by Frank Schroth

At last night”s meeting of the Board of Selectmen, Member Tom Hurley gave a short explanation for the issue surrounding debt service payments that were substantially higher than expected. It was a reprise of the night before when he attended the Warrant Committee meeting. The increase surprised the Warrant Committee and resulted in a lower amount of funds available to finance FY15 department requests. As Hurley, who is a also a member of the Capital Improvement Committee, explained it, there was a disconnect between the planning for the bonding and the execution of the bonding that created the adverse impact of a higher than anticipated amount to be paid for debt service.

The good news, Hurley said, is that the Capital Improvement Committee is actually planning. This had not been the case in previous years.  “Heretofore there was a seat of the pants approach,” Hurley said.

Hurley said that the committee made two key assumptions. One, that the amount of debt service would not exceed 1.9% of the tax levy in any given year, and that growth would be no greater than 2.5% year over year consistent with Proposition 2 1/2.

However, the disconnect between the planning and execution of the bonding conspired to create $300K in interest over the 1.9% target. Hurley said there were three reasons for this:

• The intent of the Capital Improvement Committee was to have the issues recommended and authorized in year one (i.e. FY15) and actually bonded in year 2 (i.e. FY16). But the bonds were executed in year one. So interest obligations showed up a year earlier than anticipated
• A new phone system, one of the items bonded, was put on a 3 year term rather than a 5 year term, accelerating payments
• Though the average interest is ~2.01% the coupons are 5% for the early years

Hurley outlined two strategies for addressing this. One option is to call a special town meeting and request an appropriation be made to the Capital Stabilization Fund that would then require a vote to take it out to pay bond interest. Both would require a 2/3 vote of TM. The other is to take directly out of free cash. There are pros and cons to each. Town Meeting may not vote for the contribution or withdrawal from the stabilization fund. However, if they do it could free up another $176,000 for one time money for Warrant Committee to use for FY15. Keohane noted  “I think some of our departments are hurting for money.” The risk for free cash, though it is the path of least resistance is that, according to Hurley,  “There is never a guarantee that you are going to have free cash.” as it can be spent on anything.

The likelihood is that the Selectmen will, together with the Warrant Committee, make the case before Town Meeting that the necessary money to pay for the bond interest be managed through the Capital Stabilization Fund.

But this is Milton’s budget season and the situation is extremely fluid. The Warrant Committee is meeting this evening at the MHS library. Departments will have an opportunity to speak one more time regarding their respective needs for one time funds. The committee will then vote their appropriations for FY15. These will make their way into the warrant and be approved or not by Town Meeting in May.