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Home My WebLink About2017-02-02-AC-min02/02/2017 AC Minutes Minutes Town of Lexington Appropriation Committee (AC) February 2, 2017 Place and time: Parker Room, Town Office Building, 7:30 p.m. Members present: John Bartenstein, Chair; Alan Levine, Vice -Chair & Secretary; Eric Michelson; Sanjay Padaki; Andrei Radulescu -Banu; Lily Manhua Yan; Jian Helen Yang; Carolyn Kosnoff, Assistant Town Manager, Finance (non- voting, ex officio) Members Absent: Richard Neumeier Membership Note: There is an opening for one more member. The meeting was called to order at 7:36 pm. 1. Announcements Mr. Bartenstein reported the following: • Carl Valente, Town Manager, is preparing to seek a replacement for Pat Goddard, Director, Department of Public Utilities, who will start before Mr. Goddard's August departure to ensure a smooth transition. • It is advisable to get legal guidance on appropriate parameters associated with discussing zoning bylaw changes, their financial ramifications and their effect on school enrollment. • There will be a warrant article addressing the appropriation of bond and note premiums. • Discussion of the Town's use of outside counsel versus hiring staff to handle some of the legal issues will be deferred to a later date due to Mr. Neumeier's absence, and might best be pursued after Town Meeting. Ms. Kosnoff added that she had provided Mr. Neumeier with Town expenditures under different categories of legal services so that he could prepare background data for further consideration by this Committee. 2. Liaison Reports Ms. Yang reported that she had attended two School Committee (SC) meetings, during which the school budget was reviewed. She found the discussion to be thorough and thoughtful and noted that there had been some discussion about gradually increasing the school bus fees to $350 annually and eliminating the special after - school bus program for elementary students. Mr. Michelson noted that this is complex because of Town Meeting's support for subsidizing school bus transportation in an effort to minimize traffic congestion around the schools. Mr. Radulescu -Banu reported that the Community Preservation Committee has taken positions on the Community Preservation Act funding requests for capital projects. It was noted that the Capital Expenditures Committee provides an in -depth report to Town Meeting on capital projects. This Committee does not need to duplicate this effort, but should look into projects about which there may be conflicting views. 3. Minutes A motion was made and seconded to approved the January 19, 2017 AC Minutes, with minor edits. The motion passed. VOTE: 7 -0 1 02/02/2017 AC Minutes 4. Planning for Annual Town Meeting (ATM) and Special Town Meeting Reports Mr. Bartenstein reviewed the processes for creating this Committee's report and his tentative assignments for its preparation. Each article that has budget implications has been assigned an author and a reviewer, who are responsible for submitting a consensus write -up that is shared with the rest of this Committee for final approval. Committee members may switch assignments, if desired, keeping Mr. Bartenstein informed of such changes. Articles with recommended bylaw changes could have financial implications and will be addressed in the report, as appropriate. Mr. Bartenstein discussed the Town Moderator's recent practice of creating a consent agenda with multiple articles to be presented in one motion for Town Meeting approval. Only items supported unanimously by the Board of the Selectmen and the finance committees are considered for inclusion. If any article is questioned on Town Meeting floor, it is removed. 5. Appropriation of Bond Premiums (STM Article 5 and ATM Article 22) Ms. Kosnoff provided the Committee with background on articles which have been included in the warrant for both the Special Town Meeting (STM Article 5) and the Annual Town Meeting (ATM Article 22) proposing the appropriation of bond premiums to be applied to reduce the borrowing costs of projects for which the bonds are issued. Ms. Kosnoff explained that it is common, in connection with the issuance of public or private sector bond debt, for underwriters to specify that the bonds will be issued at a stated interest rate based on the bond's "par" value, but to effectively adjust the interest rate paid by the borrower upwards or downwards, depending on market conditions, by selling those bonds at a premium or a discount. When a bond is sold at a premium, the effective interest rate paid by the municipality is typically lower than the stated interest rate on the bonds. This market practice raises the question what a municipality should do with a bond premium when one is received. Until recently, premiums for bonds issued for debt within the levy went into the General Fund and could be appropriated for any purpose; premiums for bonds issued under a debt exclusion, on the other hand, had to either be reserved and applied to defray the future debt service costs of the particular borrowing for which they were received, or appropriated up front to defray project costs. Under the Municipal Modernization Act, which became effective on November 1, 2016, the rules have been changed slightly for both exempt and non - exempt bond debt authorized and sold after that date. In the case of debt that is exempt under Proposition 21/2, the bond premium must be appropriated up front to defray the project costs. In the case of within -levy debt, the municipality has the option either to: (a) appropriate the premium up front to defray project costs; or (b) reserve the funds for future appropriation to another, similar capital project for which borrowing may be authorized for an equal or longer term. Ms. Kosnoff reported that next week the Town will be issuing a bond for approximately $47.0 million for projects previously approved by Town Meeting; and approximately $13.0 million Bond Anticipation Notes will also be issued, and together these notes and bonds are likely to generate substantial premiums, perhaps in excess of $1 million. Starting immediately, motions for funding projects will include language identifying how a premium associated with the bonding for the project is to be used. Ms. Kosnoff has recommended, and STM Article 2 and ATM Article 22 provide, that in the case of both exempt and non - exempt debt, the Town apply any premium, net of issuance costs, to reduce up front the amount of borrowing for the particular project for which the 2 02/02/2017 AC Minutes debt was authorized. This is a clean approach that helps to assure that legal obligations are satisfied without the need for inordinate tracking and paperwork. The premium will be applied strictly pro rata to all borrowings, both exempt and non - exempt, for which the premium is received. 6. Participation in Local Campaign Activities Mr. Bartenstein, Mr. Levine, and Mr. Michelson discussed the issue of participation by members in local campaign activities and past policies related to such participation. Some years ago, this Committee adopted a policy to limit members' participation in local campaigns, allowing a modest financial contribution and non - leadership assistance but discouraging a leadership role or making a public endorsement. The goal was to preserve the Committee members' independence and maintain the public perception of impartiality and objectivity when making evaluations and recommendations to Town Meeting. Because Town Counsel has advised that such restrictions are inconsistent with the First Amendment rights of members and cannot be mandated, the policy is no longer in force. Most members have continued voluntarily to limit their campaign activity in accordance with the former guidelines. Mr. Bartenstein suggested that members should be cognizant of the prudential reasons for avoiding excessive embroilment in local campaign activity and guided by their own conscience as to reasonable limits; and that care should be taken not to give the impression that positions taken individually are those of the Committee as a whole. 7. Next Meetings It was agreed to hold the next meeting immediately following the February 9, 2017 Budget Summit, which is expected to be short. Because the League of Women Voters candidate's night is on Thursday, February 16, it was agreed to meet on February 15 instead. 8. Adjourn The Committee adjourned at 9:38 p.m. The documents used at the meeting are listed below. Respectfully submitted, Sara Arnold, Recording Secretary Approved: February 15, 2017 Exhibits • Agenda, posted by John Bartenstein, Chair • Debt Issuance — Use of Excess Premiums Example, table prepared by Ms. Kosnoff 3