STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY. Minutes of Authority Board Meeting October 26, 2004

STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Board Meeting October 26, 2004 The State of Connecticut Health and Educational Facilities Authority met in session at the Authority s office at 10 Columbus Boulevard, Hartford, Connecticut at 2:03 p.m. on Tuesday, October 26, 2004. 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 Biancamano Catherine S. Boone (Rep. Denise L. Nappier) William J. Cibes, Jr., Ph.D. Benson R. Cohn Patrick A. Colangelo, Vice Chair Barbara Rubin, Chair Michael J. Cicchetti (Rep. Marc S. Ryan) Laurence R. Smith, Jr. Dori Taylor Sullivan, Ph.D. Richard D. Gray, Executive Director, Jeffrey A. Asher, Managing Director/CFO, David A. Williams, Managing Director, Deidre Collins, Financial Analyst, John Limberger, Accountant, Eileen MacDonald, Manager, Administrative Services, JoAnne Mackewicz, Manager, Client Financial Services, Michael Morris, Manager, New Business, Beverly Rivest, Administrative Assistant, Jennifer P. Smyth, Document Analyst, and Felicia Tam, Financial Analyst, of the Connecticut Health and Educational Facilities Authority John D. Yarbrough, Esq., of Carmody & Torrance LLP Peter Wilson, Esq., of Day, Berry & Howard LLP Laurie Hall, Esq., of Hawkins, Delafield & Wood

Mary W. Ervin, Assistant Vice President, and Ben Cooper, Associate, of Lamont Financial Services Corporation Jeannette Weldon, Vice President, of P.G. Corbin and Company Stephanie Gibson, Managing Director, of Public Financial Management David M. Panico, Esq., of Robinson & Cole LLP Coleman H. Casey, Esq., of Shipman & Goodwin LLP Lisa P. Soeder, Esq. of Soeder & Associates LLP Christopher R. Klemmer, Senior Vice President, of Fuss & O Neill The Notice of Regular Meeting was read and ordered spread upon the Minutes of this Meeting and filed for the record.

BOARD OF DIRECTORS MEETING October 26, 2004 The Meeting was called to order by Barbara Rubin, Chair, at 2:03 p.m. MINUTES Mr. Colangelo moved approval of the Minutes of the Regular Meeting of the Board of Directors of September 14, 2004, which motion was seconded by Mr. Biancamano. Mr. Colangelo requested that the vote for election of Vice-Chair reflect that he abstained from the vote, rather than voting for himself as shown. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS John Biancamano None Catherine S. Boone 1 Benson R. Cohn Patrick A. Colangelo Barbara Rubin INTERIM NURSING HOME AND SENIOR LIVING REVIEW Mr. Williams called Members attention to the Interim Nursing Home and Senior Living report that was included in today s meeting folder. The Authority has approximately $320 million in bonds outstanding, of which $168.5 million are comprised of nursing home issues including $87.5 million SCRF backed, and $152 million for the nine CCRC, Assisted Living and Behavioral Health entities. The Debt Service Coverage Ratios of the twenty-one nursing homes had a weighted average of 0.92x s as of June 30, 2004, down from 0.96x s in FY 2003. Seven reporting nursing homes (one-third) report DSCR s below 1.0x s and eleven (52%) report DSCRs below 1.25x s for the nine months ending June 30, 2004. CHEFA s bond documents normally require a DSCR level of 1.25 times. Ms. Rubin asked if the ratio was based on net operations or cash flow. Mr. Williams replied that it was based on operations, including net income and depreciation. The median ratio for DSCR of CHEFA s 21 issues has improved slightly, from 1.21x s to 1.24x s. Pressures affecting the nursing homes in meeting the DSCR include state Medicaid rates, which were frozen at January 1, 2003 until January 1, 2005, when a 1% increase is budgeted; in contrast, facilities report current increases in expenses at 5%. The three 1 Ms. Boone abstained from voting as she was not present at the September 14, 2004 meeting. 1

largest expense increase factors include competitive salary levels for nursing, insurance premiums, and pharmacy costs. DSS was given the right after April 1, 2004 to provide interim Medicaid rate increases to individual financially troubled homes, which rate adjustments were given to 22 facilities. CHEFA s 21 facilities have become aggressive and innovative in ways to improve operations, including obtaining private and HMO rate increases, private pay census, and realigning services from Medicaid to subacute care. Patient revenues in FYTD 2004 have increased 5.34% over FY 2003 from those efforts. Dr. Cibes entered the Meeting at this time. Mr. Williams prefaced information on the Nursing Home Sprinkler Loan Program which was assigned to CHEFA in the last legislative session. DSS has identified 50 facilities, of which 12 have full sprinkler equipment, and 38 have partial fire extinguishing systems. The 50 facilities include 43 for-profit operations and 7 not-for-profit operations. Of the 12 with no sprinklers, 8 reported losses in FY 2003, and of those 38 with partial systems who must upgrade or install systems, 27 reported financial losses in FY 2003. The 45 facilities reporting to DSS reported net losses at more than $13.0 million. There are five facilities in receivership who don t publish their financial information, for which losses are estimated to be substantial. DSS has reported twenty-four facility closings from 1997 to 2004, with an additional two closures already completed or in process in the state s FY 2005. The majority of CHEFA financed nursing home facilities are supported by some form of credit enhancement, or are part of a hospital system. The clients in this portfolio work hard to make their centers work, both for patient care and financial operations. Mr. Williams commented that the current state Medicaid situation is not hopeful for CHEFA financed facilities, and that two-thirds of the sector s patient census is Medicaid based. Mr. Gray spoke about the sprinkler loan program, saying that a loan program for facilities that are losing money may be difficult, considering their ability to repay the loans. One scenario that has been proposed is to allow the facilities to utilize a five-year modified Medicaid reimbursement schedule to offset the sprinkler installation expense. This a rapid schedule for equipment, different from a normal Connecticut Medicaid reimbursement rate for equipment projects. A basic problem to develop the loan program is that the facilities do not have the upfront capital needed for the projects. In discussions with DSS, Mr. Gray stated that many options have been discussed, such as structuring the loan program similar to the child care loan program, or a grant based design which could potentially recoup funds from private pay census. Mr. Gray reported that the Authority is trying to help develop a program that will finance the fire extinguisher systems and help the nursing homes obtain the funds, in whatever way is best. A variable rate pooled issue may be one option to consider, but Mr. Gray maintains that a state grant program would be the best structure, which could also help insure that standards for installation and equipment were uniform. 2

In response to a question from Ms. Rubin, Mr. Williams enumerated the facilities that are below a 1.0 times Debt Service Coverage Ratio. Mr. Williams also responded to an additional question regarding facility closures and capacity issues in the nursing home industry in the state, stating that the market could not absorb at one time 30 to 35 total facility closures. Mr. Gray added that the Medicaid reimbursement rate is a continuing problem, in that when private pay daily services provided at nursing home facilities are about $300 per day, patients soon exhaust their personal funds and become Medicaid eligible. Ms. Boone remarked that she was struck by the fact that half of CHEFA financed nursing homes are relatively stable and the other half show a wide disparity in financial operations. She asked Mr. Williams if there are general factors affecting all facilities or if each facility has specific circumstances, or its own story, so to speak. Mr. Williams replied that the Medicaid reimbursement is a large financial constraint for all facilities, but that each facility also has its own individual factors or story. Some are more successful in increasing private pay census, others are experiencing a shrinking private pay census. In addition, each facility faces different nursing recruitment and union organization constraints. The hospital related facilities seem to have made better progress on Medicare reimbursement. For example, Woodlake at Tolland, the nursing home affiliate of ECHN, is reporting better operating results than its hospital affiliates. Mr. Williams reported that for the nine CCRC, Assisted Living and Behavioral Health entities, five reported a Debt Service Coverage Ratio of below 1.25 times in FY 2003, and in FYTD 2004 only two of these facilities reported DSCR below that level. CURRENT AND PENDING BOND ISSUES Mr. Morris reviewed the Financing Forecast, which shows four new applications. There are two independent school issues, for Avon Old Farms School and Ridgefield Academy. Avon is expected to bring up to a $30 million issue, and is currently reviewing responses to and RFP for underwriter services. Ridgefield s issue is projected at $12 million, and it will be conducting its underwriter RFP soon. Both of these independent school issues are expected to come for closings next spring. Two new EasyLease applications for Bristol Hospital ($1.855 million) and St. Mary s Hospital ($7.650 million) are in process. The planned CHEFA financing for 3030 Park NEWCO has been discontinued. Masonicare s Series C issue will be delayed until early next year due to due to a slower than expected fill-up in pre-sales. The Greenwich YMCA will be delayed, until the center finalizes its GMP contract for the project. The Chair asked if the budget for issuance is on track, to which Mr. Morris replied that the budget may lag due to timing, but the overall projected volume is expected to be stable. Regarding the Summary of Financings, Mr. Morris noted two closings for Kent School and Greenwich Academy, for which sales reports will be presented at today s Meeting. The reports were accepted as information. 3

INTEREST RATE REPORT Mr. Williams reported on interest rates, observed that the overall curve is flattening. The BMA Index is up from 1.04% at the July 23 Board meeting to 1.75% currently. With the Federal Reserve interest rate tightening, this rate has increased about 43 basis points from the September 14 th Board meeting information. The one-month LIBOR rate is currently 1.95%, up approximately 20 basis points from September s information. In contrast, long-term rates are coming down, with the 30-year Treasury rate at 4.75%, about 20 basis points lower than September, and approximately 40 points below the July level. Ten-year Treasury rates are also down. The Revenue Bond Index is down from 5.07% in September to a current level of 4.93%, and down 33 basis points from July. SALES REPORTS Greenwich Academy Issue, Series D Ms. Ervin presented the sales report for the $15.490 million refunding issue for Greenwich Academy. The fixed rate issue sold on August 25 and closed September 16, 2004. The Series D bonds are rated Aaa/AAA based on insurance provided by FSA; the Academy has an underlying rating of A3 from Moody s. The issue is further secured by a debt service reserve fund requirement, and has a final maturity of 2026. The refunding achieved a 5.2% savings of the refunding par amount, and 5.7% on the refunded amount. Citigroup, the underwriter for the Series D issue, marketed the bonds aggressively achieving results that priced very tight to the MMD curve. In the 2006 2009 maturities, the yield was lowered by three basis points. Overall, the issue priced better than anticipated. Kent School Issue, Series D The $21.725 million Kent School Issue was also structured as a fixed rate bond transaction, which refunded its Series B Issue. The School does not have an underlying rating, and was sold based on MBIA bond insurance, with a rating of Aaa. A debt service reserve fund was covered by a surety bond which was transferred from the Series B issue, which allowed the School not to fund the requirement from operations or reserves. Bonds reach final maturity in 2023. Kent had been waiting for favorable market conditions for some time, and caught market rates at their lowest level since April 2004. Of the refunding amount, a 5.87% savings was realized, and 6.0% savings was achieved on the refunded amount. The spread to the MMD scale was not as tight as the Greenwich Academy issue, because the MMD scale seemed to be off during this period. Ms. Ervin stated that both schools were very pleased with the savings results on their refundings. 4

PRELIMINARY STAFF MEMORANDUM St. Mary s Hospital Easy Lease Mr. Morris presented the preliminary information for the $7.65 million equipment lease issue for St. Mary s Hospital, which will finance cardiac, surgical, various diagnostic and routine equipment capital. This transaction does not require formal Board approval, but Authority practice is to present any EasyLease transaction that is over $5 million for Board review. The Hospital provided a detailed list of equipment needs, and also identified approximately $375,000 in related construction renovation costs. The Hospital conducted an RFP for lease services and received three replies. GE Capital was allowed to submit a bid after the original due date because they claimed they never received a bid package. Hewlett Packard s bid for a seven-year term at 3.7% was selected, but is subject to Hewlett s formal credit approval. St. Mary s is rated Ba1 (below investment grade) with a stable outlook, following a downgrade by Moody s in July 2004 from Baa1 with a negative outlook. Moody s attributed the rating change to a very weak balance sheet, operating performance slightly better than break-even, and competitive market with weak demographics. As of August 31, 2004, the Hospital reported a modest operating gain of $219,000, or a 0.1% margin, compared to a $5.5 million loss in the comparable period last year (-3.8%). Net income for the eleven month period was $2.3 million compared to a $5.7 million loss last year. St. Mary s attributes the turnaround to new management initiatives; however, revenues were slightly below budget due to lower than budgeted volumes and revenues received by managed care payers less than expected. For FY 2005, the Hospital received a favorable increase with Anthem, its largest managed care contract. The Hospital expects a $200,000 operating gain for FY 2004, its first after several years of losses. The reported operating loss in FY 2003 was $6.8 million while FY 2002 was $16.1 million. Operating expenses increased less than the same period last year, but were slightly over budget, which St. Mary s attributes to lower than budgeted volumes and one-time expenses to the Open Heart CON and other development projects. A $4 million operating gain, or 2% margin, is budgeted for FY 2005. Liquidity for St. Mary s remains very weak, with only 25 days cash on hand. That is far below Moody s Baa median of 100.8 days, and also less than the below investment grade median of 53.1 days. The Hospital s cash to debt ratio is also very weak at 29%, and with the additional debt drops to 24.2%. For FY 2003, St. Mary s debt ratio exceeded the covenant requirement of 75%. Currently in compliance, Staff is awaiting FY 2004 results to determine if it will be in compliance with the debt ratio covenant including the new debt. Inpatient admissions are favorable, increasing 13% in FY 1999 FY 2003, from 10,600 to 12,000, and up again by 2.5% in FY 2004. The Hospital is targeting a 2.5 3% increase for FY 2005. 5

Initiatives for the next fiscal year include building market share through development of its medical staff. addressing issues with its Physician Group practice, and improving efficiency through capacity management. Mr. Morris stated that Staff s recommendation is based on the Hospital meeting all covenant requirements, including the additional debt test. Ms. Rubin asked how much in the aggregate has been issued through the EasyLease program to date. Mr. Morris replied that of the $75 million authorized by the Board, $68.8 million in leases has been issued, but following this St. Mary s transaction, the program will exceed the $75 million aggregate authorized. Staff will present a request for approval of an increase to the aggregate to $100 million at today s meeting. $100 million Hospital SCRF Pooled Loan Program Mr. Gray provided an overview of this program, which was assigned to CHEFA in the last legislative session, and intends to provide access to tax-exempt financing for equipment and related construction costs supported by the Special Capital Reserve Fund ( SCRF ) of the State. The information in today s memo is very preliminary, and Mr. Gray stated that this initiative appears to be an indication of the State s acknowledgement of the difficulties facing hospitals to obtain bond insurance and access to tax-exempt financing. The Office of Policy and Management and the State Treasurer s Office must review CHEFA s plans for financing this program, but Staff requests Board input on this preliminary information before proceeding further. The Chair asked if funds for this program have been budgeted in the State s current fiscal year, and Mr. Gray replied that there is no budgetary impact unless the SCRF would be drawn in the event of a non-payment by the borrower. There may be an effect to the state, as rating agencies will look at the SCRF guarantees in their methodology for the State s overall rating. Public Financial Management ( PFM ), an Authority Financial Advisor, has developed the existing pooled loan program for the Hartford Hospital recycling program, and Mr. Gray has requested a proposal by PFM to assist in the development of the Hospital Equipment SCRF Program. Mr. Gray feels that a recycling program that allows for relending of principal would allow the maximum benefit to the State s guarantee. The structure is projected to be an insured multi-modal variable rate or auction rate transaction, or variable rate demand bonds with a direct letter of credit. Transaction costs will allow for no more than three traunches of bonds to be issued, depending on the results of a demand survey to be conducted by the Authority. Currently, true demand is unknown, and Staff has received only one informal request for $20 million. Mr. Gray discussed a preliminary competitive ranking system that he developed in order to develop an allocation model for these project funds. Staff estimates a net $92 million available for loans after costs of issuance and establishment of the Special Capital Reserve Fund. The SCRF amount is projected on a master guarantee rather than based on 6

each individual borrower. The preliminary ranking system was based on financial factors affecting the hospitals, and their respective levels of those factors. Specific areas considered include admissions, inpatient days, percent of Medicaid payors, Medicaid payment to cost charges, total Medicaid payments, and total combined Medicaid and uncompensated care payments. Based on the resulting quartile ranking, Mr. Gray hypothetically allocated the projected $92 million available, which is included on page two of the preliminary memo. Staff feels that all hospitals may not apply for the hospital SCRF loan program, such as St. Mary s who chose an EasyLease financing. The next step, providing the Board has no reservations or additional input, is to finalize the scope of work with PFM, then meet with the Treasurer s Office and OPM. Following approval by the Treasurer and OPM, Staff will conduct a survey to determine actual demand for the loan funds. Mr. Gray estimated that the program could be operational by January 1, but that may be an aggressive schedule. Ms. Boone asked if Mr. Gray is aware of any other state SCRF that supported a loan program that wasn t a regular repayment structure of bonds. Mr. Gray replied that he is not aware of any recycling program that utilizes a SCRF program. Mr. Asher replied that the child care loan program is a fixed rate program wherein the funds can be reloaned, and this program is supported by the state payment of debt service for the child care loans. The recycling concept provides that the first institution making principal repayments has first call on the funds. If a particular participant in the pool is not interested in reborrowing the available monies, the funds would be available to the remaining participants in the pooled loan. There will be no separate underwriting for each separate institution. Ms. Boone stated that under the SCRF guarantee, it would be maximum principal and interest repayment; otherwise, the interest rate would have to be set higher. Ms. Gibson replied that the preliminary information was sized at an appropriate maximum rate. Mr. Gray stated that when principal is repaid, prior to being recycled, funds could first be deposited into the SCRF in order to ensure that it is funded at an appropriate level. The first call would go into the SCRF. Ms. Boone responded that a recycling structure would make the corpus of the SCRF guarantee difficult to determine. Ms. Gibson stated that the major benefit of a recycling structure is to use the allocated funds as efficiently as possible, but the underlying structure for this Hospital loan program could be developed in a number of ways. Ms. Rubin asked why issuance was estimated at three traunches. Ms. Gibson replied that such a structure would develop sufficient mass for the cost of issuance expenses to be economical, and to consider hospitals timing needs for their projects. Mr. Biancamano stated that the overall interest rate on a pooled loan is less than through an EasyLease transaction, because title and ownership passes to the hospitals. In the case of an EasyLease financing, property tax is charged to the hospital for the equipment. The resulting difference in savings could be as much as 400 basis points per year. 7

Mr. Gray spoke about Staff s internal discussions regarding the possibility of the Authority or the Institution taking title to the equipment financed through the EasyLease program. If there could be a benefit to clients by saving the property tax charges to the hospitals, the Authority would consider taking title. Ms. Rubin asked why a client would utilize the EasyLease program if they would incur additional property taxes. Mr. Morris replied that not all cities or towns assess the property tax, but Mr. Biancamano added that the municipalities appear to be increasing these assessments. In a scenario where a hospital would buy equipment, then lien it to the Authority, there would be no property tax to the client, according to Mr. Biancamano. The Chair further asked Mr. Gray if a ranking based on number of beds per hospital would result in a similar ranking as shown in the memo. Mr. Gray responded that he was not sure, because the factors used attempt to address hospitals with the highest levels of Medicaid and uncompensated care costs. As an example, the Connecticut Children s Medical Center ( CCMC ) has a high Medicaid census, but receives a 92-cent reimbursement rate, and an entity receiving a higher level of dollars under the pooled loan program than another facility receiving a lesser Medicaid reimbursement would not be equitable. The ranking Mr. Gray developed takes into account the reimbursement level by institution. Ms. Rubin posed a general question whether a $1 million allocation would be meaningful, to which Mr. Biancamano and Mr. Gray emphatically replied that it would be a help in financing equipment needs. However, Mr. Gray stated that the true demand and feeling for such a level of allocation is unknown. In response to an additional question from the Chair on what would occur if a number of hospitals are not interested in the loans, Mr. Gray replied that the available funds would be reallocated. Mr. Colangelo asked Mr. Biancamano specifically how attractive this program would be to Hartford Hospital. Mr. Biancamano replied that the concept is very attractive, as it will not incur property taxes as Hospitals have experienced through the EasyLease program, and added that a variable rate tax-exempt issue would be good for financing equipment needs. Mr. Gray outlined further factors in the preliminary ranking, stating that hospital endowment was not taken into account, because he felt that it is not a negative factor if an institution manages their costs and portfolios well. Ms. Rubin stated that Mr. Gray has the Board s general endorsement to proceed with the development of the hospital equipment SCRF-backed loan program. STAFF MEMORANDUM Hospital of Saint Raphael Issue, Series L and Series M Mr. Williams introduced the up to $70 million Series L and Series M issues for the Hospital of Saint Raphael. Series L, expected to be approximately $31 million, will be structured as an auction rate variable rate issue, with a full interest swap through final maturity. This synthetic fixed rate transaction, including the bonds and full swap, will be insured by AMBAC, which is rated AAA/Aaa. The bonds will refinance the 8

Hospital s outstanding Series D, Series E, Series G and Series I issues, expecting to provide significant net present value savings, extend maturities from 2014 to 2024, and lower Saint Raphael s maximum annual principal payment and debt service requirements. Series M, expected to be approximately $32 million, will be a variable rate issue, with no swap provisions, supported by a letter of credit from KBC Bank, which is rated A+/Aa3 long-term and A-1/P-1 short-term. Bond proceeds will refinance outstanding Series J and K issues for Saint Raphael, extend maturities, lower annual principal payments in 2005 through 2014 and extend those maturities into 2015 2024. In addition, $5 million of new money will provide reimbursement toward $6.6 million of costs for renovation and expansion of the St. Regis Health Center in New Haven. Conditions for the financing include an assumption that the unsecured Master Trust Indenture on the refunding issues will be replaced by individual loan agreements and trust indentures for Series L, Series M, and the Hospital s outstanding Series H issue, which is non-callable, and by a mortgage for the benefit of all three series. The issue will be further strengthened by the expansion of the Obligated Group to include the Hospital s parent and foundation, and other affiliates, but excluding the insurance captives. Staff s recommendation for approval are based on the conditions listed on page two of the memo. Conditions include receipt of AMBAC-provided full bond insurance through maturity (at 250 275 bps), and full bond insurance on the interest rate swap through maturity, including any termination payments, from on the interest rate swap, the Series L issue. Series M will include a direct pay letter of credit from KBC Bank for at least five years (at 1.3% per annum, with a 0.10% upfront fee). The interest rate swap will be a full variable to fixed-rate swap to maturity, expected to be negotiated. The Hospital and the Hospital s swap advisor for this issue, Bob Lamb of Lamont, recommend that for an unrated hospital, such as Hospital of Saint Raphael, better terms in the Swap Agreement, including the termination events thereof, can be negotiated under a negotiated structure, while still obtaining a market rate. This recommendation was the subject of some back and forth discussion between the Authority, the Hospital and their representing advisors, but in the end Staff agreed to recommend a negotiated swap process to the Board. Saint Raphael has improved operating results from three years of substantial losses in 1999 to 2001, to modest surpluses in the last three years, 2002 through 2004. The Hospital s cash position has increased ten times from FY 2000 to FY 2004, which is just approaching Moody s Baa median. The average daily census has improved in the past four fiscal years, ranging from a low of 339 to a high of 390, in FYTD 2004. Mr. Williams stated that Saint Raphael s improved operations are in part a result of measures implemented by the new president, who has worked to build a strong team. Estimated savings on the refundings for Series L and Series M is estimated by UBS at $3.8 million, or 7.2% of the refunded bonds. One goal of the Hospital was to reduce its Maximum Annual Debt Service by $3.75 $4 million, which will improve Saint Raphael s ability to finance equipment leases or consider other short-term financing needs. 9

Mr. Biancamano asked what savings difference was achieved by using the outlined synthetic fixed rate structure compared to a 20-year fixed rate issue. Ms. Gibson replied that the rate is established by the approximately 68% of LIBOR swap, which could bring the rate down about 40 60 basis points. This structure is also essentially non-callable, and therefore compared to non-callable bonds, adding another difference of about 15 basis points. There being no further questions from Members, the Chair introduced Resolution 2004-18 (Hospital of Saint Raphael Issues, Series L and Series M, Authorizing), which Resolution was read and considered. Mr. Colangelo moved approval of the Saint Raphael Issue, Series L and Series M, and the motion was seconded by Dr. Cibes. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS John Biancamano None None Catherine S. Boone William J. Cibes, Jr., Ph.D. Benson R. Cohn Patrick A. Colangelo Barbara Rubin The Chair then declared Resolution 2004-18 adopted (see Appendix A, Resolution 2004-18). EasyLease Authorization to Increase Aggregate Approval Amount Mr. Morris reviewed the issuance under the Authority s EasyLease equipment financing program, for which the Board has previously approved an aggregate total of $75 million. There are currently two transactions in process which will exceed this authorization when issued. Clients may finance purchases through the program from $250,000 to $10 million for terms ranging from five to ten years. The maturity of the loan will be determined by the useful life of the equipment being financed and/or by the leasing company. Under the program guidelines, any individual lease transaction that exceeds $10 million must have formal approval from CHEFA s Board. The EasyLease program has not experienced great demand, but it seems to be a worthwhile financing alternative for clients equipment needs that may not be large enough or cost-effective to be structured for tax-exempt bond financing. Mr. Morris recommended that the Board approve an increase in the authorization for the EasyLease Program to $100 million. There being no discussion from Members, the Chair introduced Resolution 2004-19 (Competitive Lease Program Financing, Amending), which Resolution was read and considered. Mr. Colangelo moved approval of the Competitive Lease Program Financing, and the motion was seconded by Mr. Biancamano. 10

Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS John Biancamano None None Catherine S. Boone William J. Cibes, Jr., Ph.D. Benson R. Cohn Patrick A. Colangelo Barbara Rubin The Chair then declared Resolution 2004-19 adopted (see Appendix A, Resolution 2004-19). CHEFA FINANCIAL OPERATIONS Financial Statements for the Month of September 2004 Mr. Asher reported on the financial statements of the Authority for the fiscal year to date of September 30, 2004. The excess of revenue over expenses after unrealized gains or losses and program related expenses is $492,984, compared to a budget of $410,341. Client fees are approximately $30,000 under budget, due to timing of transactions. Overall expenses are below budget due to vacant staff positions and related benefits, as well as operating expenses. Ms. Rubin asked if the staff vacancy was related to the public relations representative. Mr. Gray replied that the staff position is in the accounting area. CHEFA will not be pursuing the joint marketing position with CCEDA. OTHER REPORTS Pharmacy Revolving Loan Program Mr. Gray reported that Staff had participated in a conference call with four of the Federally Qualified Health Centers who are possibly interested in utilizing this program. However, it is clear that the Centers are looking for a sort of forgivable loan program, which is not how the legislation was structured. The same concerns arose during the discussion, including the basis mission of the Centers resulting in their inability to generate enough surplus to make a profit and therefore unable to repay any potential loans. The Centers are to contact the Authority by December 1 with a definitive answer on whether they will use the Pharmacy Loan Program, including project descriptions and sources of repayment. Mr. Gray has made it clear to these Centers that if they choose to not go forward at that time, the Authority will seek extinguishment of the program in the next legislative session. Ms. Rubin asked how much CHEFA has allocated for the program, to which Mr. Gray replied that the legislation required a $500,000 allocation of its reserves. 11

Grant Project Reports Mr. Gray called Member s attention to the summaries of Open Grant project reports that had been included in today s meeting folder. He read from the report of the Child Guidance Center of Greater Waterbury ( CGCGW ), which provides comprehensive mental health services to children, adolescents, parents and families without regard to their ability to pay. The grant funded resources lost to two rounds of state budget cuts for child and adolescent psychiatry, and CGCGW reported that it far exceeded the goals outlined in their original application. The Center had projected evaluations and treatment for 55 children/adolescents, but was actually able to complete 596 therapy/monitoring sessions which served 137 children and adolescents. Another example of the impact of CHEFA s grant efforts is The Connecticut Zoological Society, which was able to obtain the balance of project funding from a local individual who contributed to the Zoo, in honor of his family lost in the World Trade Center. That individual was impressed with the news of the Zoo s development, which got off the ground in part by CHEFA s grant for its expansion. Most project reports have been received. Some are lagging the report due dates, but Staff is monitoring those entities for report submissions. Child Care Mr. Asher reviewed his involvement in the Early Childhood Education Finance Workgroup on the development of universal pre-kindergarten education for three and four year olds. The Governor appointed a senior policy advisor, Janice Gruendel, and she asked Mr. Asher to assist the task force in the development of financial models for centers for the universal Pre-K initiative. The project has the potential to become quite large, and the Governor has now established a task force on early child care and education. A report of that task force is due to the Governor by November 15, and Mr. Asher will be involved in numerous meetings and presentations at least up until that date. Dr. Cibes has been selected by the task force to coordinate education and business leaders for a think tank to possibly implement the universal Pre-K concepts. If the universal Pre-K initiative is funded by the State, CHEFA may become involved in providing capital financing. CHEFA may be asked to establish a subsidiary to administer the program appropriation. Ms. Rubin extended the Board s support for with Mr. Asher and CHEFA s continuing support and involvement in the child care sector, and was very appreciative of the update provided today. Mr. Gray reported that he has received compliments from legislators regarding Mr. Asher s involvement and expertise on child care. As a result of his involvement in this task force and research conducted for the extremely complex financial modeling, Mr. Gray feels that Mr. Asher has become an expert on child care financing in the country. 12

REVIEW OF BOARD MEETING DATES The Chair called Members attention to the draft schedule of Board meeting dates for the 2005 calendar year, and asked that they respond to Staff with any schedule conflicts. The schedule will be presented for final approval at the December 7 meeting. DATE OF NEXT MEETING The Chair reminded everyone present of the next meeting date, scheduled for Tuesday, December 7, 2004. There being no further business, at 3:15 p.m. Mr. Colangelo motioned to adjourn the meeting. Mr. Biancamano seconded the motion. Upon roll call, the Ayes, Nays, and Abstentions were as follows: AYES NAYS ABSTENTIONS John Biancamano None None Catherine S. Boone William J. Cibes, Jr., Ph.D. Benson R. Cohn Patrick A. Colangelo Barbara Rubin Respectfully submitted, Richard D. Gray Executive Director 13