South Windsor Town Council to Have Special Meeting on 63-20 Corporations

The Town Council is scheduled to have a special meeting tonight specifically on the subject of 63-20 corporations.

Also known as “non-profit corporations,” 63-20 corporations have been used by public entities as vehicles to finance the construction of buildings, including hospitals, courthouses and schools. Such entities are traditionally used to avoid statutory debt limitations and other restrictions, as well as take advantage of private-public partnerships.

Members of the council have discussed the financing mechanism - at least tangentially - at several meetings last year, specifically with regard to the proposed recreation center/skating rink project, among others.

In that scenario, a 63-20 corporation would have been set up to build the recreation complex through issuing tax exempt bonds at municipal rates. The corporation would then lease back the complex to the town for a flat fee that would have been included in the town’s annual budget.

Proponents say there are several benefits to utilizing 63-20s as opposed to regular bonding. Bonding, for example, adds long-term debt to the town and, therefore, puts the town at risk for being downgraded by ratings agencies.

In addition - while this currently may not be the case - 63-20 corporations are historically a less-expensive alternative to bonding with regard to interest rates. Fees associated with bonding - such as bond counsel and extra costs - also don’t apply to 63-20 corporations.

Finally, and perhaps most controversially, the Town Council can make the decision on a major project without having to go to referendum, as the annual charge to the town for the lease would presumably be less than the spending threshold to put it to a public vote. That gives governing bodies flexibility they might not otherwise have through traditional funding methods.

Those who favor the mechanism have said that such an arrangement allows leaders to do what they were elected to do: lead the town.

Others disagree, saying that 63-20 corporations are end-runs around public referendums and don’t give public entities the control they would through bonding.

It is possible that the flexibility that 63-20 corporations afford may also enable governing bodies to approve projects that may otherwise be unpopular with the majority of residents.

The public meeting will take place at Town Hall at 7 p.m. and will include the town’s bond counsel, attorney and Town Manager Matthew Galligan.