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APPROPRIATION COMMITTEE SPECIAL TOWN MEETINGS 2017-2&3 OCTOBER 10,2017 period of time between FY2019 and FY2024, from approximately $10 million annually to $20 million annually, resulting in a"spike"of substantial annual tax bill increases for that period of time. Fortunately,thanks to recent favorable economic conditions, and a prudent anticipation of major upcoming capital needs,the Town has been able to set aside substantial reserves in a Capital Stabilization Fund(CSF), which is available to help finance these projects and partially to mitigate the impact of projected increases in excluded debt. The current balance of the CSF is currently approximately $28 million. The Town staff has recently prepared, and will present at the Special Town Meeting, a Capital Financing Model and Prop- erty Tax Mitigation Plan (the "Model") which contemplates annual draws from the CSF through FY2024 to limit the sharp increases to annual tax bills which would otherwise occur during that period of time if all of the new debt exclusion referendum items are approved. Assuming that no additional funds become available to further augment the CSF, the Model projects that the CSF would be depleted by FY2024. Financing Bedford Street and Pelham Road Property Purchases At the time of the Annual Town Meeting last spring,it was contemplated that a debt exclusion referendum presented to the voters would include not only the project costs described above, but also two additional associated costs,totaling approximately$12.5 million,which were previously appropriated by Town Meet- ing, and which have already been incurred: the cost to acquire the property at 171-173 Bedford Street(ap- proximately$4.5 million)in the fall of 2016 for use as fire station(and possibly police station)swing space; and the cost to acquire the 20 Pelham Road property(approximately $8 million) for use by the LCP and, at a future date, the Lexington Community Center. Because these two land purchases were financed with short-term, interest-only Bond Anticipation Notes (BAN's), it would theoretically be possible to seek ex- clusion of the future debt service costs of long-term bonds issued to replace the BAN's. During a series of"capital"summits conducted by the major boards and committees through the spring and summer, this Committee suggested that it might be prudent to use funds in the CSF, which are currently earning approximately 1% interest, to pay off the two property purchases, rather than to issue long-term excluded debt at an interest rate of approximately 3% (the "true interest cost" of the most recently issued long-term debt),thereby saving a 2% spread or roughly$250,000 per year and potentially millions over the life of the avoided debt. Although this would lower the amount of CSF funds available to "mitigate"the near-term spike in excluded debt service costs, it would also lower the total amount of excluded debt re- quired to be issued, lower total borrowing costs, and remove from the debt exclusion two items which are faits accomplis and not subject to the usual voter"choice"associated with a debt exclusion referendum. The Selectmen ultimately concurred with much of this reasoning,and decided that the costs associated with the two land purchases should not be included in the debt exclusion referendum. However,at the suggestion of the Town Manager, they have adopted a slightly different plan for paying off those purchases within the levy, and avoiding the payment of higher long-term interest costs,but without the need to draw directly on the CSF. Under this alternative plan, the Town will roll over for five years the existing BAN's for the two property purchases,which have an interest cost of about 1%; and if conditions are favorable,gradually pay off the principal, and thereby retire the indebtedness, in equal installments of approximately $2.5 million over those five years using surplus available funds within the levy (i.e., free cash) that would otherwise have been appropriated to augment the CSF. If conditions are not favorable, the fallback plan would be to issue long-term debt within the levy, thereby spreading out the repayment over a longer period of time. To kickstart this plan, a motion will be presented under Article 2017-3.5, "Amend FY2018 Operating Budget,"to appropriate $2,351,487 toward the partial retirement of the debt incurred for the purchase of the Bedford Street and Pelham Road properties in lieu of appropriating it to the CSF. 7