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Town reviews long-term debt model; advisors offer flexibility tools to smooth spikes
Summary
Bond counsel and the town’s municipal advisor reviewed Simsbury’s 15-year capital/debt model, recommending options — capture bond premium, stagger issuance, vary amortization terms, or use short-term notes — to limit mill-rate spikes while preserving AAA credit metrics.
Bond counsel and the town’s municipal advisor briefed the Board of Finance on Oct. 21 about the town’s long-term capital and debt model and a set of financing tools the town can use to avoid sharp debt-service spikes while protecting its AAA credit rating.
Glenn Rybakki of Coleman & Connolly (bond counsel) and Barry Bernabe of Phoenix Advisors walked the board through a 15-year model prepared by the finance director that showed existing amortizations, planned annual borrowings (the board’s target of about $5 million per year), and projected debt-service peaks and valleys. Amy, the finance director, explained the spreadsheet assumptions including a 3% annual operating-budget growth assumption and an assumed 4% borrowing rate in early years.
Bernabe described several legally permissible strategies to moderate the budget impact of large capital projects: capture and apply bond premium to near-term debt-service spikes; stagger issuance (break a large project into multiple issuances); use short-term tax-anticipation or BAN notes to bridge cash flow; vary amortization (mix 10-, 20- and, in limited cases, 30-year terms for long-lived assets); or structure the offering to delay initial principal payments to smooth a single-year spike. “That would give you the ability to bridge time periods to get money in before you actually pay,” Bernabe said of short-term notes.
Bond counsel and the advisor cautioned there are trade-offs: longer maturities or delayed principal lower near-term payments but increase lifetime interest costs; retaining bond premium as a multi-year offset can be helpful but creates federal arbitrage-compliance constraints if unspent proceeds are not spent on schedule. Counsel noted the post-2017 tax law change that largely eliminated “advance refundings,” limiting some types of refunding flexibility.
Board members asked whether the town can refinance its existing issues and when that would make sense. Counsel said some Simsbury issues are callable now but at very low coupon rates (around 2–2.3%), so refunding those would not be advantageous; another issue becomes callable June 2026 and could be evaluated then if market rates make refinancing practical.
The presenters praised Simsbury’s conservative debt management practices — level principal amortization and using premium to reduce the callable par amount — and said that approach supports the town’s AAA rating. They recommended the board consider a mix of tools, not a single solution, to match financing to project timing and community tolerance for mill-rate changes.
The board asked staff to run alternate scenarios (for example, a large school project split into tranches or partially amortized over a longer term) and return with recommendations that preserve the town’s credit metrics while limiting sudden tax-rate pressure.
