; it is the lease because the lease is going to be a contingent liability for the current liability for the year that the lease payment is made.
Mayor Delnicki stated that he believes in giving the public their opportunity to vote on things and then questioned if the board that would approve the by-laws is the same board that will serve on the 63-20 Corporation? Attorney Panico explained that the Town Council would adopt the certificate of incorporation and then the board adopts the by-laws.
Public
Mr. Linc Streeter, 56 Bramblebrae came forward and stated that the presentation should have been available for the public.
Mayor Delnicki concurred with Mr. Streeter and requested that all questions that have been submitted to the Town Attorney be put on the website along with the answers.
Mr. Mike Sullivan, 24 Jared Court stated that he also concurs with Mr. Streeter. Mr. Sullivan then questioned if a 63-20 Corporation was to be used by the Town, the Town land was going to be used and the Town had to transfer that land to the non-profit, wouldn’t that transfer of land be subject to a referendum? The next question is 95% of the fair market value to be used by the 63-20 Corporation, the fair market value, is that assessed like when the property pre-development property is a green field or a brown field or whatever that current use is going to be? Mr. Sullivan then stated that even after these discussions, he is still leery of a 63-20 Corporation and would still like to know what all the consultants are being paid tonight just as Councillor Anwar asked and never received an answer for.
Mr. Galligan answered that as far as the value, it is 95% of the value after the project is complete because the IRS regulations are clear that you can’t have more than 5% or 10% being private.
ITEM:
6. A. (Continued)
Mr. Craig Zimmerman, 5A Amato Drive stated he is hopeful that there will be a proposal in the future that comes forward that will benefit the seniors and will be something that the taxpayers will support. South Windsor is in need of a Recreation Center that we can be proud of.
Mr. John Gilson, 149 Kent Lane came forward and questioned what happens if the 63-20 Corporation breaches its obligations? The second question has to do with the degree of control that the Town can exercise before the 501C3; can the Town have 100% towards representation? Mr. Gilson stated that his observation is that the lease obligations would be considered debt and an analyst will look at the quality of the cash flow to ascertain the Town’s net position and the debt will impact the ratings and the debt issuing capacity of the Town.
Mr. Art Jennings, 25 Shagbark Road stated that his concern is that the Council has spent two and half hours talking about something that is not being applied to a certain project. If has been informative to learn about these Corporations and Mr. Jennings stated he agrees that these tools can be used in certain situations. The community may be interested in Recreation Centers, but at this time there are bigger priorities.
Mr. Al Larson, 46 Jacques Lane explained that just in the last three weeks there are other Towns moving forward with plans to build Recreation Centers.
Mr. Mark Passeri, owner of A & S Boats came before the Council and stated that he has learned that a 63-20 Corporation primarily is a funding mechanism and another way for the Town to build something that is needed. Mr. Passeri’s stated that he does not think this funding mechanism should be used to do something that 60% of the community does not want. It seems that this funding mechanism is a way to skirt around what people want that other people do not want.
Attorney Panico came forward to answer questions from Mr. Gilson. Attorney Panico explained that there would be the ability to replace the 63-20 Corporation or the contractor and to pub someone else in their place through payment and performance bonds.
Mr. Gregorian, 369 Main Street questioned what is the failure rate of a 63-20 Corporation? Mr. Marsh explained different scenarios that could arise but stated ultimately the same problems would exist if the Town owned it versus the 63-20 Corporation.
Councillor Yagaloff concluded after asking several questions that a 63-20 Corporation can lease back land from the Town. The Town can lease back use of the facilities from the 63-20 Corporation so you can have a lease going both directions so the Town does not have to actually transfer real property and give ownership of real property to a 63-20 Corporation.
ITEM:
7. Executive Session
None
8. Adjournment
At 10:05 p.m. Deputy Mayor Bazzano made a motion to adjourn the Work Session. Councillor McCann seconded the motion and it was approved, unanimously.
Respectfully submitted,
Deborah W. Reid
Recording Secretary
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