2023-03-27-CEC-ATM-rpt (corrected)

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CORRECTED CAPITAL EXPENDITURES COMMITTEE REPORT TO 2023 ATM The Lexington CPF receives the annual receipts from our local surcharge, the State supplement, and interest on the balance in our Town's CPF. Under the statute, 10% of the total received each year is allocated to each of the following categories: Community Housing, Historic Resources, and Open Space. The remaining 70% of this income may be spent for any of these categories or for Recreation. Funds may be accrued from year to year and are available for debt service on previously approved projects. A CPA -funded project can only be brought to Town Meeting for action through recommendation by the CPC whose membership, in our Town, is prescribed in the Code of Lexington as follows: § 29-23A. There is hereby established a Community Preservation Committee pursuant to Section 5 of Chapter 44B of the General Laws (the "Act") consisting of nine members. The Board of Selectmen shall appoint three members of the Community Preservation Committee and the following bodies shall each select one of its members for membership on the Community Preservation Committee: the Conservation Commission, the Planning Board, the Recreation Committee, the Historical Commission, the Housing Authority, and the Housing Partnership. Town Meeting can only approve, reduce the funding, or disapprove a project; it cannot change the purpose. Town Counsel has provided an opinion that Town Meeting can change the funding mechanism for a given project (cash or debt). This Committee gives our recommendation on each of the projects put before Town Meeting. See the report of the CPC for information on how Lexington has spent from the CPF since 2007. The projected available CPF cash is not a limitation on what the CPC can recommend to Town Meeting for spending approval. The CPA can—and often does—include debt financing, which is then paid over the term of the borrowing using the CPF. In fact, CPA has proposed funding the Monroe Center for the Arts renovation (2023 ATM Article 10(b) with a combination of existing CPA funds and $2 million debt. This Committee has always stated that cash funding should be the first preference. However, (1) Any such debt should be for as short a term as practical, with and payment front-end loaded, as practical, after considering the funding projected for the CPF (not including any State supplemental funds) over at least the next 10 years; and (2) Such debt should be approved only after consideration of potential future projects that might come before the CPC for consideration which would require funds beyond those allocated to the three, mandatory reserves for Open Space, Historic Resources, and Community (Affordable) Housing. The debt service is an obligation borne by the CPF throughout the term of those instruments—whether short-term financing (i.e., notes, such as a Bond Anticipation Note [BAN]) and/or long-term financing (i.e., a bond). It is the Town's practice that each year's debt service will be paid from any funds remaining in the reserve category under which that project was eligible—whether or not initially financed from that reserve—before use of other available funds. In subsequent years, the CPC recommends to Town Meeting those obligatory debt -service -payment appropriations. (See Article 10(q).) One approach that provides flexibility in deciding how much, if any, CPF cash should be applied up front for a large project is to defer that decision by initially issuing a BAN for a term of one year or less for the full amount of the project. (A BAN typically carries an interest rate that is below even the relatively low rates paid on the Town's bonds.) When a BAN matures, a decision can be made whether to use CPF cash to reduce the total for which a longer-term bond would then be issued. Doing so gives the Town a better idea of how much CPF cash should be held in anticipation of the next—and later—years' demands upon the CPF. This mechanism has been used in the past, and this Committee expects it to be proposed in the future for other large projects. The CPC carefully husbands available funds and has recommended taking on additional debt for the Monroe Center of the Arts renovation after considerable deliberation. The proposed addition at the Monroe Center will improve accessibility with the installation of an elevator and creating new, gender -neutral bathrooms. Without borrowing, CPF available fund balances would have dropped below the $2 million, which is the minimum the CPC customarily likes to keep on hand in event a large project needs funding in the near future. The impact of debt service from the Monroe Center project will be mitigated by the cessation of financing payments on Marrett Road and Cary Memorial Building Construction ending in FY2024 and FY2025, respectively.