Should the Town Board adopt the DMP, North Hempstead will be - to the best of our knowledge - the only Long Island Town to govern the issuance of its indebtedness by a formal, long-term plan such a the one developed herein, and further, we will be in a strong position to make the case to the fiscal rating agencies, notably Moody's Investors Service, that the Town has a credible, thought-out, Board-sanctioned debt management plan which will result in lower annual debt service payments, less outstanding principal indebtedness, and far less pressure on our fund balance.

II.               An Analysis of the Town's Finances and Indebtedness

At the close of FY 1998, the Town reported positive fund balances in its major operating funds and in the Solid Waste Management Authority ("SWMA"), marking the first time since the mid-1980's that the Town's four principal funds realized surpluses at the conclusion of the same fiscal year.  During FY 1999, Moody's Investors Service upgraded the Town's long-term bond rating from A3 to A2.  This was the first time in 29 years that the Town received such an upgrade. [2]   In addition, Moody's assigned to the Town's short-term notes a rating of MIG 1, the highest quality rating the agency bestows to short-term debt. [3]    The agency attributes continuing improvements in the Town's financial results to "more conservative budget forecasts, the Town's ongoing efforts to streamline operations, and recent land sale revenue that has been used to redeem outstanding obligations and reimburse the general fund for prior debt payments on behalf of SWMA." [4]  

This fiscal progress was confirmed by the Office of the New York State Comptroller ("Comptroller's Office").  In October of FY 1999, the Comptroller's Office released the Town from its Fiscal Awareness Strategy Team ("FAST") program.  Concluding that the Town was no longer experiencing fiscal stress, the Comptroller's Office noted that "the improvement in the Town's financial condition is primarily the result of the difficult choices and decisions [the Supervisor] and the Town Board made when adopting budgets that are structurally balanced." [5]

Still, despite this progress, concerns have been raised about the magnitude of the Town's long-term indebtedness and the proportion of overall expenses dedicated to debt service payments. 

The Comptroller's Office recently provided the Town with a report of financial indicators and peer group comparisons with similarly situated jurisdictions on Long Island.  The report shows very clearly that the Town's ratio of long-term debt to its population ($1,301.00/person) is significantly higher than the average for its Long Island peer group ($522.00/person). [6]

In addition, Moody's Investors Service notes that debt service payments account "for a very high proportion of the Town's expenditures." [7]   In the adopted budget for FY 2000, raw debt service payments in the general fund account for 51.2% of all appropriations, while in the highway fund such payments consume 48.7% of budgeted expenses. [8]  

In past years, the Town has used extra-jurisdictional assistance, particularly from the State of New York, to reduce the burden on operating funds to cover debt service expenses.  As Figure 2 shows, though, the Town will lose over $2 million in assistance in FY 2001 for the remediation of the Superfund landfill, since the State, for the most part, has fulfilled its obligation to reimburse the Town for these capping and closure expenses. [9]

Figure 2:         State Environmental Reimbursements Will Decline by Over $2 Million in FY 2001.

Source: Town Comptroller's Office.

Some have attributed the Town's high debt burden per capita and annual debt service expenses to a recent trend of "excessive" debt issuance.  This characterization of the Town's recent debt patterns is not borne out by history.  Figure 3 compares the direct capital indebtedness incurred by the Town (not including SWMA) for two historical periods: the five-year period running from 1987-1991 ("period 1") and the six-period running from 1994-1999 ("period 2").  Despite the fact that period 2 is one year longer than period 1, the Town added only $550,258 more in net direct capital indebtedness during period 2 than in period 1, and furthermore, the Town added, on average, $2,500,680 less in net direct indebtedness during each year of period 2 than it added in each year of period 1.  If we assume that period 1 is at least reasonably representative of typical debt issuance trends in the Town's history, then the Town's debt practices in period 2 are consistent with historical practices. 

Figure 3:         Recent Town Debt Issuance Patterns Consistent With Comparable Historical Time-Period

Source: Official Statements of the Town of North Hempstead, various years.

III.           What Makes the Last Six Years Different?

What is different about the last six years, however, is the fact that the Town has been obliged to finance, through the issuance of general obligation bonds, substantial land acquisition costs and capital projects related to the Morewood property, the Town transfer station, and the Port Washington landfills.  

A.     The Required Closure of the L-4 Landfill: The Town operated the L-4 landfill until 1983, when the United States Environmental Protection Agency ("USEPA") placed the site on the National Priorities List and the New York State Department of Environmental Conservation ("NYSDEC") placed the site on the State's Registry of Inactive Hazardous Waste Sites as a Class 2 site.  In 1990, the Town entered into a consent order with the USEPA requiring the remediation of the L-4 landfill.  The Town commenced this work in 1994, completing the rehabilitation of the L-4 active gas collection system, the implementation of a groundwater remediation plan, and the capping and closure of the landfill by 1997. [10]   The total cost of the project was approximately $42 million, with over $15 million coming from NYSDEC in the form of direct assistance. [11]   At the close of FY 2001, there will be $14,810,290 in outstanding principal debt remaining for the capping and closure of the L-4 landfill. [12]

B.     The Required Closure of the L-5 Landfill: On December 13, 1990, NYSDEC denied the Town's petition to continue landfilling, citing the Long Island Landfill Law and the operational problems that were occurring – at that time – at Field 3 of the L-5 landfill.  NYSDEC allowed the Town to postpone the capping and closure of the L-5 landfill while it contoured Field 3 and completed the remediation of the L-4 landfill and the construction of the solid waste transfer station.   In May of 2000, the Town Board authorized the execution of a Order on Consent requiring the capping and closure of Fields 1 and 2 by September of 2001 and of Field 3 by July of 2003.   At present, there is $1,881,334 in principal debt outstanding related to the capping and closure of the L-5 landfill [13] , and the Town expects to issue $5.5 million of additional debt for this work in FY 2001.

C.    The Rapid Elimination of an Accumulated Surplus (1989-1991): NYSDEC's decision to deny the Town's request to continue landfilling municipal solid waste, coupled with the capital expenses associated with the remediation of the hydrogen sulfide odor problems at the L-5 landfill, resulted in a serious deterioration in the financial position of the Town.   In the three-year period from January 1, 1989 to December 31, 1991, the fund balance in the Town's general fund fell precipitously from a surplus of $14 million to a deficit of $1.6 million. [14]   Any revenue accumulated over the years from the operations of the L-5 landfill was used not for the capping and closure of the L-4 landfill, but to cover shortfalls in the operating budgets of the Town.

D.    The Required Construction of a Transfer Station:  In addition to requiring the capping and closure of the L-4 and L-5 landfills, NYSDEC also directed the Town to enter into a consent order to undertake the construction of a new municipal solid waste transfer station.  The Town completed the construction of the transfer station in the fall of 1996.  At the end of FY 2001, there will be $9,136,558 of principal debt outstanding for the financing of the construction costs of the transfer station. [15]   It should also be noted that the transfer station was sized, and floor-space calculations were made, assuming that "flow control" would be upheld by the Courts.  The loss of flow control in 1994 resulted in a substantial loss of commercial waste and revenue to the Authority.

E.     The Purchase by SWMA of the Morewood Property: Anticipating the closure of the remaining Port Washington landfill, the Town's Solid Waste Management Authority purchased the 460-acre former Morewood property in 1988 for $33.1 million ostensibly to construct a mass-burn incinerator.  With subsequent refinancing, the cost to SWMA of this purchase reached approximately $73 million. [16]

F.     The Purchase of the Morewood Property from SWMA by the Town's General Fund:  The Town issued $28,500,000 in bond anticipation notes ("BANs") in 1996 and $15,200,000 in BANs in FY 1997 to finance the purchase of approximately 200 acres of the Morewood property from SWMA in order to construct the Harbor Links golf complex (the Authority is not empowered by State statute to improve its property for a recreational use).  The Town included $43,700,000 in Morewood acquisition BANs as part of the advance refunding long-term bond issue in FY 1998. [17]    By the conclusion of FY 2001, the Town will still have $41,040,000 in principal debt outstanding for the acquisition of the Harbor Links property from SWMA. [18]

G.    The Construction of the Harbor Links golf complex on the former Morewood property: After the former Morewood property was purchased from SWMA by the Town's general fund, the Town commenced construction of an 18-hole championship golf course, a 9-hole executive course, a driving range, and a miniature golf course, as well as undertaking the stabilization of the Morewood bluffs (mandated by NYSDEC) and establishing of the entire supporting utility infrastructure.   At the end of FY 2001, there will be $26,561,488 of principal debt outstanding for the construction, remediation, and utility work undertaken on the former Morewood property. [19]

The Town has a debt per capita ratio above the average of comparable jurisdictions on Long Island, and debt service payments consume nearly half of overall general fund and highway fund expenses.  These indicators of the Town's debt and debt service payments have been considered by some to be a cause for concern.  Such concerns, though, must be placed in the proper context.  Though cautioning the Town about its high debt service ratios, Moody's Investors Service also notes that the Town's "debt levels fall in line with averages, and future capital spending should remain manageable." [20] The Town's recent net debt issuance patterns are consistent with comparable time periods in the Town's history.  Moreover, a substantial amount of recent debt issuance can be attributed to mandated and necessary projects related to the Port Washington landfills, the construction of a new solid waste transfer station, the acquisition of 200 acres of the former Morewood property from SWMA by the general fund, and the construction of the Harbor Links golf complex (together the "Port Washington Environmental and Recreational Projects").   Figure 4 illustrates the degree to which these projects account for the Town's total outstanding principal debt and annual debt service payments.  

As Figure 4 demonstrates, two-thirds of all of the outstanding principal debt in the Town's general fund ($96,779,233 of $145,571,963) is a result of the Port Washington environmental and recreational projects financed over the last decade, but principally over the last six years.  In addition, in the FY 2001 budget, nearly half of all of the general fund's debt service payments ($8,520,067 of $17,334,367) will go to pay the principal and interest obligations of these projects. 

Figure 4:         FY 2001 General Fund Outstanding Principal Debt and Debt Service Payments (Comparison of Port Washington Environmental and Recreational Projects to All Other Projects).

Source: 2001 Debt Service for L-4, L-5, Transfer Station, and Morewood Property, document produced by Town's Comptroller's Office, dated August 1, 2000.

These are two implications of these ratios.  First, with two-thirds of all outstanding principal debt tied to the Port Washington environmental and recreational projects, and with recent net debt issuance patterns consistent with comparable periods in the Town's history, other Town infrastructure upgrades, repairs, and replacements have been forestalled or postponed.   With the value of our fixed assets assessed at $165,709,800 [21] , the Town will need to redirect capital resources away from these projects and toward other Town assets, such as its parks system and its general facilities, as well as towards critical environmental work recommended by the participants in the Hempstead Harbor and Manhasset Bay protection committees. [22]  

And second, with the exception of the capping and closure of L-5, the Town has ostensibly completed the Port Washington environmental and recreational projects.   And except for the final $5.5 million bond authorization needed to fund the remediation of the L-5 landfill, almost all of the authorized debt related to these projects has been issued and is therefore included in the Town's debt and debt service projections. [23]   This is important.  It means that as long as the Town's future debt issuance remains controlled, the Town's total outstanding debt and its annual debt service obligations will begin to fall - and fall substantially - in the coming years.  Therefore, precisely because almost all of the funds have been borrowed to finance the acquisition, construction, and improvement costs of the Port Washington environmental and recreational projects, the Town will begin to realize annual reductions in its debt service obligations in the general fund and highway fund.   It is these reductions that will comprise the core of our debt management proposal.

IV.            Alternative Approaches to Debt Management

Before developing the details of our proposed debt management plan, it is important to address two alternatives that have been presented for consideration to the administration: the "level debt" and the "pay-as-you-go" strategies. 

One recommended approach to debt management suggests adopting a strategy proposed by Nassau County Comptroller Fred Parola to deal with the substantial debt burden carried by Nassau County.   The failing condition of the finances of Nassau County warrants no discussion. As of February 2, 2000, Nassau County had $2,526,373,858 of net debt outstanding. [24]    Moody's has pointed out that the overall debt burden of  North Hempstead property owners (as a percentage of the full valuation of the property of the Town) reflects substantial overlapping debt with Nassau County (overlapping debt is the share of the debt issued by Nassau County that is borne by the taxpayers of the Town of North Hempstead). [25]   In that context, and in the context of the County's declining bond rating, County Comptroller Parola proposed restructuring debt payments in Nassau County by, in effect, leveling and extending them out, thereby offering immediate, short-term debt service relief.   We submitted this proposal to our financial advisors, Evensen Dodge, Inc. ("Evensen Dodge"), to evaluate and to determine the applicability of such an approach in the Town of North Hempstead.

In the view of Evensen Dodge, the Town already takes advantage of amendments to the local finance law that allow municipalities to use a "level debt method" to structure its bond issues; therefore, "the Town has consistently achieved the benefits that the County now seeks." [26]   Evensen Dodge further argues that restructuring Town debt simply to realize short-term debt service relief is not an attractive option for the Town under present market conditions:

            With long-term interest rates at approximately 5.75% for a 15-year, A-rated credit, the Town currently has no outstanding bonds that are refunding candidates.  To its credit, the Town has been diligent in its pursuit of refunding opportunities over the last eight years when interest rates were low.  Advance refundings were transacted in 1992, 1993, 1998, and 1999, resulting in significant debt service savings for the Town.  We also note that the rating agencies generally look with disfavor on debt being restructured to extend its term.  For a jurisdiction to do so might suggest fiscal distress. [27]

The last point is critical.  The Town has undertaken advance refundings of its debt in the past in order to take maximum advantage of differentials in interest rates; such an approach reduces the net present value of the total principal and interest of the refunded debt.  The proposal offered by County Comptroller Parola looks to restructure the County's debt in order to generate a short-term savings in debt service payments, not to generate an overall net present value savings (because the interest rate differential will not allow it).  He offers such a proposal precisely because Nassau County is in fiscal distress.  The Town of North Hempstead has A-level credit and just received a bond rating increase last year for the first time in twenty-nine years.   Last October, the Office of the New York State Comptroller declared that the Town is no longer experiencing fiscal stress, as it had in past years when its major funds were running considerable deficits.  Therefore, restructuring the Town's debt to achieve short-term relief from debt service payments will send the wrong signal to the ratings agencies while costing the taxpayers more money in the long run.  Given our improved financial condition, this approach to the management of the Town's debt is neither necessary nor advisable.

A second approach to debt management in North Hempstead has also been advanced this year.  This approach argues against virtually all debt issuance, supporting instead a "pay-as-you-go" plan to finance the cost of traditional capital projects.   There are some obvious advantages to the "pay-as-you-go" approach.  It is conservative to the extent that capital projects are authorized only when sufficient funds are available in the operating budgets to finance them through completion.   In this way, debt issuance is dramatically curtailed.  But in a Town with a budget of $70 million and with fixed assets valued at over $165 million, a "pay-as-you-go" plan for debt management simply is not feasible, and in many respects it is potential source of fiscal danger. 

B.J. Reed and John W. Swain, authors of Public Finance Administration, offer this critique of the "pay-as-you-go" strategy for financing capital projects:

The disadvantages of pay-as-you-go can be substantial.  Many capital items would never be acquired or replaced because funding is simply not available within existing resources of an organization.  In this sense, "pay-as-you-go" discriminates against larger expenditures.  In small organizations or where the capital item is expensive, the pay-as-you-go approach can create much greater fluctuations in the budget expenditures from year to year and can also create fluctuations in the revenue load of the organization's supporters….In addition, the concept of intergenerational equity is violated with a pay-as-you-go approach.  This means that those who benefit from the item are not necessarily the ones who finance the asset. [28]  

Advocates of the "pay-as-you-go" approach to debt management in North Hempstead respond to this type of criticism by urging the Town to draw down on its positive fund balance to finance necessary capital work.  The problem with this response is that it fundamentally misunderstands both the nature and the purpose of the Town's surplus. 

Totaling approximately $4.5 million at the close of FY 1999, the Town's surplus is cumulative across its three major funds (the general fund, highway fund, and part-town fund) and SWMA.  The surplus is situational, not structural.  That is, the Town's cumulative surplus is the result of conservative budgeting in the context of favorable economic conditions; the Town is not guaranteed on an annual basis to attract revenue that exceeds its expenses.  Further, the purpose of maintaining positive fund balances, within certain levels, is to accumulate a reserve to cover unanticipated revenue shortfalls or expenditure overages.  Considered aggregately, the Town's positive fund balance as of FY 1999 is equal approximately to 6.62% [29] of the Town's total budgeted expenses in FY 2000, a ratio that is consistent with the recommendation of the rating agencies. [30]   

Given the situational nature of the Town's surplus, and given the objective of maintaining positive fund balances equal to 5% to 10% of total expenses, it would be imprudent and, in fact, fiscally irresponsible to draw excessively on the Town's accumulated positive fund balance to finance capital projects, particularly those with an extensive useful life.  Doing so will increase the probability of running operating deficits, requiring tax increases, and inviting criticism from the rating agencies.

V.              The Town of North Hempstead Debt Management Plan

The proposed Town of North Hempstead Debt Management Plan ("DMP") starts with the following three premises.

Ø      First, the Town is, generally speaking, fiscally well-positioned, with surpluses in all of its major funds and a recent bond rating upgrade.  

Ø      Second, the Town has high ratios of outstanding debt per capita and debt service obligations as a function of overall expenses, though its debt levels are in line with medians and its recent history of net debt accumulation is consistent with comparable periods in the Town's history.

Ø      Third, a substantial proportion of the Town's outstanding principal debt and annual debt service payments, particularly in the general fund, are related, necessarily so, to the Port Washington environmental and recreational projects.  As a consequence, the Town needs to direct capital resources, in a disciplined manner, to the replacement, refurbishment, or upgrade of its other facilities and larger fixed assets and to environmental projects recommended by the Hempstead Harbor and Manhasset Bay consortiums.

Because the Town is in reasonably strong financial position, a drastic restructuring of the Town's debt, as has been proposed in Nassau County, is not warranted, since its promised short-term debt service relief will come at the cost of an increase in the net present value of the Town's debt service payments while sending precisely the wrong signal to the rating agencies about the Town's fiscal condition.   And because the Town has to sustain and support over $165 million in fixed assets and deliver necessary environmental improvements to preserve our waterways, it is simply not advisable, and in fact damaging to the Town's ongoing financial health, to eliminate all debt issuance while relying exclusively on the operating budget to finance improvements to Town facilities.  

Instead, the key to fashioning the DMP is to calibrate future debt issuance to the projected annual fall-off of principal debt and, concomitantly, to the anticipated reductions in debt service payments.  Put simply, the idea behind the DMP will be to assign maximum targets to annual debt issuance that will allow disciplined debt issuance within the fixed boundaries of targeted reductions in outstanding principal debt and annual debt service payments. 

The DMP we propose can be divided into three segments: (1) debt stabilization; (2) debt containment; and (3) debt/debt service reduction.

A.     Debt Stabilization

The debt stabilization component of the DMP summarizes and organizes efforts already initiated by the Town to reduce outstanding principal debt and annual debt service payments.  The debt stabilization component of the DMP has involved the following strategies:

q       The acquisition of Harbor Links property by Town reduces SWMA debt: In FY 1996 and FY 1997, SWMA used $30.5 million in land sale proceeds from the Town (when the Town acquired land from SWMA to construct the Harbor Links golf complex) to redeem all of its outstanding 1993 Series A Bonds, thereby lowering annual SWMA debt service obligations. 

q       The sale of Harbor Ridge Property results in debt defeasance in SWMA: The Town's Solid Waste Management Authority sold 42 acres of Authority-owned land in March of 1998 to a private developer to construct various types of senior citizen housing.  The purchase price for the property was $26,350,000, of which approximately $20.5 million was used to pay debt service and to defease SWMA's 1993 Series B revenue bonds. [31]   This reduced the total principal and interest payments on the remaining 1993 Series B bonds from $44,714,022 at the end of FY 1998 to $21,576,970 after the defeasance in March of FY 1999. [32]   And, because of the structure of the defeasance, the SWMA operating budget received immediate relief from all of its debt service obligations until FY 2004. [33]

q       Two separate advance refundings result in net present value savings in Town debt service payments: The Town undertook two advance refundings of outstanding debt, once in FY 1998 and once in FY 1999, taking advantage of record low interest rates to obtain a net present value savings on principal and interest costs across the Town of $942,001. [34]

q       Scaled-back capital plans lead to reduced debt issuance: Once the authorizations were obtained to finance the capital costs related to the Port Washington environmental and recreational projects, the administration scaled back its requests for indebtedness to fund its other capital work.  The proposed capital plan for FY 1999 totaled $4,065,000, while the proposed capital plan for FY 2000 equaled $3,955,000. [35]    These plans were reduced 73% from the size of the capital plan submitted for FY 1998, the first year in recent history when the Town's capital projects were actually organized into a structured plan.   Moody's Investors Service has been apprised of the size of these plans, which is the basis for the agency's assessment that the Town's "future capital spending should remain manageable." [36]

q       Substitutions and consolidated in-house labor reduce reliance on debt issuance: Since FY 1998, the administration has aggressively sought ways of curtailing debt issuance.  In the FY 2000 operating budget, the Town included for the first time 2000-series lines for small to medium sized equipment purchases instead of relying exclusively on capital authorizations to finance the acquisition of equipment.  Since FY 1998, the administration has put on hold all road reconstruction projects - which are debt-intensive undertakings - and instead utilized Town labor to resurface roads and perform required curb and drainage repairs.  The substitution of a resurfacing plan for debt-intensive road reconstruction is a crucial reason why the Town was able to transform the $1,806,207 negative fund balance in the highway fund in FY 1996 to a surplus of $687,666 at the end of FY 1999. [37]   And with the consolidation of the Highway Division into the Department of Public Works, the Town will utilize DPW labor to perform the basic grading work for the capping and closure of the L-5 landfill, reducing the estimated indebtedness required to complete this project from $14 million to $6.5 million. [38]

Taken together, these strategies have stabilized and structured the Town's debt issuance patterns by reducing outstanding debt through land sales, lowering annual debt service payments by taking advantage of record-low interest rates, and winnowing annual debt requests to manageable figures.  In its remaining two components, the DMP proposes an organization for debt issuance over the next ten fiscal years which, if adhered to, will allow for disciplined debt authorizations while still reducing overall outstanding principal debt and annual debt service payments.

B.     Debt Containment

The second component of the DMP involves what we call the containment of future debt issuance.  By containment, we specifically mean the establishment of a threshold of annual long-term debt issuance by the Town, considered here as a reporting entity [39] , which will lower the Town's exhausted constitutional debt limit from 14.95% to 10.89% over the course of a ten-year period.

The Town (including its component units) [40] has the power to contract indebtedness for any Town purpose so long as the principal amount of the indebtedness does not exceed 7% of the most recent five-year average full valuation of taxable real estate of the Town, subject to exclusions and deductions such as water and certain sewer facilities and cash appropriations for current debt service. [41]  

According to the Town of North Hempstead Official Statement issued in October of 1999 (the statement upon which this component of the debt management plan was based), the average five-year full valuation of property in the Town was $25,281,257,692, while the Town's constitutional debt contracting limit was 7% of the average five-year full property valuation, or $1,671,220,187. [42]    With net direct indebtedness in the Town equal to $249,920,801, the Town's exhausted constitutional debt, at the time of the publication of this version of the Official Statement, was 14.95%. [43]   This figure is slightly above the average exhausted constitutional debt limit of 12.54% for the Town's Long Island peer group, a selection of comparable towns determined by the Office of the State Comptroller. [44]  

The objective of this component of the DMP is to bring the Town's percentage of its exhausted constitutional debt limit below the average for comparable jurisdictions on Long Island - to 10.89% - over the course of a ten-year period.   Appendix A includes the spreadsheet specifying the year-to-year targets of the Debt Containment component of the DMP.  Assuming – conservatively - that the average five-year full valuation of property in the Town remains constant, Appendix A shows the Town can accomplish its goal of reducing its exhausted constitutional debt limit to 10.89% despite issuing up to $14 million in new debt in FY 2001, up to $10 million in new long-term debt from FY 2002 to FY 2006, and up to $7,500,000 in new debt each year from FY 2007 through FY 2010. [45]  

Table 1 summarizes the ten-year effect of the Debt Containment component of the DMP.  Assuming that the Town (including its component units) were to issue new debt as specified above, and assuming conservatively that this debt would carry a 15 year PPU [46] and amortize at an interest rate of 6.0%, [47] the Town will still realize a reduction in outstanding principal debt of $106,863,964, or 37.02%, by the end of FY 2010.  This represents a considerable reduction in outstanding principal debt while still facilitating a reasonable amount of average annual debt issuance by the Town and its component units.

By generating this substantial reduction in outstanding principal debt over a ten-year period, the Debt Containment component of the DMP will reduce the Town's debt level to 0.72%, which would place the Town's debt level below the median of comparable jurisdictions, at least as this median is set today.  The DMP will also reduce the debt per capita in the Town from $1,301.00 to $855.00, which is much closer to the average for the Town's peer group.

Table 1:         Summary of Ten-Year Impact of the Debt Containment Component of Town of North Hempstead Debt Management Plan.

Year	January 1, 2000	December 31, 2010
Debt Balance	$288,778,960	$181,914,996
Total Additional Principal Debt	___	$96,500,000
Average Additional Principal Debt	___	$8,772.727
Total Percentage Reduction in Principal Debt	___	37.02%
Exhausted Constitutional Debt Contracting Limit	14.95%	10.89%
Debt as % of Full Valuation (Debt Level)	1.10%	0.72%
Debt per Capita	$1,301.00	$855.00

 

Source: Appendix A of Town of North Hempstead Debt Management Plan.

Two points must be kept in mind. 

First, assuming its affirmation by the electorate this November, any debt issued in relation to the Environmental Legacy Fund ("ELF") will count against the limits established in the Debt Containment component of the DMP, since all general obligation bonds issued by the Town, whether supported through additional taxes or not, exhaust part of the Town's constitutional debt-contracting limit.  Therefore, the financing of the projects pursued through ELF will be governed by the targets established as part of the Debt Containment proposal.   To be conservative, the Debt Containment Component of the DMP assumes that the ELF will be approved by the voters this November and that the Town will issue $2.5 million of ELF debt each year from FY 2001 through FY 2006.

And second, the Debt Containment component of the DMP applies to all of the component units of the Town of North Hempstead, excluding water district and certain sewer district projects.  However, it is important to note that revenue bonds issued by the Solid Waste Management Authority do not count against the constitutional debt limit of the Town. [48]   It is also important to note that many of these component units are commissioner-operated special districts, with duly elected Boards of Commissioners responsible to their own voting constituencies.  Though the finances of the Town, as the primary government in the North Hempstead reporting entity, are interconnected in many respects with the finances of these component units, it is unwise to interfere with the basic operations of these units, so long as their operations comply with the law.  It is our recommendation, then, that the Town consider the targets established by the Debt Containment component of the DMP to be "soft" targets - that is, targets with some modest flexibility to accommodate the special or particular capital needs of the commissioner-operated special districts that comprise the North Hempstead reporting entity.  

Having said this, we still propose that the Town require, as a condition for approving any debt issuance requested by commissioner-run special districts, the submission on an annual basis of five-year capital budgets to accompany the submission of their annual operating budgets.   With capital budgets from each of the commissioner-run special districts, the Town will be able to coordinate borrowing plans to take advantage of favorable market conditions as well as utilize Environmental Facilities Corporation ("EFC") zero-interest and low-interest loans to lower the net interest costs of eligible borrowings.

C.    Debt and Debt Service Reduction (Town Operating Funds)

The third component of the Town of North Hempstead Debt Management Plan focuses specifically on securing targeted reductions in generally supported principal general obligation debt and annual general obligation debt service payments in the Town's major operating funds: the general fund and the highway fund. [49]   The part-town fund, by comparison, is very small and has no outstanding debt, so it is not factored into this analysis. 

The Town's operating funds are directly within the control of the administration and the Town Board.  And when discussion centers on the Town indebtedness, it is these funds that are at the center of the scrutiny of the rating agencies, the public, the press, and government officials.   Therefore, we believe that the core of the DMP must address the accumulation of debt and the ongoing debt service payments in these two Town funds.

Table 2:          Present Serial Bond Debt Service Obligations in the Town's General Fund and Highway Fund (FY 2000 - FY 2010).

Year	General Fund Serial Bond Debt Service (P&I)	Variance from Previous Year's Debt Service	Highway Fund Serial Bond Debt Service (P&I)	Variance from Previous Year's Debt Service
2000	$18,089,295		$8,140,122
2001	$17,334,367	($754,928)	$7,544,400	($595,722)
2002	$16,768,872	($565,495)	$7,391,642	($152,758)
2003	$15,984,901	($783,971)	$6,732,990	($658,652)
2004	$15,637,312