The Metropolitan District Commission completed its planned $173 million bond sale late last week, temporarily ending the controversy over a $5.5 million reserve fund.
That fund would be paid by seven of the eight MDC towns to cover the sewage fee for the second half of 2017 if the city of Hartford can’t pay it, as it has indicated.
In that case, Windsor would have to fork over $700,000, with East Hartford kicking in about $900,000. The other group members — Bloomfield, Newington, Rocky Hill, West Hartford, and Wethersfield — would pay the remaining $900,000, proportionately.
Meanwhile, when the General Assembly convenes in February, the MDC will propose two laws to avoid the necessity for a reserve fund in the future.
One logical law, MDC Chairman William DiBella suggested, would require the eight municipalities to set aside as untouchable the percentage of their property taxes the cities and towns already know they will owe to the MDC for sewage services. Currently, property taxes go into the municipalities’ general fund. They extract the sewage fee when it’s due — if the money is available, which it always has been until now.
“They can figure out the percentage and deduct it,” DiBella said. “Every town would have to do it. That way, one town can’t stiff us. You wouldn’t have to go out and borrow money or take charity and hope you get it back.”
Requiring the towns to set aside a sewage fee fund has never been done before, according to DiBella.
“We never had a problem like this,” he said. “Who thought a town would go bankrupt? With the proposed law if a town goes bankrupt the sewage fund would be in a dedicated account and can’t be reached,” or touched in a bankruptcy proceeding.
Another possible law would allow the MDC to borrow money over a long term for operating expenses. The MDC would then be able to pay Hartford’s $5.5 million bill and look for a city reimbursement in other ways.
A difficult season
Over the last few weeks, the municipalities have held extensive talks with the MDC about the necessity to create the reserve fund, which all seven municipalities opposed.
Then, last week, the bond buyers told the MDC they would not buy the bonds if the reserve fund was not put into place, even though the towns don’t have to fork over their shares until late next year if Hartford blows off the $5.5 million bill or goes bankrupt.
Last Tuesday the MDC board — including representatives of all eight municipal members — voted unanimously to adopt the water and sewer service provider’s 2017 budget, which contains the unwelcome “bail-out” fund for Hartford.
If they hadn’t agreed to the reserve plan, MDC officials argued, MDC would not have the bond proceeds to continue funding ongoing sewer and water infrastructure improvements.
Also, without the reserve fund in place, DiBella said there would be no guarantee the agency could cover a Hartford default or continue operating or pay the bondholders.
Windsor Town Manager Peter Souza said he recommends that the town use the general fund reserves to meet the potential payment. Then, the $700,000 would not appear in next year’s proposed 2017-18 budget.
The alternative to selling the bonds, DiBella said, would have been to roll over the current $173 million short-term construction bonds now funding MDC repairs that must be paid off in December, under state law. To roll over such bonds, state law also requires a heavy penalty be paid in cash immediately. For these bonds it would cost $26.5 million, which the member municipalities would have ended up paying.
A related issue is credit ratings. Because of concerns over Hartford’s finances, the credit rating agencies recently downgraded MDC’s bond rating from AA+ to AA, which is expected to cost the agency and its member towns an estimated $500,000 in a higher interest rate for the bonds. Because of that the credit rating agencies are also expected to consider changing the towns’ credit ratings.
Creating the reserve fund keeps MDC’s credit rating where it is. MDC officials hope that passing the two proposed laws would prompt the credit rating agencies to return its rating to AA+.
