STAMFORD — The Board of Finance has raised the city’s ceiling for bonding by $35 million for next fiscal year.
Driving the increase is a $1.5 billion plan for Stamford’s school buildings, roughly half of which the city is expected to fund over 20 years.
Each year, the Board of Finance sets what is called the safe debt limit — the amount of debt the city may “safely” incur for capital projects. Stamford’s charter requires the city’s director of administration to recommend an amount to the board.
Director Sandy Dennies recommended — and the Board of Finance approved Wednesday — a $70 million limit for the coming fiscal year. The city is expected to bond $35 million for school facilities and $35 million for city projects such as road paving.
Dennies told the board that the city has borrowed $40 million per year in recent years, with about $5 million going toward school facilities.
“This is, at least to my recollection, the highest we’ve ever bonded,” said Mary Lou Rinaldi, a Democrat who has served on the board for more than two decades. “So this is really new territory for us.”
The board has held special meetings this year on the master plan for city schools — first in March and again in November — after the architectural firm SLAM updated the plan to account for inflation and a change in the state’s reimbursement rate for school construction projects in Stamford. The firm also extended the timeline of the plan from 12 years to 20 in an effort to keep the city’s share of school project funding under $50 million a year.
Chair Richard Freedman, a Democrat, said the city cannot bond $70 million for city and school projects every year forever.
“At a certain point, we push up too close to the metrics that could cause us to lose our triple-A rating,” Freedman said. “The main one is the percentage of operating budget that goes toward debt service. So we get a window. It’s not this perpetual $70 million safe debt limit from here to eternity. I think we have a window of maybe five, six years. And then we’ll see what happens, right?”
The city strives to keep its annual debt service — its principal and interest payments — below 10 percent of its operating budget. In recent years, debt service has represented about 8 percent of Stamford’s operating budget, according to a memo from Dennies.
“This is necessary for two reasons: First, debt service levels above 10 percent tend to crowd out other vital operating expenses, which could either limit the services the city can adequately provide or force upward pressure on property taxes,” Dennies wrote. “Second, rating agencies tend to use 10 percent as an upper limit for AAA-rated municipalities.”
Fitch Ratings and S&P Global Ratings reaffirmed the city’s AAA bond rating in the summer, which city officials said allowed Stamford to borrow money at the lowest rate possible.
The Board of Finance and Board of Representatives decided to raise $20 million for school projects through a 1 percent tax increase this year. Dennies has said that even though Stamford eventually receives reimbursement from the state, the city must have cash on hand to pay construction bills in full when they are due.
Plus, the more cash the city has, the less it will need to bond, she said Wednesday.
Freedman said the boards will decide how much more money they want to raise for school facilities through taxes during the spring budget season.
Dennies and city financial adviser Barry Bernabe showed the Board of Finance three options for the $70 million bond issue. The city could pay off the debt over 20 years, as it usually does. It could pay off the bonds for city projects over 20 years and the bonds for school projects over 30 years. Or it could pay off the $70 million over 20 years but defer principal payments for a couple years.
The Board of Finance went with the first option. It also gave Dennies permission to “bond for cash flow” instead of bonding by project — the method it has used for about a decade.
Currently, “specific projects are bonded for, so if there’s a delay in that project, there’s a delay in my use of those bond funds,” Dennies said.
With cash-flow bonding, “I can place the proceeds of those bonds in projects that are actually moving forward more quickly,” she said, adding that the city needs to spend bond funds within two years.
brianna.gurciullo@hearstmediact.com
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