New Canaan's financial mood is A-OK
Published 6:10 pm, Wednesday, March 30, 2011
New Canaan's financial condition has always been of utmost important to residents and town officials alike, especially with the national and state economy under serious duress the past few years. Whether it's money and bonds for sidewalks or $200,000 for long range planning costs, finances have been at the top of everyone's concerns.
Moody's, a rating agency that conducts financial research and analytics for various corporations and governments, assigned New Canaan its highest overall rating of Aaa. Moody's describes the highest rating as "obligations that are judged to be of the highest quality with minimal credit risk."
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Nearly two weeks ago, a Board of Finance subcommittee undertook a study to examine New Canaan's municipal debt and financial condition to have another look independent of Moody's rating.
"We also know the rating agencies are not infallible," BOF member Neil Budnick said. "We wanted to go along and do our own assessment."
The study was led by Charles Van Vleet with help from Budnick and Robert Spangler. The study's main take away, according to Budnick, is that New Canaan is in good financial condition. The full study is available on the town website.
"We have tough decisions to make in terms of how we spend our money and when we spend our money," Budnick said. "But we do have financial flexibility because of prudent management."
According to Gary Conrad, New Canaan's Chief Financial Officer, New Canaan's current level of debt is at $130,600,000.
"That is a very reasonable debt load. As a matter of fact, it's Aaa excellent," Budnick said. "Compared to our competitor peer group, which is generally a Aaa world, we also compare favorably. We have an excellent capacity and willingness to pay debt."
Budnick also explained why debt is a necessary and good thing to have, albeit in moderation.
"Debt allows you to use future revenues to pay for long term assets during their useful life," he said. "If a town didn't have debt, it would have to pay for big infrastructure projects, like the high school for example, from current cash flow. We know we have a wonderful future revenue stream because of our fantastic tax base."
This is of particular importance when understanding the bond issue in relation to sidewalks. Town Council decided to bond $4 million for road paving because paved roads have a long shelf life. They are expected to last up to 20 years. This is part of the argument for sidewalks. Should around $600,000 of that bonded money be used on sidewalks? The answer would lie in whether the town as a whole believes sidewalks are a long term investment worthy of borrowing money.
Budget Director Jennifer Charneski elaborated on the rationale behind bonding money for roads and the affect on residents with a hypothetical example.
"I think a very simple way to look at it is if it costs $1 million dollars to pave the roads and they are going to last for 20 years. Why should someone who lives here now pay that full cost when maybe they move out of town next year? They should pay for 1/20 of that portion," Charneski said. "Now if somebody moves in why should they get 19 years of free roads without ever kicking in a dime?"
Budnick, who is also part of the LRPC, reiterated how this study relates to the long-term plan.
"The point is to make sure we are getting the most efficient use of our debt dollar by planning and coordinating our projects versus them coming in piece meal during the calendar year," Budnick said, with agreement from Conrad and Charneski. "I think it is a positive correlation in the sense that you want to manage your debt correctly."
When asked to highlight important facts and ratios from the study in relation to other towns like Darien and Westport, Budnick and Conrad cited per capita income as a significant statistic.
"In terms of comparison to other towns, we compare favorably in many ratios like per capita income," Budnick said. "To me, because I was a municipal analyst, per capita income is a very important number because that is your tax base and your revenue."
Conrad then went into the nature of how capital projects, particularly big infrastructure projects like New Canaan High School, which was built in 2007 for approximately $70 million, add significantly to the debt. The fact that the town's major educational capital project is done bodes well for its debt in the future since there are no major plans like that in the pipeline Conrad said.
He added that $75 million of the Town's current debt is attributed to schools.
Budnick explained the significance of that statistic is the downward pressure it places on debt for the future since there are no major planned capital finances in relation to schools.
"That is a really good point," Budnick said about Conrad's remarks. "We've finished our big capital education financing and we know that runs 60 to 70 percent, it bodes well for future debt issuance since we don't have school to finance."
Another point Conrad made in the comparison to other towns in the state is state funding.
"One of the things that is a benefit to this town is that we don't get much money from the state," Conrad said, pointing out New Canaan's independence and lack of reliance on state funding. So naturally, when the whole state is discussing budget cuts and less funding for towns, it does not drastically affect New Canaan. He went on to explain how other towns might be relying on millions of dollars from the state while New Canaan does not thrive on those funds.
"We are controlling our own destiny," Conrad said. "We're not relying on the state."
Still, while the results of the study were positive, Budnick reiterated that the number needs to be managed properly.
"I do think people have a point, even though your debt is very reasonable, when they talk about the growing debt. It should be controlled just like any expense. We still all think, we don't think our debt ratios are bad, but we should watch the growth in that number."
So, according to the Town Finance Department, Moody's and this study, New Canaan is not actually facing financial meltdown like the rest of the country, just tough decisions on how to manage its finances.