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DARIEN — Town officials summarized financial projections and potential uses of Great Island for RTM districts two and four on Thursday night in preparation for Monday’s RTM vote on the town’s proposed $103 million purchase of the 60-acre island.
Board of Finance Chair James Palen and First Selectman Monica McNally have presented the proposed purchase to a number of boards and commissions in the past few weeks.
McNally signed the agreement to purchase the property on May 23 and the town approval deadline is June 28 at 5 p.m. The town has a due diligence period of 75 days that will end on August 6 in which to survey the property and monitor for environmental, legal and other issues.
At Thursday’s presentation, McNally said the purchase is exactly what the town Plan of Conservation and Development mandates.
“It states Darien will ‘seek to acquire land for open space whenever possible and appropriate,’” McNally said. “In February of this year, a door opened. This property went on the market and we were given the opportunity to compete for a precious piece of land within our borders — and compete we did.”
McNally said that developers have shown interest in the island partly because of two sewer connections, one that can support 18 hookups and one that can support 19 to 57 hookups.
She said that through “heavy negotiations” the town reached an agreement to purchase the property from the Steinkraus family, descendants of William Ziegler who built the estate in 1905.
McNally described the purchase as an opportunity to balance the “unprecedented development” in downtown and Noroton Heights with “a space that can offer people some respite, a place to rejuvenate and come together as a community, as neighbors.”
With pictures of the island projected on a screen, McNally said the island could be envisioned as divided into four “zones” that she called “empty canvases” in terms of possibilities of use.
Financials, explained
“I would say when [Monica] first started looking at this property back in February, March, she very quickly got myself and some of the other members of my board involved to start looking at some of the analytics of what this would mean to our taxes, to our overall mil rate and to expenditures across the town,” said Palen.
The purchase would cost the town $103 million plus up to $500,000 in closing costs, he said.
According to Palen, the value of the property came to $108 million in April 2022, based on a third-party appraisal commissioned by the Board of Selectmen. That estimate was based on an expectation of “further development, with the value based on factors like interest rates, building costs and what a buyer would pay for the homes.”
In 2018, the property was appraised at $65 million and assessed at $45 million or 70 percent of the appraised value. The property also generates about $760,000 in taxes based on Darien’s 17 mil rate.
Palen said the town plans to fund the $103 million purchase of the property by issuing tax exempt bonds in early August.
With the $103 million in bonds, the town’s debt would grow to $243 million, which includes $77 million recently approved for the renovations of the Hindley Holmes Royle buildings, known as HHR, and $63 million for the construction of the Ox Ridge Elementary school two years ago.
Palen said that historically the town’s debt has not exceeded $100 million, which has been amortized generally over 20 years.
“The expectation is that this debt right here would be issued over 30 years rather than over 20 years,” he said. “The state allows municipalities like Darien to issue over 30 years for either school projects or for land acquisitions.”
The debt service associated with $103 million will be approximately $6 to $7 million per year beginning in year three, Palen said, using “some conservative assumptions as it relates to interest rates.”
“I mentioned we’re going to issue short-term bonds initially – those short-term bonds will allow the town to figure out what they want to do with the property,” he said.
If the town decides that one use of the property is a “private use,” then that portion of the bonds would be taxable rather than tax exempt.
Palen estimated that the additional debt service over the next five years would contribute approximately one point to the overall mil rate growth, but he cautioned that those numbers do not account for expected growth in the grand list based on “three large commercial projects” that are underway and the upcoming revaluation in 2023.
He said the numbers also do not include investment in Great Island or increased operating costs because the town doesn’t know what it wants to do with the property yet.
But Palen said the upfront cost or the cost over time could be offset with private support from the townspeople of Darien.
Borrowing capacity
The town is currently rated AAA, the highest possible credit rating from Moody’s.
Palen said that if the town were downgraded to a AA1 or AA2, it would add 10 basis points per notch to the borrowing costs.
“My opinion is, having spent 25 years in the banking industry including much of it in munis, is that the probability for downgrade is very low. But if it is, the effect would be minimal,” said Palen.
Palen showed a graph of the town’s debt, which would peak at $243 million in four years. He said the RTM Finance and Budget Committee’s analysis on Wednesday night showed slightly higher numbers.
Current debt service is about 6.5 percent of the total budget and as the debt grows to $243 million, the debt service will climb to about 10.5 percent, reducing to about 7 percent in 10 years.
“As a percentage of our overall budget, debt service is increasing, but still relatively conservative if you look at it across the state of Connecticut and certainly within the rating categories,” Palen said.
He said the current debt service is about $10 million. With the HHR bonding, the debt service will pea at $12.5 million and eventually reduce to $11 million and diminish from there
“With Great Island our debt service will peak at $20 million and then come back in line around $17 million. Again, this doesn’t include other capital projects that may come down the pipeline in the future,” he said.
Palen said he thought the schools were in reasonable shape with a relatively new high school, the new Ox Ridge Elementary School, and heavy investments in the three other elementary schools — but the town could borrow more if needed for a school project.
Palen said he was not suggesting or expecting that the town would need to borrow more, but if another project were to arise, the town has the capacity to borrow, even if the town rating drops from AAA to AA1.
“But to be clear, we have hundreds of millions of dollars of additional capacity even if we move forward with the acquisition of Great Island. Statutorily the state of Connecticut sets the amount of money that we can borrow for schools, for town projects and for sewer projects,” he said. “We have hundreds of millions of dollars still available there.”
Median home tax increase
Palen said that the median home in Darien was appraised for $1.2 million, and assessed at 70 percent at $850,000 in 2018, paid $14,700 in taxes at a mil rate of 17.23.
He said that over the next five years, with Great Island, HHR and Ox Ridge, that property will pay $17,125, of which Great Island would comprise $641.
In his calculations, he included an additional $8 million in investment in Great Island, which would add $49 over five years to the median home tax.
The town’s operating expenses he estimated would grow at 2.5 percent over five years, adding up to $1800 to the median home tax. He also included growth in the grand list of .5 percent, which would reduce the tax by $204.
Q&A
Resident Todd Slotkin asked whether the town can afford the purchase and expressed concern about increasing the debt. He asked what other projects would have to be put on the shelf until the debt is paid down.
Palen responded that the debt service was about $12 or $13 million four years ago, but had decreased to the current $10 million.
“Our debt service has come down over the last few years. And the reason it came down is because we originally bonded very conservatively. There weren’t a lot of capital projects at the same time, so we did 20 year debt and we paid it down relatively quickly over like an eight year [period],” he said.
Palen said the initial plan is to bond Great Island over 30 years, and to bond HHR over 20 years, and with the town’s high rating it will “always have ready access to the capital markets at one of the lowest costs of capital available,” and statutorily will always have access to funds.
He said the 20-year school bonds could be stretched over 30 years, which would reduce debt service, if something unexpected comes up. He said his board was aware that there are unknowns in terms of services needed in the town and the schools.
“So I think I speak for [all the board], that we are going into this eyes wide open. There’s no plan here to say because we’re buying an island, we’re going to stop supporting our roads, our sewers, our police, our emergency services and most importantly, our schools, which occupy around 75 percent of our overall spending and our capital spending as well,” Palen said. “So, you know, I just think it’s important for everyone to know, at least in our analysis, in no way did we think that this was crowding out delivery of the services that we have.”
Kathleen Synnott said the purchase of Great Island was a historic decision and suggested there was an opportunity for a public-private partnership in terms of stewardship of the land and fundraising.
McNally said that financial contributions to the purchase or the ongoing operations of the island would be tax deductible and the town would welcome the support.
Alex Davidson, who is president of Delafield Island, said that during COVID “when the parks were shut, people had nowhere to go,” so they came to Delafield island.
“It was packed and it drove home the point that people need open space. And when there isn’t enough open space, then it starts getting crowded and we’re not that big. So here we have an opportunity for more open space,” which he said was needed for future generations.
Davidson suggested a private offering of below-market-rate bonds to residents of Darien for Great Island. He said he believed the town would not lose its AAA rating.
David Burke asked whether the RTM was aware that the town had issued a cease and desist order to the Steinkraus family for illegally operating a horse barn, which the property is not zoned for. He also asked whether the revenue from the horse barn should be included in the $430,000 net income from the property.
McNally answered that Planning and Zoning did issue a cease and desist order concerning the horse enterprise.
“But we also, the town, can have a zoning change and we could make this appropriate for our town. That would be something that Planning and Zoning would have to determine,” she said.
Joanna Walsh asked a range of questions about the transparency of the Great Island purchase.
“When will the public learn the same information? How can the RTM vote on this acquisition when not all of the information has been released? Do any environmental impact studies need to occur to allow for infrastructure to be built so the public can access these lands? What is the definition of due diligence? What limits are there on the reasons we can end the sale penalty free after signing on June 28? When can the public actually access the land in March when the yearly leases are up?” Walsh asked.
Walsh asked how infrastructure on the property would be funded and how security would be handled. She asked for assurances that operational budgets for town services would not be impacted by the purchase.
Kim Kiner asked about the basis for $8 million for improvements on Great Island since after touring the island it appeared that far more could be needed.
Palen said the $8 million was calculated as $2 million a year for four years.
“There was nothing really magical about it. It was something everyone, I think, unilaterally believed that there would need to be some investment made, whether it’s for initially roads or small improvements or walking paths or so forth,” he said.
Jack Davis, chair of the RTM Finance and Budget Committee, said he was working to put a package together for all RTM members based on a model that used slightly different – and higher – numbers than the Board of Finance. He said that the town needed to take its time in making decisions about Great Island.
“We said this is going to be a two to 10 year project. If anybody thinks we’re going to make a decision in the first year, I’m telling you, it’s the wrong decision. We need time to figure this out,” he said.
Parker Buckles, who said she lives on Great Island, said she supported the purchase.
“Its future depends on whether it is allowed to continue as a sanctuary or whether it becomes subject to relentless development in a community that has only 3% open space,” she said.
David Martin, a member of the Board of Finance, said while he agreed that there is immense intrinsic value to the town buying the property, there were other elements for the RTM to consider in its upcoming vote.
When the town approves capital projects, they are fully vetted, with virtually all of the questions answered – but in this case there were “substantial” questions that remain unanswered, said Martin, who said he served on the RTM for several years before joining the Board of Selectmen and then the Board of Finance.
He also said that he had not heard one comment about the alternative of a developer building 25 homes on the island, which he said would add between $150 and $200 million to the town’s grand list – which would “significantly hold down pressure on the mil rate and residents’ taxes.”
Dan Baumgardner, a member of the Board of Finance, said that if the town does not buy Great Island, that there will be 20 to 25 homes built there, which will increase the town’s developed space.
“This town needs more open space. This is the greatest opportunity we will ever see to acquire it. And that’s why I voted in favor of it,” he said.
Paul Hendrickson, a member of the Board of Finance, said that the town was one-third open space in 1962 when his parents moved there, compared to today’s 3 percent. He named a number of properties that the town could have purchased for open space but did not. He said the Great Island purchase was the town’s “last best chance and we should take it.”
McNally said the town was in the process of doing its due diligence and that information and status updates on the purchase have been made available during executive sessions for the RTM committees so that RTM members will be “able to make a vote accordingly.”
To watch a video of the meeting on Darien TV 79, click here.