Board hears long-term debt model and options: bond premium, term changes, BANs and refunding discussed

Municipal advisors and bond counsel presented a long-term capital and debt-service model to the Board of Finance on Oct. 21 and outlined tools the town can use to manage future spikes in borrowing costs.

Glenn Breibach of the law firm Coleman & Conley, identified as the town’s bond counsel, and Barry Bernabe of Phoenix Advisors, the town’s municipal advisor, walked the board through a spreadsheet staff developed that projects operating budgets, debt service, and future bond issuances roughly 15 years out. Amy (finance staff) explained the model’s assumptions, including a 3% annual increase in operating budgets and a preliminary borrowing-rate assumption (4% in early years, dropping to 3.5% in later years for modeling purposes).

The presenters stressed several practical levers to manage spikes in debt service: using bond premium to mitigate near-term payments, structuring debt with different amortization terms (for example, extending some tranches to 30 years), splitting a very large project into multiple bond tranches, issuing short-term bond anticipation notes (BANs) to bridge cash-flow timing, and selectively refunding callable bonds when market conditions permit.

Bernabe said a 4% modeling assumption was “appropriate” for early planning and noted that the town commonly receives a bond premium at issuance; the town’s conservative practice is to issue at a slightly lower par amount so the premium reduces long-term debt service. Breibach cautioned about federal arbitrage rules and the 2017 federal tax law change that eliminated “advance refundings,” explaining that strategies such as arbitrage (borrowing now and investing proceeds to earn yield) and abusive transactions carry regulatory constraints and risks.

The board and advisors ran scenarios that assumed a recurring $5 million annual bonding policy and a larger school/senior-center-style project split over two or three years. With the current portfolio and the credit profile shown in the model, advisors said Simsbury has capacity to borrow $5 million a year while keeping debt-service metrics near policy targets (board guidance cited at about 7%, with an 8% ceiling). Advisors also described mechanics and trade-offs: level principal amortization reduces total interest paid but creates larger early-year payments; level-payment options flatten annual budgets but increase lifetime interest; extending amortization to 30 years reduces near-term pressure but raises total interest payments.

Advisors and counsel recommended reviewing call dates and refunding opportunities as they approach (one issue becomes callable in June 2026), and they suggested capturing bond premium as a short-term tool to smooth spikes rather than treating premium as ongoing operating revenue. The presenters highlighted that refunding opportunities are limited because 2017 federal tax changes restrict advance refundings and that a current refunding is only possible near a bond’s call date.

Why it matters: the discussion laid out concrete, legally constrained options that the town can use to keep its AAA credit rating, smooth mill-rate impacts and plan large capital work while balancing total interest cost and intergenerational equity.

What’s next: staff will refine assumptions (interest rates, amortization choices, and the capital improvement program), add policy guidance from the board about acceptable levers (for example, maximum term extension or use of premium), and monitor callable issues and market windows for opportunistic refundings.