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HomeMy WebLinkAbout2011-04-13 Finance Committee Minutes OFIRFgO't Finance Committee Meeting b;os Ewa April 13, 2011 9.WCO Conference Room, Reading Town Hall The meeting convened at 8:30 PM in the Conference Room at Town Hall. FINCOM Members Present: Chair Marsie West, Vice Chair David Greenfield, Hal Torman, Bryan Walsh, Francis Fardy, Barry Berman and Paula Perry. Members Absent: Mark Dockser and Kevin Leyne. Also Present: Town Manager Peter Hechenbleikner, Assistant Town Manager/Finance Director Bob LeLacheur, Community Services Director/Town Planner Jean Delios, Town Counsel Ellen Doucette, Town Meeting member John Arena, Charles Eisenberg (Housing Partners), Paul Ognibene (Oaktree) and Kara Deyermenjian (Reading Patch). There being a quorum the FINCOM meeting was called to order at 8:30 PM. Article 24 discussion: Ms. Delios briefly reviewed the three documents in front of FINCOM— an overview of the situation from staff, a report from an independent consultant (Housing Partners), and some financial information from the developer (Oaktree). She explained that there have been a few changes, and that 53 units is the current configuration, along with some additional parking. She explained to FINCOM that this is a very important project as the first mixed use redevelopment under the Smart-Growth zoning. Mr. Eisenberg (Housing Partners) described the project as about 20,000 square feet of commercial combined with the residential component. As proposed, it will breathe some much-needed life into the lower Haven Street area. Financial benefits will include $350,000 as a lump sum and an additional $3,000/unit from the state. Mr. Ognibene (Oaktree project manager) explained that this was an $18.3 million project. $13 million was secured today as a personally guaranteed loan, $4.9 million was equity, and a $400,000 gap would be filled by funds from Reading's Affordable Housing Trust Fund. He spoke of the benefits to the Town: a retail component—prospective tenants have had discussions; the funds mentioned above from the state as well as the tax revenues from an improved property of approximately $20 million in value; and the number of affordable units this project would provide to the Town. Although the consultant's report suggested a loan would be prudent, Mr. Ognibene made it clear that only a grant outright would allow the project to go forward. Mr. Hechenbleikner added that while state and federal funding was available for this type of project, the lead time involved would not work in this case. Ms. West asked if this were the case, than how do any projects get done with those grants? Ms. Perry asked why the news about the $400,000 was discovered so late in the process. Ms. West agreed, and wondered if there were any other surprises? Mr. Ognibene said the change from 56 to 53 units was the only change he was aware of Mr. Hechenbleikner said the liquor license issue brought before Town Meeting was because there was competing interests in the license, formerly held by the prior tenant at this site. Ms. Delios added that Oaktree had included funds to improve Brande Court and lower Haven Street. Mr. Eisenberg reviewed his report. He determined that the project was reasonable with respect to rents, absorption rates, and the costs in the pro-forma statement. He assumed rental units since that information was not provided. He pushed the construction budget out to five years and noted the need to repay a 5-year balloon loan. He said the market is strong for rental units now, and the proposed product is different enough versus the comparables to be attractive, even though a downtown project would not have many amenities. He concluded by saying there was not enough information for him to determine how important the $400,000 1 was to the viability of the project, and he suggested it be in the form of a loan. Mr. Berman asked what additional information he would need to make that determination. Mr. Ognibene replied that no more funding was available. The return hurdles initially suggested a $1.5 million shortfall in this project for the investor they have. Of the $4.9 million in equity, $900,000 is borrowed against other projects he has, and $4 million is R.J. Finley, a subcontractor in the project. Mr. Berman asked why an $118,000 fee for a mortgage broker cost was included. Mr. Ognibene said there was a 3% cost on Equity and almost 1% cost on the loan, paid to a facilitator in Boston. Mr. Greenfield asked what benefits the Town would enjoy specifically for the $400,000, aside from those that would happen anyway as the project was completed. He asked why Oaktree purchased the property and closed on a loan before knowing about the disposition of the $400,000. Mr. Ognibene replied that his cost of capital was 11%, and that they had to close quickly because the purchase and sale agreement was close to expiring. He mentioned that R.J. Finley may buy the property before the five-year time frame expired, but they would have to walk away from the project without the $400,000. Mr. Hechenbleikner said the Town would protect the investment so it would only occur if the project were completed as outlined. Ms. Doucette said the main objective was to ensure that the housing units stayed affordable for at least 30 years or until the $400,000 was repaid to the Town. Ms. Delios pointed out the affordable units were a mix of a various number of bedrooms, and that DHCD will oversee and approve the process. Mr. Hechenbleikner said that 40R regulations specify not less than 30 years of affordability. Mr. Torman asked about the timing of the $3,000/unit payment, and Mr. Hechenbleikner said that would happen when the building permit was issued. Mr. Berman pointed out to Oaktree that Reading is a partner also, and will want to enjoy returns on the investment. He asked to structure the deal so the Town would be repaid if the project were successful, so those funds could be used again for affordable housing in the future. Mr. Walsh asked to also include a claw-back provision for those funds if the project does not go forward as proposed. Mr. Greenfield asked where the Town stood relative to the 10% affordable target. Ms. Delios replied that right now it is 7.7% based on the 2000 census. Mr. Hechenbleikner added that Oaktree and Pulte would add to that figure, but the 2010 census showing growth would subtract. Ms. Delios added that recently the state cited the Town's planning efforts on affordable housing as a reason to deny a 40B application on Main Street, and added that the Peter Sanborn expansion project also added affordable units. Mr. Greenfield concluded by saying he was a `no' vote on the $400,000 for Oaktree, but he did see many intangible benefits to the Town if this project could go forward. He said he was not convinced a $400,000 grant was essential to see that happened. Ms. Perry said it came down to a matter of trust without the financial proof, and it was a good use of the $400,000. Mr. Greenfield said that no one would walk away from this deal for $400,000. Mr. Ognibene stated that the $4 million equity partner will not invest unless the $400,000 is in the form of a grant. He also mentioned that he is personally on the hook if there are any unforeseen cost overruns. They are taking this risk because this is a new prototype project with an integrated development team. Ms. West asked about project contingency funds, and Mr. Ognibene stated there is less than $500,000. Mr. Torman asked if we would be having this discussion without the $400,000 being in the affordable housing trust, and Ms. Doucette replied that it would be illegal for any general fund money to go towards a private developer. Ms. West asked for closing remarks. Ms. Delios referred to the project as a first-mover in the area—one critical to begin activity in lower Haven Street. Mr. Fardy said now that he understood the $400,000 had been discussed for a long period of time and was not sudden, he was in favor. Mr. Eisenberg said he had some questions clarified tonight from the discussion that he had not been aware of for his report. Mr. Walsh agreed with Mr. Fardy. On a motion by Mr. Berman, seconded by Mr. Greenfield, FINCOM voted 6-1-0 (Mr. Greenfield opposed) for Article 24 as written. Mr. Berman to prepare the report. 2 Articles with Insufficient Data Ms. West said that she had conferred with Town Counsel and that FINCOM cannot abstain per the Town Charter, or if they do it does not constitute a vote as required. She said in the future if FINCOM does not have enough information, they should vote against the Article and explain why in their write-up. Financial Update Mr. LeLacheur reviewed three changes (state aid, overlay and free cash) in revenues for the FY12 budget. Today the House Ways & Means (HWM) Committee released a budget that had nearly the same amount of state aid for the Town as was in the Governor's budget over two months ago, despite the fact the legislature at the time had warned cities and towns to expect a considerable reduction from those levels. Revenues at the State have been improved over the past few months. The Senate is expected to have an early aid resolution within the next week. The Town had used an estimate of$11.25 million for state aid in FY12, and now that figure looks be about $1 million higher. However, the $150,000 estimate for a return from the Assessor's overlay account needs to be reduced to zero after the Board of Assessors voted on April 12, 2011 to not release any funds. Mr. LeLacheur presented the agreement between the Town and Schools on action on the FY12 budget if such surplus funding was realized. One modification to the agreement shown previously was a reduction of $25,000 towards vocational education, since the enrollment at Northeast Metropolitan Regional Vocational school had declined and that budget was overfunded with early estimates. The agreement is as follows, as shown on page 19 on the FINCOM packet: 1.) The first $150,000 of additional funds (operating budgets): $47,000 to the Town budgets as follows: $6,500 to line I92 Finance expenses for technology ($3,500 for PCs and $3,000 for parts & supplies); $6,500 to line K1 Community Services wages (to increase the 0.8 FTE clerical position to 1.0 FTE for document storage, license & permits, and customer service); $4,000 to line K2 Community Services expenses ($2,650 for animal disposal costs and $1,350 for professional development); $30,000 to line M92 Public Works expenses (for pothole repairs supplies and some new equipment to allow patching in the colder weather); $103,000 to the School budget in line U99; 2.) The next $125,000 of additional funds (accommodated costs): $50,000 to line E99 for Vocational Schools; $75,000 to line M92 for DPW fuel expenses; On a motion by Mr. Greenfield, seconded by Mr. Fardy, FINCOM voted to recommend the changes to the FY12 Budget for lines 192, K1, K2,M92, U99, E99, and M92 as described on page 19 by a vote of 7-0-0. Mr. LeLacheur said that this vote would probably bring the use of free cash in the FY12 budget to about $1 million instead of the previous forecast of$1.5 million. If the HWM budget is precisely right, then the exact use of free cash would be $867,526. Mr. Hechenbleikner added that also in the HWM budget was the removal of health insurance plan design from the collective bargaining process. The Town, School and Light department unions all negotiate health 3 insurance at once with the town management, and that relationship has been very positive for many years. However Mr. Hechenbleikner said that removing plan design would simplify the process going forward. Instructional Motion: Ms. West reviewed the proposed FINCOM instructional motion, and members made some typographical corrections after a brief discussion. The motion will instruct the Board of Selectmen, Town Manager and School Committee to report back to Town Meeting and FINCOM by October 2011 their actions and intentions on specified revenue suggestions included as an attached list to the motion. On a motion by Mr. Fardv, seconded by Mr. Berman, FINCOM voted to recommend the Instructional Motion as amended by a vote of 7-0-0. Ms. West will make the presentation. Town Meeting Articles 7 & 8 Mr. LeLacheur reviewed the memo from Town Engineer George Zambouras. Chapter 90 funding will be slightly higher than previously announced, now at $597,663 for FY12 — an increase of about $150,000 from last year. On a motion by Ms. Perry, seconded by Mr. Greenfield, FINCOM voted to recommend Article 7 as amended by a vote of 7-0-0. Mr. LeLacheur reviewed the memo from Town Engineer George Zambouras on the status of the easements for the Safe Routes to School Infrastructure Program Project for Parker Middle School. The appraisal work will cost between $10,950 and $15,600 based on three quotes received that are being evaluated by staff Mr. Zambouras estimates the 21 easements will be in the range of$100 to $300 each. On a motion by Mr. Greenfield, seconded by Mr. Berman, FINCOM voted to recommend Article 8 by a vote of 7-0-0. Mr. Arena asked if Town Meeting would be advised of tonight's FINCOM actions on the FY12 Budget as well as the various Articles. Mr. LeLacheur replied that the Town would provide a one-page handout to describe those actions, and include in the Warrant for those members that had not yet picked up their copy from the Police Station. Approval of Minutes: On a motion by Mr. Torman, seconded by Mr. Walsh, FINCOM voted to approve the minutes from March 30, 2011 by a vote of 7-0-0. On a motion by Mr. Fardv. seconded Ms. Perry, FINCOM voted 7-0-0 to adiourn at 11:07 PM. Respectfully submitted, Recording Secretary 4