STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY. Minutes of Authority Meeting October 22, 2001

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1 STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Meeting October 22, 2001 The State of Connecticut Health and Educational Facilities Authority met in session at the Authority s office at 10 Columbus Boulevard, Hartford, Connecticut at 2:02 p.m. on Monday, October 22, The meeting was called to order by Barbara Rubin, Chair, of the Board of Directors of the Authority, and upon roll call, those present and absent were as follows: PRESENT: ABSENT: ALSO PRESENT: John M. Biancamano William J. Cibes, Jr. Benson R. Cohn (Rep. Marc S. Ryan) Patrick A. Colangelo Phyllis C. DeLeo Howard G. Rifkin (Rep. Denise L. Nappier) Barbara Rubin, Chair Laurence R. Smith, Jr. none Richard D. Gray, Executive Director, Jeffrey A Asher, Managing Director/CFO, David A. Williams, Managing Director, Dawn Fuller, Administrative Assistant Diana Hughes, Accounting Manager, Eileen MacDonald, Manager, Administrative Services, Michael Morris, Manager, New Business, and Jennifer P. Smyth, Document Analyst, of Connecticut Health and Educational Facilities Authority Minutes of the Board of Directors Meeting October 22, 2001 Final Approved: 11/26/2001 2:15 PM

2 STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Meeting October 22, 2001 Mr. Salvatore J. Brancati, Jr., Principal, of Maritime Professional Advisors LLC Michael Cicchetti, Undersecretary, of The Office of the Secretary, Office of Policy and Management J. Hanson Guest, Esq., of Brown, Rudnick, Freed and Gesmer John D. Yarbrough, Esq., of Carmody & Torrance Bernadette M. Puleo, Vice President, of P.G. Corbin & Company, Inc. Edmund See, Esq., of Day, Berry & Howard Jean E. Winn, Esq., of Hawkins, Delafield & Wood Jill Lewandosky, Consultant, of Public Financial Management D. Mark Gooding, Vice President, of Lamont Financial Services Corp. Edward J. Samorajczyk, Jr., Esq., of Robinson & Cole LLP Coleman H. Casey, Esq., of Shipman & Goodwin LLP The Notice of Regular Meeting was read and ordered spread upon the Minutes of this Meeting and filed for the record. Minutes of the Board of Directors Meeting October 22, 2001 Final Approved: 11/26/2001 2:15 PM

3 BOARD OF DIRECTORS MEETING October 22, 2001 The Meeting was called to order by Barbara Rubin, Chair at 2:02 p.m. MINUTES Upon motion duly moved and seconded, the Minutes of the Regular Meeting of the Board of Directors Meeting of September 10, 2001 were approved by all Members present. Mr. Cohn abstained from the vote, as he was absent at the September meeting. CURRENT AND PENDING BOND ISSUES Mr. Morris reviewed the Financing Forecast, stating that Bristol Hospital and Connecticut Hospice will be presented at today s meeting. A refinancing of Saint Francis Series B issue, most likely to be insured by Asset Guaranty, will be presented for Board approval at the December meeting. The Williams School closed on October 18; Quinnipiac University is scheduled to close later this month, and Loomis Chaffee School is scheduled to close this week. A new application has been received from Westminster School in the amount of $11 million for improvements to the School s athletic facility. Westminster s Series C issue will also be presented for preliminary review at today s meeting. The YMCA of Greater Hartford has selected State Street as investment banker for its proposed Series A issue. Regarding the Summary of Financings, Mr. Morris reported that the Taft School $11.48 million Series F issue, and the $750,000 EasyLease issue for Gaylord Hospital closed since the last meeting. The reports were accepted as information. INTEREST RATE UPDATE Mr. Williams discussed current interest rates. Since the September Board meeting, there has been a reshaping of the interest rate curve. The 30-year Treasury is almost unchanged, from 5.37% last month, down to 5.34% today; ten-year Treasuries are down from 4.79% to 4.60%. Regarding short-term rates, the three-month LIBOR taxable rate is down from 3.49% to 2.37%, a decrease of over 100 basis points. The tax-exempt BMA index is down 20 basis points, from 2.15% to 1.95%. Most of CHEFA s variable rate issues have been resetting this month with the first digit as one, in the range of 1.0% to 1.8%. Ms. Rubin asked about the yield curve, to which Mr. Williams replied that the curve is much steeper since last month. Minutes of the Board of Directors Meeting October 22,

4 SALES REPORTS Loomis Chaffee School Issue, Series E Mr. Gooding of Lamont Financial Services reported that the Loomis Chaffee issue is due to close this week. The Series E refinancing was part of the Series D issue that closed last spring, but due to unfavorable interest rates, the School was unable to meet the required savings threshold set by the CHEFA Board for refinancing. The market had since improved producing sufficient savings, which allowed the School to enter the market. After the events of September 11, the Fed immediately began cutting interest rates. However, through the suggestion of the Underwriter, First Albany, SLG rates were secured at prices that were set on September 10. Mr. Gooding explained that SLG s are the funds to which the Treasury deposits escrow monies. The resulting escrow yield at 50 basis points, one-half percent higher than later rates, allowed the refunding to achieve an adequate savings margin. The transaction priced approximately 45 basis points better than the Series D issue, and resulted in a Net Present Value Savings level of 3.98%, or $718,000. The bonds were priced favorably relative to the MMD scale and the two term bonds were oversubscribed. The yield on the 2025 term bond was ultimately reduced one basis point from 5.07% to 5.06%. The report was accepted as information. Williams School Issue, Series A Ms. Lewandosky of PFM reported on the Williams School variable rate issue, which was secured by a letter of credit from First Union National Bank. The bonds were offered by Advest and purchased by a single investor, Alliance. The initial weekly rate was set at 1.05%. Other interested purchasers included Fleet (1.50%) and Dreyfuss (1.75%). The School was very pleased with the initial interest rate. However, it is not anticipated that the reset rates will be that much lower than comparable issues in the future. First Union was selected as the remarketing agent. The report was accepted as information. PRELIMINARY STAFF MEMORANDUM Connecticut Hospice Issue, Series A Mr. Asher introduced Salvatore Brancati, the Hospice s financial advisor, who was present to answer any questions Members may raise regarding the $12 million issue. Mr. Asher reported that there was an organizational meeting held this past Friday. Mr. Asher feels that this type of Institution should benefit from tax-exempt financing. Connecticut Hospice prides itself on adherence to providing quality of life for its patients suffering from irreversible illnesses and their families, as well as the invaluable service it provides to its patients. Hospice provides many additional services which are not typically covered by most traditional insurance, therefore Hospice expects and budgets for losses from operations each fiscal year. It also provides extensive home care services in addition to inpatient care. Minutes of the Board of Directors Meeting October 22,

5 Proceeds from the Series A issue will be used to refinance a Webster Bank loan that was used to purchase an attractive waterfront site and office building, which now houses the J.D. Thompson Hospice Institute for Education, Training and Research and the Connecticut Hospice hospital facility that serves over 1,400 patients annually. The interest rate on the outstanding $17 million Webster loan is at LIBOR plus one and a half percent interest. The taxable Webster loan has a principal repayment of $3.5 million due in January 2002 and a bullet maturity of $15.0 million due December 31, First Union Bank has given a preliminary expression of interest for a letter of credit for the transaction. Given the potential for an attractive interest rate and a fee of 125 basis points it appears likely that First Union will commit to the financing. Connecticut Hospice has prepared financial projections for First Union, which indicate a required fundraising level of $4 million per year to support a minimum debt service requirement of 1.25 times for the Series A issue. This goal is higher than what Hospice has been able to raise in contributions to date. First Union is willing to insure the issue notwithstanding the fundraising challenge. Staff expects to present the transaction for Board approval at the December 10 meeting, provided all outstanding issues have been resolved. Connecticut Hospice s operating results are relatively weak, but has a donor list of 70,000 small contributors. Hospice has received a commitment from the Federal government for $900,000 in funding, and is also seeking State grants. Mr. Colangelo stated that he is pleased with the attention medical insurers are giving to providers of hospice services. He feels that insurance coverage for these services are proceeding in the right direction. Ms. Rubin asked if First Union is still committed to providing the letter of credit for the Series A issue, considering the effects of September 11 related to changes in charitable giving trends to causes for the victims, firefighters, etc., and the possible impact to Hospice s ability to raise the $4 million in contributions. Mr. Asher replied that First Union is still committed to the financing, and is negotiating the final terms for the letter of credit. Mr. Brancati left the meeting at this time. Westminster School Issue, Series C Mr. Morris reported on the proposed $11 million fixed rate issue, which may be issued on the School s own credit rating. At this point, Westminster does not have a rating; however, at the time the Series B bonds were issued, Standard & Poor s gave a rating indication of high investment grade, possibly a strong A or AA. S&P will be making a site visit in November. Projects included in the Series C issue are part of the School s long-range strategic plan, and will include the addition of an athletic complex and a fitness center. Based on preliminary discussions with the bond insurers, an insurance premium is estimated at approximately 60 basis points. The underwriter, A.G. Edwards, estimates a breakeven premium around 40 basis points. Minutes of the Board of Directors Meeting October 22,

6 Enrollment at the School for this academic year is 362 students, approximately two-thirds of which are boarding. Westminster has two outstanding CHEFA bond issues totaling $17 million: Series A, issued in 1996 (115 basis point premium), and Series B issued in 1999 (60 basis point premium). Demand at the School is strong, with increasing applications, which has allowed Westminster to be more selective in student acceptances. Enrollment at Westminster has been steady from 1996 through 1999, with a slight increase in Fall Geographic diversity is moderate with students originating from 25 states and 15 countries. Minority students comprise 12% of the student body. Updated information on these measures will be provided at the January Board meeting, when the issue is expected to be presented for approval. Westminster s finances for Fiscal Year 2001 indicate a decrease in unrestricted net assets of $5.1 million. The decrease was partially due to Net Realized and Unrealized losses of $2.8 million resulting from the downturn in market conditions. In addition, the School as required to reclassify $1.04 million of unrestricted assets to temporarily or permanently restricted. The School s balance sheet remains strong in relation to total resources to debt and operations. Resources per student compares favorably to Moody s Aa median of $182,450. Westminster s current endowment is at $68.5 million, of which approximately 90% is unrestricted. Endowment spending is currently at 5.5%, which is slightly higher than most of the independent schools; however Taft School and other strong A rated schools also had high draws on endowment. Debt service as a percentage of total expenditures, including the new issue, is projected at 12%. This is higher than Moody s median of 10%. Taking into account the decrease in net assets in FY 2001, projections do not show the School achieving a 1.25 times historical debt service coverage ratio. Ms. Rubin asked about yield, to which Mr. Morris replied that this measure represents the number of students enrolled as a percentage of those accepted. Historically, yield at Westminster has been about 30%, which may indicate it is not considered a first choice school by students accepted. Bridgeport Hospital, EasyLease Mr. Morris recapped the procedures for EasyLease transactions, stating that Board review is necessary if the size of issue exceeds $5 million. For that reason, Staff is presenting the Bridgeport Hospital lease transaction. Funds will finance an energy management system from Sodexho-Marriott, for which plans have been approved by OHCA. All of Bridgeport s plant equipment will be replaced, which is currently near or past its useful life. This equipment is between 22 and 44 years old. Projected annual savings from the installation of the new, more efficient equipment is $590,000 annually, which is guaranteed by Marriott. Additional savings will be derived from avoiding repairs on existing equipment as well as eliminating some service contracts on the old machinery. Minutes of the Board of Directors Meeting October 22,

7 The Hospital s finances for the nine months ending June 30, 2001 reported a loss of over $7 million, compared to a budgeted gain of $1.1 million. For the Fiscal Year ending September 30, 2001, a $14.3 million loss is projected. Bridgeport has engaged two independent consultants and once the scope of the project is determined, details will be provided to the Authority. Were it not for the viability of the energy management project and the level of associated savings, there would be no interest from leasing companies. Staff s recommendation is based on the practicality and savings associated with the project. Fleet Capital will be the lessor for this transaction at a rate of 4.95 % for a term of seven years. Ms. Rubin asked what would happen at the end of seven years. Mr. Morris replied that the equipment would be fully amortized at the end of seven years, although the energy savings are guaranteed for ten years. Mr. Gray reported that he recently met with the Chief Financial Officer of Yale-New Haven Hospital ( Y-NH ) and its system, of which Bridgeport Hospital is a member. At that meeting, Y-NH disclosed that Bridgeport will report a $14.3 million loss, of which $10 million is losses from operations. The Hospital engaged the independent consultants, because it knows the expected loss will trigger CHEFA s covenant for requiring an independent consultant. The CFO of Y-NH s system will send results of work done to date by the two consultants who were appointed, and all information will be disclosed to the leasing company. Fleet Capital is aware of the projected loss, and remains committed to the financing. Mr. Colangelo commented that a contributing factor to the expected loss may be the treatment of pension costs, which are calculated at year-end, and asked if Bridgeport had cited this expense as part of the reported deficit. Mr. Gray replied that this item had not been discussed, but Y-NH represented that Bridgeport Hospital has many operating difficulties. Ms. Rubin commented that the energy savings project indicates a cash savings starting in year one. Mr. Gray concurred, and stated that the level of savings is one criteria used when evaluating a transaction for a hospital in fiscal distress. The project must include the replacement of essential equipment, something that will bring significant savings to the bottom line, or be of the type that will pay for itself. CONSENT AND BOND ISSUE AUTHORIZATION RESOLUTIONS Bristol Hospital Issue, Series B Mr. Williams reviewed the Staff Memo for the Bristol Hospital issue, which has been expanded in amount since the initial report at the June meeting, and updated at the July Board meeting. The Series B issue has increased from $20 million to $38 million, and will now provide for a current refunding of the 1990 Series A issue in the amount of approximately $15 million. Staff is seeking approval of Series B in an amount up to $40 million, to allow for any changes in calculations which may occur. Minutes of the Board of Directors Meeting October 22,

8 Asset Guaranty will provide bond insurance for the entire Series B issue, replacing Fleet Bank as the letter of credit provider as reported in the June information. Asset Guaranty also replaces MBIA, which was the bond insurer for the Series A issue. The Boards of the Bristol Hospital Obligated Group have approved the expansion of the group as requested by CHEFA s Board to include Bristol Hospital; Bristol Health Care; the parent, Bristol Hospital and Health Care Group, Inc.; and the foundation, Bristol Hospital Development Foundation, Inc. The refinancing for the Series A issue is very economic with a Net Present Value Savings of 11.6%. Bonds will be sold as a fixed-rate 30-year issue, with insurance by Asset Guaranty for the life of the bonds. Cain Brothers, the Senior Underwriter, and the Hospital want to include provisions for a future interest rate swap for a fixed to variable rate transaction. Details for this condition have not yet been finalized, but the Hospital would like the flexibility to close the bond issue, then review swap options. The swap would not exceed half of the Series B issue amount outstanding at the time of the swap. Limitations have been made by the Bristol Hospital Board on the amount of variable rate debt to be issued. Staff s is seeking Board approval for up to $40 million for the Series B issue, based on the following conditions: 1) an additional TEFRA hearing if required by Bond Counsel for the Series A refinancing (there have been two hearings to date); 2) receipt of a final commitment letter from Asset Guaranty; 3) Final Approveding of satisfactory documentation based on CHEFA s Precedent 2001 standard documents, as adjusted for Asset Guaranty terms; 4) receipt of written modification of the CON by OHCA for $2 million of financing to be amortized over five years (which amount will be subtracted from the total financed should OHCA not approve the additional $2 million); 5) receipt of amendments by the Bristol Boards for the increase in the size of the transaction from the proposed $38 million to up to $40 million; and 6) that there are no adverse changes in the September 30, 2001 financial results. Ms. Rubin recapped the information for the Series B issue, in that the total amount of debt will increase only marginally, debt service payments will decrease, the debt service coverage will increase, and there will be significant savings on the refunding. Mr. Williams replied that the actual debt service for the Series A issue will decrease by approximately $160,000 per year. However, including the new project of $20 million, total debt service will increase substantially. Ms. Rubin questioned whether the aggregate debt service on the entire outstanding debt will be lower than as structured when Series B was expected to be only $20 million, due to the expected savings on the refunding portion. Mr. Williams confirmed that aggregate debt service on the new outstanding debt would indeed be lower due to the savings on the Series A interest costs. Mr. Colangelo inquired as to the interest rate on the outstanding Series A issue. Mr. Williams replied that the average rate is approximately seven percent. Minutes of the Board of Directors Meeting October 22,

9 There being no further questions from Board members, the Chair then introduced Resolution (Bristol Hospital Issue, Series B, Authorizing), which Resolution was read and considered. Mr. Colangelo moved adoption of Resolution No , which motion was seconded by Mr. Smith. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS John M. Biancamano William J. Cibes, Jr. Benson R. Cohn Patrick A. Colangelo Phyllis C. DeLeo Howard G. Rifkin) Barbara Rubin, Chair Laurence R. Smith, Jr. The Chair then declared Resolution adopted (see Appendix A, Resolution ). Mr. Rifkin explained his position on the topic of the use of tax-exempt financing through CHEFA for certain kinds of projects. He stated for the record that he feels that what he said at the initial discussion was misinterpreted, and because he was not present at the September 10 Board meeting where the policy discussion was held, he wanted to clarify his position. He does not oppose any financing for a Catholic hospital or any hospital affiliated for tertiary care services with a Catholic hospital. His concern and disagreement with the position of Dr. Barone on this subject is in the public policy aspect of providing access to tax-exempt financing to an entity that restricts services. He will research the possibility of creating limitations to access to CHEFA financing, and present a recommendation and resolution for a change in policy to the Board at a future date. Mr. Rifkin gave a hypothetical example of a Connecticut educational institution similar in philosophy to Bob Jones University that approached CHEFA for a tax-exempt issue. In such case, he feels that even if the facility met all Authority underwriting and credit guidelines, the Board would not support such a financing as a matter of public policy. The question to be resolved is if projects for an institution seeking tax-exempt financing through CHEFA restricts reproductive rights, even if the institution the credit and underwriting guidelines, can a policy be developed to deny access to that institution while retaining the Authority s mission of providing access to tax-exempt financing to hospitals in the State. Mr. Rifkin further stated that this is topic that he supports and would like to pursue in regard to CHEFA financing. Ms. Rubin commented that from last month s meeting and discussion on the topic of CHEFA client s limiting of services, i.e., reproductive rights, she obtained assurance that any woman in Connecticut who entered a hospital in Connecticut for such services is Minutes of the Board of Directors Meeting October 22,

10 advised of all options. These options include the woman s choice to seek services at another hospital. The Chair also referred to Mr. Rifkin s analogy to Bob Jones University, in that there is an educational facility in Connecticut with an unusual affiliation. Mr. Rifkin acknowledged that the University of Bridgeport has an affiliation with Reverend Moon, but stated that there are choices to be made under certain circumstances which may preclude merely the financial measures. Ms. Rubin asked that this topic remain open for discussion. Mr. Rifkin reported that as a requirement for approval of the sale of Sharon Hospital to the for-profit Essent Corporation, the Office of Health Care Access called for the agreement for tertiary care agreement between Sharon and Saint Francis Hospitals to be set aside from the purchase agreement. The OHCA Commissioner felt that there was no opportunity for Essent and Sharon Hospital to find another tertiary care provider for women s reproductive health needs that would not be provided through Saint Francis. Although the Sharon Hospital matter involves the sale of a hospital rather than a project financing, Mr. Rifkin feels that the difference between the sale of Sharon Hospital and the question of access to tax-exempt financing through CHEFA is a difference of a degree, not in kind. Considering HMO restrictions on doctors networks and affiliations with hospitals, Mr. Rifkin feels that merely advising a woman that she may seek services out of the insurance network to obtain services may impose financial constraints for treatment outside the HMO provider that may not be covered in the plan. Mr. Gray called Mr. Rifkin s attention to page six of the Minutes of the Meeting of September 10 in the second paragraph, where he requested that the Minutes did not specifically identify Mr. Rifkin in the discussion. Mr. Gray had made it clear that Mr. Rifkin s position on this issue was not to discontinue CHEFA financing Catholic hospitals. Upon motion duly moved and seconded, all Members present voted approval to keep this as an open item for further discussion and possible action at a later date. CHEFA FINANCIAL OPERATIONS August and September 2001 Financial Statements Mr. Asher presented the August and September financial statements, and reviewed the highlights of the September information. Expenses to date are under budget by $154,000, but with the exclusion of program related expenses, expenses are actually slightly below budget at $30,000. Under the guaranteed loan program, there are approximately $9 million in loans currently in process, and we can expect increased usage of the interest rate subsidy. The year to date excess of revenue over expenses as of September 30 is tracking ahead of budget. Ms. Rubin asked about the status of the Committee established for the development of the grant program. Mr. Gray replied that he has been working to coordinate schedules with Mr. Rifkin s heavy schedule. Minutes of the Board of Directors Meeting October 22,

11 Mr. Gray stated that the Authority may show a negative budget variance related to investment income for the remainder of Fiscal Year 2002, due to the rapid drop in interest rates. The interest rate used to develop this item was budgeted at 4.5%, and current market conditions are well below that rate. CHEFA does invest funds in the State Treasurer s Short-Term Investment Fund ( STIF ) account, which holds an attractive yield relative to comparable alternatives. Ms. Rubin then asked if Staff expected any change in transaction volume for the remainder of the current fiscal year from the original projections due to market conditions. Mr. Gray replied that there has been no indication of any negative effect to the projected volume. The Authority backlog of financings has not changed, but there have been an increase in refundings over the last few years. Ms. Rubin commented on the decrease in issuance from 1999 to present, from $700 million to $350 million, which represents the drop of issuance in the health care sector. Mr. Gray stated that the issuance in the educational area had been larger, and Mr. Asher stated that he feels that will slow down in the near future. OTHER BUSINESS Public Act Mr. Gray provided background to PA , which he learned about through Robinson & Cole LLP. The Connecticut Development Authority requested an option to include the disclosure language relative to payment of third party fees on its application for financing. This disclosure included in this legislature provides notice that any false statements provided in an application for financing is a violation of the pertinent sections of the Connecticut General Statutes. The Legislature made the inclusion of this optional language regarding false statements mandatory and applicable to all quasi-public authorities. Following discussion with counsel, the Authority decided to include the full notice of the Act in the application materials and bond documents. The guidelines for certification for false statements will also be used for waivers requested by clients with CHEFA financing. All of its clients have been properly notified. There is a high possibility that the Act may be changed in the next Legislative session to make application of the CGS statutes optional rather than mandatory, or deleted as a requirement altogether. As of this date, the Authority is in compliance with Public Act Policy Discussion on Privatized Student Housing Dr. Cibes recused himself from the discussion of this agenda item. Mr. Gray reported that the Connecticut State University System had approached the Authority about financing additional student housing. In Section 10-a90 of the Connecticut General Statutes allows CHEFA to finance dormitories and take ownership of the housing on its balance sheet and lease the residences back to the University. The Authority did finance Minutes of the Board of Directors Meeting October 22,

12 similar projects in the first years of its existence. Bonds sold for the dormitory project would be issued as special obligations of the Authority under a dormitory system model, supported by a pledge of revenues from the housing projects financed. The reason for considering this financing structure is not to circumvent prevailing wage rates, but to relieve CSU from the onerous construction process for dormitories found under the Department of Public Works. Due to the lengthy process for building housing under DPW provisions, CSU will pay over $2.0 million for rebate/arbitrage penalty to the Internal Revenue Service within the next eight months. CHEFA counsel reviewed the feasibility and legality of this type of financing. Shipman & Goodwin LLP determined that it would still not be exempt from DPW s construction project requirements. To date, the Authority has not considered or recommended financing privatized student housing to date, because of the quality of the processes to issue such debt. However, Mr. Gray asked the Board to consider the subject matter as a policy issue. CHEFA does have the legal authority to finance such projects, underwriting could be secured, and bond insurance could be obtained by way of the special obligation structure. The policy question is whether the Board feels that this is a kind of business for CHEFA to engage in. In addition, part of the Authority s mission is to provide access to tax-exempt financing to health and educational institutions. Mr. Rifkin asked if the student housing projects would be issued as tax-exempt transactions, to which Mr. Gray replied in the affirmative. Mr. Cohn asked if these type of dormitory issues would be issued on parity with other CHEFA issues. Mr. Gray replied that the issues would not be issued on a parity with other issues, because the rental income from the project would be pledged from the dormitories financed. The housing issue would not affect the creditworthiness of the CSU issues financed through the SCRF program, because the existing issues were funded by revenue from student fees. Mr. Cohn asked if there would be any appearance to potential buyers in the market that the privatized housing issue would be a competing issue. Mr. Gray replied that he had not explored that question in the preliminary consideration of this topic for today s meeting. Ms. Rubin questioned the revenue source for the special obligation bonds for privatized housing, to which Mr. Asher replied that dormitory revenues would be paid to the dormitory system to be created. That projected revenue would be the criteria reviewed by the rating agencies for assigning a ranking for the issue. These revenues would be isolated by CSU for debt service payments, but no other revenues from CSU would be included. Mr. Asher stated that Staff investigated this type of financing because of the DPW process and the inability to complete the projects in the two-year arbitrage rebate period. Ms. Rubin asked why CSU would not consider another traditional CHEFA bond issue. Mr. Asher replied that the CSU projects are backed by the SCRF program, which has an impact on the State s budget. Mr. Gray further stated that a key factor in considering Minutes of the Board of Directors Meeting October 22,

13 privatized student housing is whether the DPW construction process could be avoided, which it cannot. In addition, necessary amendments to legislation would be required. Mr. Rifkin related a situation posed to the Treasurer s Office by the University of Connecticut. UConn at one time proposed the creation of a not-for-profit entity to build an apartment complex at the campus under a lease back structure. A major factor in consideration of this request was the question of changing demographics. Should enrollment decrease and the housing not be maintained, it appears unlikely that the University would take responsibility for maintenance of the dormitory, as the not-forprofit entity would actually be the owner of the property. There was also a question of developing proper indenture documents. With the diversion of the revenue stream provided by the dormitory out of UConn s balance sheet, there was a question of whether UConn could support additional debt to build traditional dormitories. Mr. Rifkin asked for further discussion of this subject at a future meeting, with full consideration of these factors he just related. Mr. Cohn proposed another way of looking at this topic, in that the Adriaen s Landing project was not issued through DPW. The project faced such issues as finding knowledgeable construction managers, but also the addition of project staff to oversee the construction managers, in fact quite intensively. In such case, does the size of CSU s construction project warrant building its staffing capacity to avoid the DPW process. Increase of CSU staff for this purpose may also not be politically possible. Mr. Colangelo asked what would happen in the event revenues decrease for the privatized housing, and how would CHEFA be responsible. Mr. Rifkin replied that even if a process could be developed to repay the bonds without recourse to the Authority, CSU would then look to the State for support. Mr. Cohn suggested that all options be considered to determine a way around the DPW process, including finding interim housing to satisfy demand and then determining the required deadline for project completion. Financing housing for CSU is a CHEFA issue, even if it is done under the dormitory system model, unless a for-profit entity is created. Mr. Gray stated that he is also not in favor of funding the privatized housing through a for-profit shell. Mr. Gray asked if he had the Board s support to continue research and discussions with its counsel on this matter. The purpose of today s discussion was to get input from the Treasurer s Office and OPM, not to seek approval for the financing structure. Ms. Rubin asked Members if they agreed that providing on-campus housing comes under CHEFA s mission and, therefore Board support. All Members present indicated their approval of further investigation by Mr. Gray into the subject, as well as possible consideration of a privatized housing transaction issued through CHEFA. Mr. Gray introduced Dawn Fuller, Administrative Assistant, who will provide support services to the Executive Director. Mr. Gray then announced Mr. Cohn s retirement from OPM, and that today is his last CHEFA meeting. Mr. Cohn introduced Michael Cicchetti, Undersecretary, of the Office Minutes of the Board of Directors Meeting October 22,

14 of the Secretary at OPM. Mr. Cicchetti will be Marc Ryan s designated representative to the CHEFA Board. Mr. Cicchetti has been Deputy Counsel at the Governor s Office and also Undersecretary for Governmental Policy. Ms. Rubin invited Mr. Cohn to the December 10 meeting for the holiday reception. CHEFA Annual Report Budget Mr. Gray reported that CHEFA has budgeted approximately $50,000 for the issuance of its Annual Report. Following the events of September 11, Mr. Gray feels that the issuance of a large flashy report by the Authority is perhaps not the best use of the budgeted funds. He proposes that CHEFA s audited financial statements be printed and made available to interested parties, estimated at $10,000. The remaining sum of $40,000 could then be put into an account at the Connecticut Higher Education Trust for children of Connecticut victims of the September 11 tragedy. In theory, the amount donated by CHEFA could be augmented by other contributions. Mr. Rifkin reported that there has been some discussion about using the CHET account to help finance education costs to children of families affected by the World Trade Center event. There could be a vehicle developed for others to contribute to these funds, but more investigation is necessary in the area of how the funds are managed. It is critical that the funds designated for the families in question are indeed the recipients of the benefit. Mr. Gray stated that CHET would be the appropriate vehicle to coordinate giving for Connecticut families, as it is a very well-managed fund. Dr. Cibes stated that he is in support of the use of the Annual Report funds this year. He recommended that in future planning a basic report be developed which refers interested parties to CHEFA s web site for the Annual Report, which could provide considerable savings in preparing a printed marketing product. Mr. Gray replied that the report is used as a marketing tool and used in meetings and presentations to clients, but feels it is not necessary to prepare a piece this year. Ms. Rubin stated that she would like to see a marketing piece that could be used over a couple of years, while providing the financials in intervening years. Mr. Colangelo proposed that if CHEFA could not distribute this contribution through CHET, then a proper reputable organization be selected to direct the funds to the Connecticut families. Ms. Rubin asked Members to authorize Mr. Gray to continue investigation with the Treasurer s office or other suitable venue to contribute the sum of $40,000 for future education of Connecticut children of victims of the September 11 tragedy. Upon motion duly moved and seconded, all Members present voted their approval Board Meeting Dates Ms. Rubin stated that the proposed date for the January 2002 meeting may pose a conflict to her schedule. She will advise Mr. Gray of her availability and a revised schedule will be available for approval at the December 10 meeting. Minutes of the Board of Directors Meeting October 22,

15 DATE OF NEXT MEETING The Chair reminded everyone present of the next meeting date, scheduled for December 10, There being no further business, the Board unanimously agreed to adjourn at 3:13 p.m. Respectfully submitted, Richard D. Gray Executive Director Minutes of the Board of Directors Meeting October 22,