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HomeMy WebLinkAbout2008-10-01 Finance Committee Minutes Finance Committee Meeting October 1, 2008 The meeting convened at 7:15 p.m. in the Conference Room, 16 Lowell Street, Reading, Chairman George Hines, Committee members Barry Massachusetts. Present were Berman, David Greenfield, Marsie West, Matt Wilson, and Tom White. Also present were Assistant Town Manager/Finance Director Bob LeLacheur, DPW Director Ted McIntire, Town Engineer George Zambouras, School Superintendent Pat Schettini, School Finance & HR Director Mary DeLai, Facilities Director Joe Huggins and School Committee members Chuck Robinson, Lisa Gibbs and David Michaud. George Hines called the meeting to order at 7:15 p.m. First order of business was the approval of Minutes dated September 10, 2008. On Motion by Marsie West seconded by Tom White to accept the minutes of the meeting dated September 10, 2008. Fincom voted 6-0-0. Liaison Reports Barry Berman reported that the School Committee discussed performance contracting and the November Town Meeting, which they will also cover in tonight’s meeting. Bob LeLacheur briefly reviewed the free cash and reserves status, which remain relatively healthy for the Town. Performance Contracting (PC) Mary DeLai handed out a PowerPoint presentation, and reviewed it with the FINCOM. A summary of a PC is that the town and an ESCO (energy services company) essentially form a partnership to undertake a series of capital improvements which are designed to reduce energy consumption. The savings pay for the cost of the improvements over a period of time. In summary, an annual utility payment is replaced by four parts: utility payment, servicing costs, financing costs, and savings. Many of these details are negotiated in the vendor selection process. There are several advantages of PC versus do-it-yourself: the procurement process is much faster, simpler & more flexible (for example, the ability to select the best vendor instead of lowest bid); warranties for energy savings essentially last much longer because of the partnership formed with the vendor for a long period of time. George Hines asked what the timeframe was for PC, and for more details on how the procurement process would be different. Mary replied that the energy audit replaces a feasibility study of all of the systems, which if done by the Town would require several RFQs. The ESCO acts as the general contractor. Hines inquired if there are ‘outs’ with respect to the long-term contract if the work is unacceptable. DeLai responded that yes, and in fact the Department of Energy Resources requires exit language in any contracts. Tom White asked how the vendor was paid. DeLai replied that the Town would negotiate an annual energy budget with the vendor, based on historic usage patterns, known changes to consumption patterns (such as a new building), and an agreed upon forecast of energy costs. We would appropriate the agreed upon budget every year, and expect the actual costs to be less. The difference – or savings – is available to pay for upfront capital expenses, other charges (such as financing), and finally profit to the ESCO (shared by the Town as negotiated). Most ESCOs use a 2-3% energy inflation assumption in their PC proposals – the lower that assumption the less ‘savings’ they need to generate before the profits are available. Barry Berman asked if the actual price of energy varies how the parties are affected. Bob LeLacheur said that this would be a key point of negotiations before any contract would th be signed. Mary DeLai said the RFQ would be available on October 15. A committee consisting of various members of Boards, Committees and Commissions (including a member of FINCOM) was well as School & Town staff would look at the responses to the RFQs and select the three best ones to negotiate with. Barry asked if price would be a factor, and Mary said they would have a list of criteria to evaluate that went well beyond price. Mary DeLai said that the exit fee for obtaining the energy audit and not going forward with the PC would be about 10 cents/square foot. This compared favorably with the raw cost of up to 40 cents/square foot to do these audits on a stand-alone basis. Andrew Grimes FINCOM member arrived at the meeting. Mary added that we have energy audit data on 8 buildings currently from Energy New England, but that this audit would be far more extensive. It could include as many as fifteen buildings, and was a nice Jay Tangney mix of new/old structures. FINCOM member arrived at the meeting. Various FINCOM members said that there were elements of risk in this endeavor. Mary DeLai agreed that a great deal of thoughtful planning would go into the selection process. Bob LeLacheur stated that the negotiations would be a key success factor – different portions would determine deal winners or losers, and should help minimize the risk to the Town. David Greenfield asked what backs up the guarantee. Mary pointed out the existence of a 100% performance bond, and a 100% payment bond. She said the RFQ th would appear in the Register on October 15, and probably be due back on November st 21. George Hines asked how major renovations on a building could be factored into the project. There is a way to do it upfront if known, but would be difficult to add in later. Town Manager Peter Hechenbleikner joined the meeting. David Greenfield asked if the Town would have input along the way – such as historic preservation items valued by the community over raw financial criteria? Yes, these items would be discussed in the negotiations phase. Matt Wilson asked what the impact on the CIP there would be. This would shift some items out of the capital plan, and essentially the energy operating budget would fund them. At present, there are about $1.5 million of explicit energy items in the 10-year CIP for school and town buildings. Andrew Grimes asked if ancillary costs such as ripping out a ceiling to replace lights were factored in. Yes they are. Mary DeLai cited Belmont as an example – they did about $1.7 million in capital improvements in a 10yr PC. They saved about $200,000 annually. Peter Hechenbleikner added that in addition to the energy savings leading to financial benefits, the Town would also be contributing to improving the environment, and he encouraged the FINCOM to vote to at least get the energy audits. George Hines urged the School Committee to add expertise to the project as needed. David Greenfield asked what Article 9 authorized? Hechenbleikner replied that debt for the energy audits would be authorized. If any additional funding were required (for instance, if the Town did any financing), then Town Meeting would need to approve further actions. The School Committee would have the ultimate authority to make the PC decision. School Committee Chair Chuck Robinson noted that they would seek a lot of advice from the internal committee of School, Town and Board members. Matt Wilson suggested to Mary DeLai that she add the element of the environmental benefits to her financial presentation. Barry Berman liked the idea that the general contractor would be a long-term partner in the deal. David Michaud agreed, relating a museum project approach. Mary DeLai said the construction should be completed in 18 months; Belmont was finished in about 10 months. Capital Improvements Program (CIP) Tom White asked about the various security systems projects listed in the CIP. Hechenbleikner cautioned about giving too many details. David Greenfield asked if the Wood End roofing was gutter work. Yes it is. He asked about the Eaton item – this is for phones for the classrooms. The Superintendent and Town Manager are working on language to discuss capital priorities, such as financial savings, safety and security. The notion of selling debt to fund five years of the local share of road repairs was discussed. If Town Meeting approves Article 10, then Town staff can add debt as an option. If the cost of the debt and the cost of the road repairs are reasonable, then Town staff will go ahead with the project as five-year debt; if not, the old method of an annual appropriation of road repairs will continue. Peter Hechenbleikner briefly discussed the status of 9C budget cuts. There are no definitive details from the Governor at this point, and the Legislature has not yet authorized any broad 9C powers, so that State Aid is unchanged for now. On motion by Barry Berman seconded by Matt Wilson, FINCOM voted 7-0-0 to support Article 9, in an amount up to $120,000 of debt authorization. On motion by Barry Berman seconded by Marsie West, FINCOM did not vote on Article 10 (Roads). On a motion by Grimes seconded by West the meeting was adjourned at 9:55 PM on a vote of 7-0-0 Respectfully submitted, Secretary