 |
Question to state regarding debt exclusion
Letters from Jacqueline Harrington, Precinct 12 Town Meeting member, to the state, with questions affecting school construction (copies sent Nov. 22, 2002, to the Arlington School Committee):
I am sending you with this letter copies of mine to Ms. Kathleen Colleary and Mr. Daniel Murphy, Department of Revenue attorneys, regarding reimbursement policies of SBAB [state School Building Assistance Bureau] as they relate to the Peirce and Dallin Schools. I have included a copy of Ms. Colleary’s response to my first letter of November 4, it being a notated copy of a letter to Town Counsel Maher of April 21, 2001. I am also sending a copy of a portion of Board of Selectmen minutes which was contained in Mr. Bilafer’s letter of November 8 to DOR [Department of Revenue], and a correction of same in the form of a portion of Board of Selectmen minutes of March 27, 2000.
I urge you not to take a vote on the Dallin School until answers to the questions posed in these letters have been obtained. I have been assured by Mr. Colleary that the department is working toward a response.
As was stated at the meeting last Wednesday [Nov. 13] at Town Hall, if you vote not to continue with the planning with the Dallin you will have foreclosed the option to begin construction next year. It would be better, I think, to hold off on a vote until questions which have already been asked have been answered. I hope that you will take this course.
Letter of Nov. 4, 2002, to Kathleen Colleary, Massachusetts Department of Revenue, Division of Local Services
Once again, I write as a Town Meeting Member from Arlington to request an opinion regarding a debt-exclusion override question.
The question l wish to pose is: Is it appropriate, is it in fact legal, for the Town of Arlington to be raising through the debt exclusion vote of April 1, 2000 the sums necessary to pay 100% of principal and interest payments for the Peirce School, the first of the four schools which were the subject of that debt-exclusion, given that the state appropriation, guaranteed to be 63%, has yet to be voted by the legislature and may not be voted for six or seven years, and that there is no provision for reimbursing taxpayers for the excess principal and interest payments they will have paid in the meantime?
Voters were assured that their share of the projects’ total cost of $34.5 million would be $12.8 million. Is not charging them for the entire bond payments while making no provision to return these excess payments to them when the state money is received a violation not only of the terms of the override vote as contained in published documents but also your department’s regulation that excluded amounts must be net of reimbursements from other sources?
Upon your determination rests not just the case of the Peirce School, now nearing completion, but that of the Dallin School, scheduled for construction next year, and that of the Thompson and Stratton Schools whose renovation/reconstruction costs were also part of the debt-exclusion vote.
Unlike the previous debt-exclusion of 1998. for $23,000,000 for reconstruction/ renovation of three schools (Brackett, Hardy, Bishop) and plans for the four above-named schools, a decision was made to go to construction of the Peirce before the legislature had appropriated their proportional share of the debt service funds. This decision was made because of the position of the Peirce and Dallin schools on the state’s priority list (numbers 123 and 124) and because the School Building Assistance Bureau allows communities to proceed to construction in advance of the appropriation if they wish, recognizing that the state gives no guarantee when state funds will be voted, and to issue bond anticipation notes, which require only interest payments, for up to
seven years [previously five years].
However the Town of Arlington, rather than issuing bond anticipation notes, and paying only interest, opted instead to issue bonds, requiring both principal and interest payments, the 63% state share and the 37% town share, for a total additional cost in FY 02 of $528,000 and in this fiscal year of $582,000. If the state appropriation is not made for six years, as would be the case if this year's total state authorization of $15,000,000 for list B reconstruction projects persists, the total additional cost to taxpayers through the override would be $4+ million.
The state guarantees that it will pay its share once it places a project on the priority list but makes no promises as to when the funds will begin arriving, only that the reimbursement will be in 20 equal payments. Thus, if the state appropriation begins in 2008, the payments will run from 2008 to 2027. The bonds, however, will be paid off in 2021 and all state payments between 2021 and 2027 will flow to the general fund, there to be appropriated for any purpose. The taxpayers will, therefbre, through the override have spent more than $4 million to fund the state share for six years, something clearly not allowed by your rules.
When the Town Meeting voted the original appropriation for the Peirce, bonds as well as notes were authorized, in the standard language of appropriations. BANS {bond anticipation notes] were expected to be issued but, owing to an apparent miscommunication between the Building Committee, the School Department and the Treasurer’s office, this was not done. It was not anticipated that the wait for state funds would be as long as it now appears might be the case. The state appropriation for FY2000 had been $44 million and $38 million for FY2001 but has shrunk to $15 million for the current year.
Nevertheless, bonds were in fact issued and the wait for state funds has apparently lengthened and we need clarification of the law. The Spring 2003 Town Meeting had got to be ready either to vote the appropriation for the Dallin School, which again will be in advance of receipt of state funds, or to defer the vote until state funds are in hand. Issuing BANS for seven years and then bonding for thirteen, for a maximum 20-year bonding period, will incur additional interest costs for the town but could well save increased building costs or even higher interest costs from rising rates. We cannot make this decision until we know that by appropriating funds in advance of receipt of state appropriations we are keeping faith with the voters who passed the override.
As I said previously, there is no provision for returning to taxpayers the funds they will have advanced while awaiting state appropriations. I don’t know if a home-rule petition could be crafted to do so, although identifying the actual payers could be challenging. As the author of the home-rule petition to segregate interest earned on bonds Issued for school projects in a special fund so that such interest would remain available for the school projects alone, I would be happy to have your advice regarding the feasibility of such a petition.
I did not anticipate that I would need to write to you about this matter at this time. However, I learned only on Thursday [Oct. 31] that the matter of the Dallin School will be discussed at a Special Town Meeting to be held next Wednesday, November 6, and may be put to a vote. The local newspaper has reported on differences of opinion among town officials as to whether we can appropriate to the full amount of $34.5 million or whether, since voters were told that their share would be $12.8 million and since $10.2 million has already been appropriated for the Peirce School we are severely limited in appropriating for the Dallin School, costs for which will exceed $10 million. To the best of my knowledge, no town officials have contacted you about this dilemma.
Your opinion as to whether the town can, in fact, appropriate the full $34.5 million, the projected cost for four schools, despite the fact that no state monies may be received for a number of years, necessitating payment of the state share by Arlington taxpayers in violation of promises made at the tune of the override, and that state reimbursements received after bond payments have been completed will accrue to the general fund to be appropriated to any purpose or, in the alternative, that we are restricted in what we can appropriate via the override to the $12.8 million town share of project costs is extremely important.
Much confusion surrounds the issue I bring to you. If the override cannot be used
to raise the state share, then presumably it must come from ordinary tax revenue. One town official had suggested a second override to cover these temporary payments, but how that would address the issue of reimbursement to Arlington taxpayers for their payments of the state’s share of these projects is unknown.
If, by any chance, you could contact me by Wednesday [Nov. 6] with some guidance which I could convey to the Town Meeting, I would greatly appreciate it. Twice before I have sought advice from DOR only to have to tell the Town Meeting that I had not yet received a reply or had only received an ambiguous reply to my queries. The matter of standing has come up. I have been told that I am not a town official and only the requests
from same will be acknowledged. If town official s don’t ask you, however, how else am I to get the information except to ask you myself?
I deeply regret that I am giving you so little time to access this information and will understand if you are unable to do so, within these time constraints. I am enclosing documents regarding the override as well as portions of a newspaper article to assist you in understanding this complicated business.
As always, thank you for your time.
Copy of an April 25, 2001, letter to Town Counsel John Maher from Bruce H. Stanford, chief, Property Tax Bureau, state Department of Revenue, regarding the scope of a debt exclusion
You asked whether certain debt issued by the Town of Arlington for a school construction project covered by an approved Proposition 2½ debt service exclusion is included within that exclusion. Specifically, you advise that at the time voters approved the exclusion, the town anticipated receiving reimbursement under the state school building assistance program of a certain percentage of all project costs. It now appears that some of those costs may not be reimbursed under current program rules. You ask whether the exclusion covers the debt service on those unreimbursed costs.
The town will be able to exclude the unreimbursed costs in question if it wishes to do so. As you know, we have a longstanding policy of reducing the debt service costs that may be raised outside the levy limit under an approved debt exclusion by the amount such costs are offset by a state or federal reimbursement. The purpose is to have the exclusion cover only those debt service costs that the communitv has to finance from its own revenues. Thus, we calculate the maximum exclusion a municipality may take by using the reimbursement it actually receives for the project. How much of that maximum exclusion a commurity uses when setting the tax rate is a function of its budget decisions, however.
If you have any further questions on this matter, please do not hesitate to contact me again.
---------------------------------------------------------
Letter of Nov. 12, 2002, to Kathleen Colleary, Massachusetts Department of Revenue, from Ms. Harrington:
I received the copy of Mr. Stanford’s letter of Aprl 25, 2001 to Arlington Town Counsel John Maher, hich you sent to me on Friday [Thursday, Nov. 7]. While I appreciate your prompt response, the letter answers only part of my query, that is, that the town can raise through the April 1, 2000, debt exclusion override the state share of the project’s costs while we await state reimbursement, since the decision was made to construct the Peirce before the legislature had voted our appropriation.
What I am concerned about is that state reimbursement payments, which may not begin for six or seven years, will continue for a similar period after the bonds have been retired and will thus flow to the general fund and be subject to appropriation for other purposes rather than being used to reduce the tax rate.
I have read the Informational Guideline Release (IGR) No. 02-101, of March 2002, published by the Bureau of Accounts, in which it is stated: “An exclusion covers the debt service costs on the borrowing amount authorized or contemplated for the described purpose or purposes at the time of the referendum vote” It goes on, however, to state: “The second policy relates to determining the amount excluded annually. Ordinarily, the annual debt exclusion is equal to the debt service payment due for that year net of any federal or state reimbursement being received for the project. Borrowing or reimbursement timing issues may result in sharp changes in the tax levies for some of these years, particularly at the outset. In these cases, an adjusted debt exclusion schedule may be used in
order to moderate the impact on taxpayers. The total amount excluded over the life of the borrowing remains unchanged, but the annual exclusion amounts are adjusted …. The Director of Accounts will determine the borrowing amount covered by a debt exclusion, and approve adjusted exclusion schedules using the standards and procedures set forth in these guidelines.”
Section II of the Guidelines, entitled, ADJUSTED EXCLUSION SCHEDULE, states the following at item C 1 b Total Exclusion:
"The total amount excluded over the life of the borrowing may not exceed the municipality’s net debt service costs, or its assessed share of a regional governmental entity’s net debt service costs. Reductions in future years’ levy limits may be necessary if this maximum exclusion is exceeded. The Director will work with municipal officials to minimize any financial hardship that might result from such reductions.”
And that brings me back to my as yet unanswered question: Can the town exclude the entire debt service for the Peirce School until state reimbursements are voted unless such reimbursements are coterminus with the bond payment schedule? For if it can, and the state payment schedule will result in reimbursement payments to the town being received after the bonds have been retired, which I have been told will be the case, then taxpayers will have paid through the override excess payments up to the value of the delayed reimbursements. In my previous letter [Nov. 4, 2002], I stated that these excess payments would exceed $4 million. It is clear that the excess will be determined by the number of years that the state's
63% share of the total costs of $14,827,063, that is, $467,052.50 per year for twenty years, arrive after the bonds have been retired. At the current rate, Arlington’s share of total cost will be reached in 2008. If the state votes the appropriation in 2009 and begins making payments in 2010, its last payment will be received in 2029, eight years after the bonds have been retired, or a total of $3,736,420. The difference will be made up of higher state payments between 2012 and 2021 than the bond schedule calls for (see attached schedule [not provided to the School Committee]).
I have been informed that the usual practice at SBAB is to make the same number of payments, whenever they begin to make them, as there are in the permanent bond issue. In the case where BANS are issued, followed by permanent bonds, the payment schedule tracks the number of years in the permanent issue, adjusted to include the BANS interest for a total maximum bonding period of twenty-five years. The reimbursements are therefore coterminus with the bond issue. Such is not, apparently, the case where permanent bonds are issued at the outset, as occurred here in Arlington.
I asked in my previous letter whether a home rule petition would be necessary in order to segregate the reimbursements which arrive after the bonds have been retired so that they can only be used to reduce the tax rate. The Guidelines suggest that there is a simpler procedure, perhaps one that would make the bond payments and reimbursements coterminus. Therefore, I ask once again if you can cut through the confusion and tell us how we are to proceed in order to keep faith with the voters who passed the override based on the representation that their share of the school projects would only be 37%.
An informational meeting will be held on Wednesday [Nov. 13] to discuss the Dallin School. The Town Moderator ruled any vote on the matter out of order on November 6. Whether we vote to proceed with the Dallin construction next June or put it off until the state reimbursement is voted, or some compromise in between, will be determined by whether we can establish that the decision to proceed early to construction of the Peirce did not compromise our ability to continue with the rest of the projects,
Again, thank you for taking the time to read and answer my letters.
Letter of Nov. 12, 2002, to Daniel F. Murphy, Massachusetts Department of Revenue, from Ms. Harrington:
Mr. John Bilafer, Arlington Town Treasurer, has forwarded to me a copy of his letter to you of November 8, with its enclosures. One of the enclosures is a copy of Board of Selectmen minutes for March 20, 2000. The minutes report on a vote, taken pursuant to an argument I made to the Board, to more precisely tie down the amounts to be devoted to the principal cost of each of the four elementary schools which were the subject of the April 1, 2000 debt-exclusion. Alas, the vote was rescinded the following week on the recommendation of Counsel Maher. I enclose a copy of the minutes of the subsequent meeting, March 27, 2000.
I am also enclosing a copy of my letter of today to Kathleen Colleary. I had previously written to her on November 4. It is important that we in the Town Meeting, as well as town officials, fully understand the implications of votes we take to implement the school renovation program. The Dallin School is on the state priority list at number 97. We in the Town Meeting must decide by next Spring whether to proceed to construction in advance of receipt of state reimbursement, as we did with the Peirce School, now nearing completion. Waiting may entail absorbing the increasing costs of construction as well as higher interest costs. Therefore, knowing that our going forward
early with the Peirce School did not compromise the rest of the project is critical.
I look forward to seeing your response to Mr. Bilafer.
[This letter included parts of the March 20 and March 27, 2000, selectmen minutes]
| |
