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Rising debt could threaten bond rating, official tells Cheshire school committee

Rising debt could threaten bond rating, official tells Cheshire school committee



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CHESHIRE — The town's long-term borrowing costs are expected to increase over the next 10 fiscal years, according to officials' projections.

Cheshire town figures show long-term debt payments currently account for just over $6.6 million of nearly $114.6 million in general fund expenditures during the current fiscal year. Those payments represent about 5.8% of the town's general fund budget expenditures.

That percentage had been declining for more than a decade. In 2009, debt payments had comprised nearly 11% of the town's overall budget. By 2015, that percentage had been whittled down to 7.3%. In 2019, it was down to 5.9%.

But, as Cheshire Finance Director Jim Jaskot told the School Modernization Committee earlier this week, the forecasts calculate the increases by factoring in recent capital expenditures — including the town's repayment of a $25 million Clean Water Fund loan from the state. That loan had been used to fund a more than $30 million project to upgrade the town's wastewater treatment plant, which was completed in 2015.

By fiscal year 2024, forecasts show debt payments may account for 7.6% of the town's budget, which officials estimate would have grown to more than $126 million for that year. By fiscal 2030, officials estimate debt service will comprise 8.5%, or more than $12.4 million, of that year's town budget, which is also forecast to grow to more than $146.1 million.

Jaskot said the overall budget growth is projected on the conservative side, around 1.5% annually, while the town's grand list is expected to grow about 0.7% each year. Projections do not forecast an increase in state funding, which had steadily declined over the past decade as a share of the overall town budget.

Jaskot noted the calculations on borrowing expenses assume the regular addition of $25 million in bond funding every other year, for both one-time expense items and recurring expenses, like sidewalk and bridge improvements and the purchase of heavy equipment, including firetrucks.

Those projections, Jaskot noted, do not include any forecasted borrowing for school renovations or new construction over that time period.

The town currently has a AAA bond rating from rating agencies Standard & Poor's and Fitch, in large part because the town's debt payment is well below the 8% threshold those rating agencies set as a debt service target, Jaskot explained. That bond rating was upgraded as the town's debt to general fund ratios improved.

The 8% benchmark was explained during an exchange when Rene Martinez, who serves as vice chairman of the School Modernization Committee, asked Jaskot, “What is the normal debt amount?”

Jaskot said the town's adopted policy has been to maintain a debt service level under 10%.

"Obviously our town credit rating is very important, and a lot of factors go into that. I guess my question is what would happen if we lost that AAA rating?"

-Rob Oris, Town Council chair

“Our target is to stay underneath that,” Jaskot said, noting that the town did exceed that level in the early 2000s after projects, including the completion of a new community pool and a project to improve the Cheshire High School building's facade.

Officials had been able to offset increases in the town’s debt burden by tapping into recent budget surpluses.

Should the town need to go out to bond to fund future school renovations or construction projects, its percentage of debt versus general fund may exceed the ratios preferred by rating agencies and set by town policy.

School Modernization Committee chairwoman AnnMarie Kemp asked Jaskot to work with the group as it develops options to show the financial impact to town taxpayers.

“Obviously our town credit rating is very important, and a lot of factors go into that,” Town Council Chairman Rob Oris Jr. said during Jaskot's presentation. “I guess my question is what would happen if we lost that AAA rating? Obviously our borrowing costs go up quite a bit. What other risk factors does that present other than the cost of borrowing?”

Jaskot responded, “I think that's the most significant one. Where the rubber hits the road it's the dollar impact to the town.”

mgagne@record-journal.com
203-317-2231
Twitter:@MikeGagneRJ


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