Consultant Recommends Town Bond $7 Million for Capital

by | Mar 26, 2019

Above: Town finance consultant Mike D’Amico answers a question from the School Committee’s Alyson Powell at the March 25 joint meeting.

By Elizabeth F. McNamara

At a joint meeting Monday night, town finance consultant Mike D’Amico laid out a plan for Town Council and the School Committee to bond a total of $7 million for capital expenses and eliminate the capital line items from their budgets, freeing up around $250,000 in the school budget and $600,000 in the town budget in 2020.

He said his plan was a way to handle the double whammy of a projected $640,000 reduction in state education aid for FY 2020 and a $1 million deficit on the town side. But it speaks to a larger policy idea.

“It’s my belief that you should borrow for capital expenses,” D’Amico said. “You don’t pay cash for a car. You finance it over five or six years, the life of the car. You don’t pay cash for your home … otherwise it’s just not feasible. In finance, we try to pay for items over the life of the item.”

The School Committee was already discussing seeking a bond referendum because in November Rhode Island voters approved making $250 million available to school districts for building maintenance. Projects undertaken by municipalities, which must be approved by the Dept. of Education (RIDE), would be eligible for up to a 50 percent reimbursement through RIDE.

The district has identified $5 million in capital and maintenance projects, from replacing tennis courts at Cole ($400,000) and classroom cabinetry at Eldredge ($181,125) to security upgrades ($635,000) and IT infrastructure ($700,000) at all six schools. Find the full list here: Schools Capital Improvements Plan.

The fire department needs several new trucks, including a new fire engine.

Town needs include three trucks for DPW and two for Parks & Recreation ($400,000), four police cars ($165,000), and several trucks for the fire department (including a new engine for $605,000 and a new rescue for $300,000). Find that list here: Town Capital Plan

During his presentation, D’Amico explained that the town’s debt service for 2019 – $4.3 million* – would only decline in coming years, even with an additional $7 million debt. In FY 2020, the debt service would drop to $3.4 million (because of how bond payments are set up, there would be no payments on the new bonds in 2020), then go up to $3.8 million in 2021. With D’Amico’s proposed renewal of the $2 million town bond in 2022, 2025, and 2028, the yearly debt service would range from a high of $4 million and a low of $3.5 million through 2029. (Find D’Amico’s three-page outline here: Debt Projections with Ratios.)

D’Amico acknowledged this projection relies on the lower interest rates experienced in the U.S. over the past 30 years. If interest rates go up significantly (more than 1 or 2 points), “then you would of course have to adjust the plan,” he said.

He questioned how the schools in particular could cover capital expenses without bonding.

“They have to get addressed one way or the other,” he said, referring to maintenance issues. “You certainly can’t pay for it out of operating expenses. This is what debt is for. You borrow money for items too big to pay out of pocket.”

Not that the town has infinite capacity for borrowing, D’Amico said. The last time East Greenwich built a new school, the town bonded for $52 million, the bulk of the town’s existing debt. But borrowing $7 million now should not jeopardize the town’s Aa1 bond rating, he said. East Greenwich’s overall current debt ($49.5  million*) puts it in the “median” category when compared with other Aa1 municipalities in New England: 11 percent of the budget. With the $7 million additional debt, the debt percentage of the budget would be 9.5 percent in 2020 and decrease to 6.1 percent by 2029.

One question raised by the School Committee was, what happens if enrollment continues to go up and a new school is needed?

“Even if you don’t do this bond … the money that’s required for a new building, you still can’t pay for it. You didn’t do all these things and you still can’t afford a new building.

Regardless of what you decide on this bond, D’Amico said, “if you need to build another school, there’s going to have to be a Plan B.”

School Committee Chairwoman Carolyn Mark said the panel would need to take up the bond proposal question quickly – they must submit their 2020 budget to the Town Council by April 15. If they decide to seek a bond, they would ask the Town Council to put it to the voters. The council would then need to vote on it. If the Town Council approves it, the bond referendum could go before voters this fall.

Town Council President Mark Schwager said D’Amico’s proposal was one aspect of the larger 2020 budget picture but he was interested.

“He makes a pretty persuasive argument that long-term capital should be funded by bonds instead of operating expenses,” said Schwager.

*General fund debt service including the RIDE reimbursement; does NOT include sewer debt, which is paid for by users.


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