2013 RPT of CEC to STM-March-final

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CAPITAL EXPENDITURES COMMITTEE REPORT TO 2013 STM(Mar 18th) where the match level will go in the future, but we need to be cognizant that if it does drop enough to jeopardize an acceptable year-end balance in the fund, it would necessarily mean that we have to make up the lost revenue by other means—most likely reducing the scope of other projects or their timing. • Capital project costs could increase beyond the currently contemplated amounts, even adjusting for inflation. On the upside, the model has several conservative features. A few are: • The CPA State match does not presume an increase resulting from any State surplus being directed to the State's Community Preservation Trust fund as will apply at least for the distribution in FY2014. (That increase would be up to $25,000,000 to the extent the State surplus for FY2013 allows.) • The assumed bond interest rate is 4% and the Town has been experiencing much-lower effective rates, especially when bond premiums are realized by the Town. • There are cushions in the mandatory"set-aside buckets" for projects involving Open Space, Community Housing, and Historic Resources. Although the debt service for the proposed purchase can rely on funds separately accounted for in the set-aside buckets (thereby significantly reducing what is currently a potential double claim against the CPF), there is no assurance the projects in the future will be aligned with the availability of funding in those"buckets". • With the purchase of the property for a new Center, the planned upgrades to the Senior Center at the Muzzey Condominiums may not be necessary. While the model has already presumed eliminating the proposed $526,818 appropriation from the CPF at this year's ATM, there is also the $561,518 appropriated from the CPF at last-year's ATM. Those funds have not been spent and would be a candidate for release back to the CPF. • The years in which the bonds are issued could potentially be moved later than currently shown in the model. Following the Cotton Farm acquisition,there were discussions among the financial committees, CPC, and Town staff about appropriate level of reserves to maintain in the CPF, but no formal policy was ever adopted. If the Town embarks on all three of the potential projects named above and we consider the current model, it will be difficult to continue to maintain a substantial reserve. (It is understood that the model is a snapshot in time and should be updated to reflect both actual events and any assumptions that warrant change.) Additionally, since there will be fewer CPA funds available after the committed debt service is appropriated, it necessarily means that these projects will "crowd" out some other potential projects, although that is not to say all of those other projects would be judged to be more important to the Town. One significant "big ticket" project that our Committee believes would be judged more important to the Town and that, if renovated in its current building would likely have some portion of the work eligible for funding from the CPF, is the Lexington Police Department Headquarters, even though the timing of this project and its location are still under discussion. Also as shown above, the $3,560,000 balance of the purchase will be GF (cash) as not every aspect of the purchase is eligible under the CPA. That balance will be funded by using most of the remaining unallocated revenue that was being considered for several capital projects and would have been appropriated at the 2013 Fall Special Town Meeting. The most significant among them was to use cash funding for the Lexington High School modular classrooms,which will now need to be debt funded. (See the Brown Book,page XI-9, for the plan that would precede the purchase.) While it is possible to reduce the CPF portion (and thereby increase the GF portion), this Committee believes that as much as possible should be funded using CPF because GF dollars are generally more flexible for future projects (e.g., roads). We understand the Town's offer to the seller will include that the Town be given a right-of-first-refusal when the lot with their Commander's House—which is not part of this proposed purchase—is up for sale. After considering financial issues raised by the proposed funding—some of which have been discussed above—this Committee believes that it is an appropriate financing approach. 3