2005-02-24-AC-min - Laserfiche WebLink

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February 24, 2005 Minutes Town of Lexington Appropriation Committee February 24, 2005 Place and time: Town Office Building, Room G-15, 7:30 p.m. Members present: Al Levine, Deborah Brown, Paul Hamburger, Rick Eurich, Rod Cole, David Kanter, Ron Pawliczek, Eric Michelson, John Bartenstein Also present: Michael Young, Dawn McKenna, Cinder McNerney Approval of Minutes 1.. Discussion of minutes of the February 9, 2005 meeting was postponed. Discussion with Bond Consultant 2. . Cynthia “Cinder” McNerney, Senior Vice President of First Southwest Corporation, attended the meeting to discuss the implications of Moody’s most recent bond rating. McNerney was engaged by the Town in the fall of 2004 as an additional bond consultant/financial advisor and assisted the Town with its presentation to Moody’s in mid-January. The Moody’s rating, issued on January 21, 2005 in connection with the sale of $11.8 million in Bond Anticipation Notes (BAN’s) for school construction projects, affirmed Lexington’s Aaa rating with a continued negative outlook. McNerney noted that the Town was planning to issue additional BAN’s later in the spring, at which point Moody’s would again update its rating. McNerney emphasized that it is very important for the Town to continue building its financial reserves although she did not specify a particular target. Standard & Poor's looks at reserves as a percentage of the General Fund budget, and Moody's looks at reserves as a percentage of General Fund revenues. Many Triple-A rated communities maintain 10% of revenues in reserve, some less. At the end of FY01, Lexington had about $6.7 million, or 8.5% of revenues, in reserve, which was adequate. Current reserves are now at about $4 million, or about 4% of revenues. It would not be necessary to rebuild reserves overnight as long as steady progress is made. Steady progress to a healthier level of reserves over five years or so would be acceptable. There was extensive discussion about how a steady increase in financial reserves can be achieved given our current model of seeking overrides designed to last two or three years. This model tends to produce a “sawtooth” effect, where reserves are increased significantly immediately following the passage of an override, then reduced in the “out” years to meet budgetary needs. McNerney said there was no inherent problem with drawing down reserves in this fashion over a two or three-year budget cycle as long as the funds withdrawn are fully replenished, and then some, to maintain overall steady progress toward the reserve goal. - 1 -