Annual Financial Review

To: Borough Residents

From: Treasurer

Date:  May 27, 2017

Subject: Annual Financial Review

Last year at this meeting, I mentioned the serious challenge the Borough faces from rising sea level and erosion of our shoreline. This past winter, sea levels rose within inches of breaching the Hepburn dune and washed the eastern shoreline onto Sequassen Avenue for the second time in three years. The Burgesses have elevated the issue of protecting Borough property to the top priority for capital expenditures. That commitment, along with very disappointing golf course revenues, have defined budget discussions and dictated the decision to increase the mill rate this year to generate a sufficient operating surplus to move ahead with protecting our wetlands, shoreline and private property from the onslaught of ocean and erosion. In all other respects, the Borough’s finances remain in good health.

Recap of Fiscal Year 2016-17. The Borough’s budget for the fiscal year ending on June 30 was $1,189,766, of which about $30,000 was planned as an operating surplus to pay for capital expenditures and $20,000 was earmarked to repay our line of credit. Actual revenues now are expected to fall short of the budget plan by almost $30,000 due to disappointing revenues from nonresident greens fees.  Rain and snow clearly inhibited play during many of the pivotal months of the off-season that tend to ‘make or break’ the budget each year. Nonetheless, we have been forced to contemplate the possibility that greens fees have topped out, in part because of increased competition and promotions from other golf courses in central Connecticut. Unfortunately, we no longer can presume that the golf course will generate significant operating surpluses as they have in the past.

This year’s budget left little room for capital improvements. We did complete the re-grading and reseeding of the 1st and 9th fairways, thanks to matching funds from FIF. Rain water now drains into the new waste bunker on the 9th fairway; heavy rains activate a new sump pump that removes the excess water before it damages the grass. And a new area along the 1st fairway now is dedicated to growing sod to repair the greens. The bottom line, though, is that this year’s budget deficit – now estimated at about $27,000 - must be financed. We have managed to squirrel away some savings from other budget items and hope to pay some of the deficit from cash on hand. The remainder must be covered by future revenues, namely those from next year’s budget.

Capital Expenditures. The biggest challenges we face are how to finance a handful of expensive improvements to the Borough’s infrastructure and recreation facilities. The Burgesses recently reviewed prospective projects that have been discussed over the years and have set the following priorities:
  1. Living seashores and marsh preservation in the area of the Hepburn Preserve and along the eastern shoreline;
  2. Pier: repair and replace decks on west and south sides;
  3. Borough entrance: raise and reconfigure circle area;
  4. Golf course: continue to implement master plan;
  5. 4 Nibang: new windows and handicap access to meet code requirements.
The top four projects, and the lion’s share of the estimated expenditures, are dedicated to protecting Borough property or enhancing our recreational facilities. Note that road resurfacing did not make the list of top priorities and again has been deferred.

The top three projects will require pre-funding and hence a financing strategy. There are only four options:

  1. Increase debt, either through bank loans or bond issuance
  2. Apply for grants
  3. Sell assets
  4. Budget for operating surpluses

Each strategy has its pros and cons. On #1, the Borough has room to increase debt by about $250,000. The outstanding balances on our equipment loans and the mortgage for the municipal buildings are $115,000 and $966,000, respectively. I estimate our maximum debt capacity at $1.35 million. Asset sales are complicated by conservation easements on almost all Borough property.

A promising option may be grants for living seashores from public and private sources. We are investigating potential donors. The General Manager and the Borough’s Living Seashore Committee, headed by Bill Webster, already have met with DEEP representatives who are recommending a ‘claw’ design as shown below for the Hepburn Preserve area. Similar designs would apply to the eastern shoreline and the Scum Beach area. Both the Burgesses and the Lynde Point Land Trust have approved funding to complete engineering studies for these shoreline projects.

Budget for Fiscal Year 2017-18. The Burgesses were not willing to leave funding for these projects to chance. Besides, almost all grants require matching funds from the community. So we opted to build a budget with a significant operating surplus and few other changes. The final budget proposal includes the following highlights:

  1. Total revenue of $1,207,147 and expenses of $1,111,007.
  2. A tax rate of 3.43 mills, which amounts to a tax increase of about $418 per cottage.
  3. A projected operating surplus of $96,140 to finance capital expenditures and to cover any residual deficit from the current fiscal year.
  4. A less optimistic estimate of $310,000 in nonresident greens fees with the help of an extra summer weekend due to an off-year for the Member-Guest tournament.
  5. A reduction in payroll expenses due to the departure of two senior staff members.

That surplus may seem like a lot, but there are already two claims against it, namely this year’s deficit estimated at $27,000 and the coastal engineering studies for shoreline preservation of $20,000, which leaves us with our traditional, and meager, surplus to finance whatever else needs repair.

Much more will need to be done in the years ahead to protect Borough and private property if current rate of rise in sea level continues. Doing nothing is not an option. Only your continued contributions to the FIF and Lynde Point Land Trust can ensure that the Borough will survive as we now know it.

Respectfully submitted,
Robert Gay, Treasurer