STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY. Minutes of Authority Board Meeting September 13, 2005

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1 STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Board Meeting September 13, 2005 The State of Connecticut Health and Educational Facilities Authority met in session at the Authority s office at 10 Columbus Boulevard, Hartford, Connecticut at 2:30 p.m. on Tuesday, September 13, The meeting was called to order by, 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 (Rep. Honorable Denise Nappier) William J. Cibes, Jr., Ph.D. (Rep. Honorable Robert L. Genuario), Chair Patrick A. Colangelo, Vice Chairman Richard D. Gray, Executive Director, Jeffrey A. Asher, Managing Director/CFO, David A. Williams, Managing Director, Kimberley Fontaine, Administrative Assistant, Grants Administrator Andrew Kwashnak, Data and Systems Analyst, Eileen MacDonald, Manager, Administrative Services, JoAnne Mackewicz, Manager, Compliance/Arbitrage, Michael Morris, Manager, New Business, Cynthia Peoples, Manager, Systems and Financial Analysis, Beverly Rivest, Administrative Assistant, Jennifer P. Smyth, Document Analyst, and David Wasch, Child Care Program Manager, of the Connecticut Health and Educational Facilities Authority John D. Yarbrough, Esq., of Carmody & Torrance Namita T. Shah, Esq., of Day, Berry & Howard LLP Peter Wilson, Esq., of Day, Berry & Howard LLP Laurie Hall, Esq., of Hawkins, Delafield & Wood Ben Cooper, Associate, of Lamont Financial Services Corp. Emily Abrantes, Consultant, of Public Financial Management Edward J. Samorajczyk, Jr., Esq., of Robinson & Cole LLP

2 Coleman H. Casey, Esq., of Shipman & Goodwin LLP Dana A. Wilson, CPA, Partner, of Carlin, Charron & Rosen, LLP GUESTS Kathleen Taddei, of J.P. Morgan Patrick Murphy, of J.P. Morgan Christopher Klemmer, Senior Vice President, of Fuss & O Neal John Stevenson, of Lehman Brothers The Notice of Regular Meeting was read and ordered spread upon the Minutes of this Meeting and filed for the record.

3 STATE OF CONNECTICUT HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Minutes of Authority Board Meeting September 13, 2005 The Meeting was called to order by, Chair, at 2:30 p.m. MINUTES Mr. Cohn moved approval of the Minutes of the Regular Meeting of the Board of Directors of July 25, 2005, which motion was seconded by Dr. Cibes. Upon roll call, the Ayes, Nays, and Abstentions were as follows: John M. Biancamano None 1 William J. Cibes, Jr. Ms. Rubin introduced Rev. Dr. Steven Blackburn as the newest member of the Board of Directors at the Authority. Dr. Blackburn is the Director of the Hartford Seminary Library, and is an ordained Congregational Minister. CHEFA Financial Operations Report on the FY 2005 Audited Financial Statements Ms. Rubin introduced Dana Wilson, CPA, Partner, of Carlin, Charron & Rosen LLP to present the results of the 2005 audit. Mr. Wilson gave a brief overview of what was discussed at the Audit-Finance Committee meeting earlier that day. The first item discussed was the required auditor communications which is governed by State Auditing Standards 61; there are a number of disclosures which are reviewed in the audit annually. In that capacity, the roles of the auditor, management, the audit-finance committee, the governmental yellow-book testing, and supplemental schedules testing. The result of the audit is that the Authority received an unqualified opinion or a clean audit, which is the highest rating that can be received. Some of the topics highlighted and presented to the Audit-Finance Committee each year include the following: 1) new accounting policies that impact the Authority, and if there are none that do impact the Authority, the current accounting policies are reviewed to ensure that they have been 1 Dr. Blackburn abstained from voting, as he was not present at the July 26, 2005 Board meeting. Minutes of the Board of Directors Meeting 1

4 consistent with the prior year; 2) the new GASB No. 40 Deposit and Investment Risk Disclosures which changes the way cash and investments are disclosed, which does not change the numbers, only the way in which they are disclosed; otherwise all other accounting policies were consistently applied; 3) required auditor communications, of which there were no significant matters to report; 4) compliance reports; and, 5) a statement regarding corporate governance, which discusses many non-profits which are adopting the ramifications of Sarbanes- Oxley 404 into their quasi or non-profit requirements. The Authority has already gone through the process of identifying the best practices and documenting the internal controls to comply with the new rules. EXECUTIVE SESSION At 2:48 p.m., Ms. Rubin requested a motion for the Board to move into Executive Session for the purposes of discussing the audit with the auditors. Ms. Rubin requested that all Staff and Consultants leave the meeting at this time. Mr. Cohn moved that the Board enter into an Executive Session and Mr. Cicchetti seconded that motion to discuss the results of the audit. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr. At 2:48 p.m., the Board returned from Executive Session. Ms. Rubin reported that the Board had discussed the results of the audit and that no votes and no other actions were taken. Mr. Cohn moved acceptance of the audited financial statements. Mr. Biancamano seconded that motion. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. Minutes of the Board of Directors Meeting 2

5 NINE MONTH HOSPITAL REPORT Mr. Williams presented the Nine Month Hospital Report to the Board. There are currently 28 hospitals in CHEFA s portfolio for the Nine Months ending June 30, In terms of the hospital portfolio, there is approximately $1.4 billion in total, with 51 bond issues outstanding totaling approximately $1.38 billion and 12 EasyLeases totaling approximately $27 million. Of the 51 outstanding bond issues, 47 are enhanced and 4 are unenhanced. The largest issuers are St. Vincent s Hospital, Yale-New Haven Hospital, Stamford Health System, and the Hospital of St. Raphael. For fiscal year to date 2005, CHEFA closed on four new issues including Griffin Hospital Issue, Series B, two issues for the Hospital of St. Raphael, Series L & M, and the Eastern Connecticut Health Network Issue, ( ECHN ), Series B. Since July 1, 2005, the Backus Hospital Issue, Series F & G closed. Projected hospital issues for FY 2006 include: 1) Danbury Hospital Issue, Series H, for $60 million, with a possible additional $22 million for refinancing, and new money funds will be used for a new office building, parking garage, and other capital expenditures; 2) the ECHN Issue, Series C, which will be discussed later in the meeting, will be for approximately $36 million, to refinance part of the Series A Issue; 3) Greenwich Hospital Issue, Series B, for approximately $60 million to refinance the Series A Issue; 4) the Hospital of St. Raphael, to finance the first EasyLoan for approximately $9 million (in a $25 million program); and, 5) Yale-New Haven Hospital has just received the CON for its $430 million cancer center, of which $260 million is expected to be a hospital bond issue. For the 28 hospitals included in the memo, hospital admissions increased 1.34%. Operating revenues increased 8% over the prior year period, which is about the same rate of increase noted in 2003 and Bad debt provisions increased 8.4%, down from a 17.16% increase in the twelve months of Payroll and other operating expenses increased 9.5%, but approximately 1% of that change is due to an accounting change at Yale-New Haven Hospital. The real increase is approximately 8.5%, which is slightly above the rate of increase in operating revenues. Mr. Williams feels there is a possibility that the Yale-New Haven information contained in the Authority s database may have to be restated for the accounting change as far back as Interest and depreciation increased somewhat less than operating revenues and operating income increased approximately 3.6% over the prior year. Net revenue available for debt service increased 7.85% in the nine months ending June 30, The debt service coverage ratio has rebounded to approximately 4.9 times for FYTD Nine, or approximately 32%, of 28 hospitals in CHEFA s portfolio have experienced losses in operations in FYTD 2005, which include Connecticut Children s Medical Center, Rockville General Hospital, Bristol Hospital, St. Mary s Hospital, Norwalk Hospital, Waterbury Hospital, Hartford Hospital, Windham Hospital and Charlotte Hungerford Hospital. Mr. Williams went on to state that the fact that almost one-third of these hospitals are showing losses from operations is an indication that hospitals continue to have to scramble and deal with many pressures on the operating side. Mr. Williams referred members to the report from Moody s included in their board packages, which is a summary of what is happening on the national scene. The summary indicates that nationally, hospitals are recovering fairly well, and have higher operating margins than Connecticut hospitals; however, Connecticut hospitals are beginning to recover as well. Minutes of the Board of Directors Meeting 3

6 Ms. Rubin asked if the focus could be changed to those hospitals where the trends have been consistently negative. Mr. Williams referred to Bristol Hospital, which has a reasonable capital base but has had issues with surgery volume and the new surgery suites which were built with proceeds from a bond issue. The new suites worked for about six months, but volume has declined sharply since. Mr. Williams went on to discuss various issues that the Connecticut Children s Medical Center ( CCMC ) is also currently experiencing. CCMC has had significant operating losses for much of its existence and has depended on large gifts and a rather large endowment from its Foundation. Even after the gifts and endowment income, CCMC is still experiencing losses in FY Rockville General Hospital, despite having a large capital base, is a small hospital in terms of census, and has been disrupted by major renovation work. It will be part of the ECHN presentation at this meeting. St. Mary s Hospital has also reported significant losses for FYTD The Hospital had one positive year, 2004, which was preceded by five years, , of large operating losses. Ms. Rubin asked what happened to reverse the small but positive trend at St. Mary s Hospital. Mr. Williams cited several factors such as payor negotiations, pressures from nursing staff shortages, and a long-term set of problems which require the Hospital to scramble every year to stay even. Mr. Gray added that St. Mary s has also had recurring problems with their accounting systems and had to go back to adjust contractual allowances along with other adjustments on a looking-back basis. St. Mary s now has engaged an independent consultant to serve as Chief Financial Officer. Ms. Rubin asked whether the cardiac program will help or worsen the current situation at St. Mary s Hospital. Mr. Williams responded that the cardiac program related expenses increased in the 6 months ending June, 2005 but, it was not expected to open until July or August so the revenues would benefit the fourth quarter and FY Mr. Biancamano voiced concerns regarding the operating losses prior to FY 2004, then showing a slight turnaround for FY 2004 and is now currently showing a $4.5 million operating loss. Mr. Gray responded by stating that the Authority has been in conversation with the Hospital and continues to monitor their financial situation closely. Ms. Rubin asked if that was all. Mr. Williams responded that these were all the hospitals with negative operating margins greater than 2% in FYTD Ms. Rubin thanked Mr. Williams for his report. Mr. Biancamano stated that it is also difficult to discern all of the total numbers or make an accurate comparison of Connecticut Hospitals to national margins due to the size and significant numbers at Yale-New Haven Hospital. Operating income of Yale-New Haven Hospital of $24.8 million compares to the operating income of the 28 hospitals of $72.3 million in FYTD Without that institution, Connecticut total numbers and margins would look even worse. CURRENT AND PENDING BOND ISSUES Financing Forecast Report Mr. Morris presented the financing forecast. New financings include Yale-New Haven Hospital, now estimated at approximately $260 million, and Loomis Chafee School which will be presented later in the Board meeting. The Horace Bushnell Memorial Hall is considering Minutes of the Board of Directors Meeting 4

7 financing a Series B Issue, and an application was recently received for Suffield Academy, which hopes to finance approximately $2.8 million of new money and $1.0 million to refinance the Series A issue. Summary of CHEFA Financings Mr. Morris continued with the summary of CHEFA s financings, noting four issues had closed since the last Board meeting. He stated that these transactions would be covered in the sales reports later in today s meeting. Interest Rate Updates Mr. Williams reported on the interest rate updates. Interest rates currently remain flat from last month on the long-term side. Interest rates are down 5 basis points for the thirty-year Treasury at 4.39%, and exactly even on the Revenue Bond Index. For short-term rates, one-month LIBOR is up approximately 26 basis points, and BMA is essentially flat. With the revenue bond index within 15 basis points of its low on the Lehman table, the environment for financing remains attractive. SALES REPORTS William W. Backus Hospital Issue, Series F & G Ms. Abrantes presented the sales report for the William W. Backus Hospital Issue, Series F & G. The Series F bonds, priced on July 21, 2005, were an auction rate transaction and the Series G bonds, which priced on August 8, 2005, were a fixed-rate transaction. Proceeds from the Series F bonds will finance a portion of the costs of construction and renovations and improvements at the Hospital related to the med-surgery, inpatient units, and improvements to the Hospital s Ambulatory Care Building. The proceeds from this issue will also be used to fund a Capitalized Interest Fund and a Debt Service Reserve Fund. Series G Bond proceeds, which have both new money and a refunding portion, will finance a portion of the costs related to the renovation projects, a Capitalized Interest Fund for the new money portion and a Debt Service Reserve Fund applicable to the new money portion of the Bonds. The transaction was insured by FSA and had UBS as the Senior Manager, selected from a negotiated process. July 21, 2005, the day the Series F Bonds were sold, was a challenging day in the marketplace. Foreign news was a focus of the headlines that day. China announced that it would revalue its currency by approximately 2.1% by no longer pegging it to the U.S. dollar and London announced another attempted bombing of their mass transit system. The bonds were re-priced, as a result of economic news before they entered the marketplace. UBS, in conjunction with the co-managers Advest and Bank of America Securities, moved quickly with the bonds, therefore allowing the bonds to price attractively. Minutes of the Board of Directors Meeting 5

8 The Series G bonds were brought to the market on August 8, 2005 by UBS at an initial range of 2.00% to 2.05% for the purpose of testing buyer demand. The bonds received a significant level of interest. On the day of the initial pricing, 215 retail orders were received, 69 of which were in-state, allowing the Bonds to go out at a 2% level. The Bonds have continued to do very well and have out-performed the variable-rate debt portion of the obligation. Backus Hospital entered into a 67% of LIBOR swap with UBS to synthetically fix the Series F Bonds. The swap was priced in advance of the pricing of the Series F Bonds at a rate of 3.325%. Greenwich Family YMCA Issue, Series A Mr. Cooper presented the report for the Greenwich Family YMCA Issue, Series A bonds. The transaction was a variable rate transaction and underwritten by Gates Capital. The par amount of the issue was $20,165,000, unhedged and all new money. The proceeds from the transaction will be used to fund upgrades to the facility, build an Olympic-sized swimming pool, a child care center, and add 53 parking spaces to the existing structure. The bonds were backed by a letter of credit from the Bank of New York priced at 55 basis points. The first interest rate reset on August 4, 2005, was 2.12% which was 4 basis points over BMA. Ms. Rubin asked whether this is a two-phased project and whether the bonds were issued for just the first phase or both, to which Mr. Cooper responded that yes, this is the first phase and the bonds issued are for the first phase. Mr. Morris commented that the second phase of the project was to be funded through its capital campaign. University of New Haven Issue, Series E & F Mr. Cooper continued with the report for the University of New Haven Issue, Series E & F bonds. This bond issue was broken into two series, both of which are variable rate demand bonds. Series E was hedged with a swap and Series F was not. Series E has a par amount of $27,460,000, tax-exempt, with a new money portion of $12 million, to be used for campus improvements and general maintenance. Series F was the taxable portion of the issue with a par amount of $4.89 million, which along with the remainder of the Series E funds will be used to refund Series D 1996 bonds. The refunding produced an excess of $4 million in savings which equates to 19.3% of the refunded amount. Wesleyan University Issue, Series F Cynthia Peoples presented the report for the Wesleyan University Issue, Series F bonds. The Bonds sold on September 1, 2005 with a par amount of $48 million of variable rate demand bonds in a weekly mode. The initial rate set was 2.4% with BMA at 2.49%. BMA reset to 2.36% the next day. The next week the bonds reset to 2.36% with the BMA at 2.43%. Approximately $30 million of the bonds sold initially and Lehman took the remaining $18 million into inventory. Approximately $5 million was placed with retail buyers and $25 million with institutional buyers. Lehman placed the remaining $18 million with $4.4 million going to CitiGroup, Fidelity with $1.3 million and the remainder was sold to various institutional buyers. Minutes of the Board of Directors Meeting 6

9 The bonds were expected to reset about 3 5 basis points through BMA and they have been doing much better. PRELIMINARY STAFF MEMOS There were no preliminary staff memos. STAFF MEMOS Eastern Connecticut Health Network Issue, Series C Mr. Morris presented the staff memo seeking approval for the Eastern Connecticut Health Network Issue, Series C. The Eastern Connecticut Health Network ( ECHN ) is planning to refinance a portion of the Series A Issue, which was issued in The total amount of the Series A issue was approximately $58 million, and ECHN wants to refinance approximately $40 million of that issue. The remaining proceeds of the Series C issue will be used to refinance portions of other outstanding issues which are eligible. The current net present value is just under 4%. ECHN would prefer to realize all of the savings up front which would amount to approximately $1 million in savings in 2006; however, that would cause them to have higher payments in 2015 and beyond. The underwriter was asked to run a level savings which produced a little more net present value of approximately $285,000. The issue will be insured by Radian with a premium of 95 basis points. Radian has requested a mortgage on both Manchester Memorial Hospital ( MMH ) and Rockville General Hospital ( RGH ). The Obligated Group consists of MMH, RGH and Woodlake at Tolland, which is a 110-bed long-term care facility, and the Foundation. The Parent, (ECHN, Inc.), is not a member of the Obligated Group. For the nine months ending June 30, 2005, the Obligated Group had a $1.3 million gain from operations compared to a $1.9 million loss from the prior year. At MMH, there was a $3.85 million gain, at RGH, a $2.5 million loss, and a $51,000 loss at Woodlake at Tolland. As of July 31, 2005, the Obligated Group had a $1.5 million gain and a $2.3 million bottom line gain. ECHN has had a history of losses from operations in four of the past five years, with a $22 million loss in FY MMH had five straight years of losses and FY 2005 will be the first year that the hospital has not experienced a loss. Liquidity has also been an issue. Unrestricted cash and investments total $56.5 million YTD, down from $78 million five years ago. Days cash on hand for FY 2004 is approximately 99.5, which is also down from five years ago. Both of these are slightly below Moody s Baa median. ECHN s cash to debt is at 68%, which is also below Moody s Baa median. The DSCR is adequate at 1.86x for FY 2004, but below Moody s Baa median, but with the refinancing and reduction in debt, will be at 2.5x. ECHN is currently in compliance with all of their financial covenants and has a three-year plan to decrease their expense base by $15 million. Utilization has also declined. Emergency room visits declined 13% from FY 2002 to FY 2004, which is due in part to the closure of a walk-in clinic located in East Hartford that accounted for Minutes of the Board of Directors Meeting 7

10 approximately 5,000 visits. ECHN has noted some inefficiencies in the Emergency Department such as long wait times, causing patients to leave. ECHN has realized the importance of improving these inefficiencies, as 62% of the Hospital s admissions come from the Emergency Department. Admissions and patient days have also declined slightly over the past three years. YTD, June 30, 2005 discharges are down 2.7%, patient days have increased 1.2%, Emergency Department has increased 1% and Outpatient Surgery has decreased 6.4%. ECHN has been losing market share, due in part to the loss of some of their top admitting physicians. ECHN has realized the importance of its relationships with physicians, and has since recruited 23 new physicians for FY 2005 and is hoping to add an additional 20 physicians for FY 2006 with a focus on building better relationships with these physicians. The problems that ECHN has experienced in the past have also contributed to their loss of market share. Dr. Cibes asked why the parent is not part of the Obligated Group, especially since there are a number of subsidiaries through which money could flow. Mr. Asher responded that the bulk of the assets are in the Foundation. There are also restrictions on other assets which prevents the Foundation from becoming a part of the Obligated Group. Dr. Cibes commented that the various subsidiaries would make the overall financial status look better, to which Mr. Morris responded that this was not necessarily true. Ms. Rubin commented on whether CHEFA would require the Foundation as a member of the Obligated Group if the Insurer s letter of credit bank did not. Staff will review past Authority minutes to determine if this was on a case by case basis and report back to the Board at the October 25, 2005 meeting. Before continuing with the next sales report, Mr. Morris asked if the Board would vote on the University of New Haven and ECHN Issues, at which time, Ms. Rubin requested that all of the staff memos be presented first. Loomis Chaffee School Issue, Series F Mr. Morris continued with the report for the Loomis Chaffee School Issue, Series F. Staff is seeking approval for the Loomis Chaffee School, Series F issue. The Loomis Chaffee School, Series F issue proceeds will be used for the refunding of the $6 million Series C, issued in 1996 and the unenhanced $28 million Series D, issued in The savings of approximately 4.6%, will be front loaded in the first five years with a minimal savings during the remainder of the issue. The final maturity will be in 2031, which is the same as Series D. The School entered into a forward swap agreement which will be terminated when the bonds are sold. At the time the bonds are sold, if interest rates rise, the School will receive a termination payment. However, if interest rates should decline by that time, the School will issue more bonds to cover payment of its termination payment. The School wants to issue the bonds as non-callable bonds, with an estimated savings of basis points than a traditional 10-year call issue. The bonds will be insured by AMBAC with fee of 73.2 basis points. The School is currently rated A2 by Moody s, which was affirmed in November, Enrollment for the current academic year is 723. However that number has still not been finalized, as the School is considering taking in a few displaced families from the New Orleans Minutes of the Board of Directors Meeting 8

11 area. Demand at Loomis is favorable, with the number of applications received for Fall 2005 at 1,229. Selectivity, at 47.3%, is currently at the Moody s A median of 46%. Matriculation at 43.5% is lower than previous years but has historically been lower than 50%, indicating strong competition. Students at Loomis come from 31 states and 15 foreign countries, with a large Connecticut contingent of 59% due to the large day population. Loomis is one of three schools that do not track students by ethnicity, but estimated that approximately 15% of the student population is minority. Approximately 50% of applicants do not check off which race they are, and are not required by law to do so. Because diversity is important at the School, a multicultural affairs director has been hired and just completed a two-day multicultural workshop with over 100 students. Attrition at Loomis is favorable at 3%, which is up from 2% in SAT scores are also favorable at 1,268, which is slightly below other CHEFA Tier 1 independent schools. The Authority has received the School s draft audit, and its balance sheet continues to improve as a result of the capital campaign. Unrestricted net assets have increased 17% from FY 2004 to FY Expendable Resources to Debt are 2.10 times which compares to Moody s A median of 2.44 times. Expendable Resources to Operations are 3.61 times which compares to Moody s Aa median of 3.54 times. Cash and investments total approximately $150 million. Debt Service as a percent of operations is approximately 7.4%, due in part to principal payments which do not begin until Suffield Academy Issue, Series B Mr. Morris presented the report for the Suffield Academy Issue, Series B for a par amount of $9.8 million, for which Staff is seeking approval from the Board. The transaction is a fixed-rate financing, currently insured by MBIA. The premium for the Series A 1997 issue was 98 basis points, but for the Series B issue was quoted at 250 basis points. Savings for the Academy will be approximately 5%, with their minimum target being 4%. Suffield included $6.1 million to refinance Series A and $2.7 million to refinance commercial bank debt. Enrollment for the current academic year is 403 students. The number of boarding students remained steady at 230 students. The number of day students has increased from 151 to 173 over the past five years. Applications have declined from Fall 2001 at 786 to Fall 2004 at 686, or by 10%. For Fall 2005, applications have since increased by 10% to 756. Selectivity is favorable, below 40%, the lowest level in the in the School s history; matriculation for the Fall of 2005 was 48%. SAT scores for FY 2005 averaged 1,150. Minority students compromise 13% of the student body for the last year. The School s expendable financial resources of $11.5 million provide adequate support for debt and operations. Expendable resources to debt are 1.17 times, which is slightly above Moody s Baa median. Expendable resources to operations are 0.90 times, which is just in line with Moody s median of Baa. Debt service to operations is favorable at 5.6%. Tuition discount has declined from 24.7% to 16%. The endowment draw has decreased from 5% to 4.25% and the School is hoping to decrease that further to 4.00%. The Debt Service Coverage Ratio is Minutes of the Board of Directors Meeting 9

12 favorable. Annual giving has increased for the past five consecutive years, with over $1 million received for FY Yale University Issue, Series Y David Williams presented the report for the Yale University Issue, Series Y of which Staff is seeking approval. Yale University is seeking approval for $300 million. The issue will be split into three sub-series, Series Y-1 being a fixed-rate issue, and Series Y-2 and Y-3 both variable rate issues. Yale is seeking full flexibility to allocate between fixed-rate and variable-rate at the time of pricing. The initial split was $150 million fixed-rate debt and $150 million variable-rate debt. (Post-meeting addendum: Yale and the Authority priced $200 million of the fixed-rate Series Y-1 on September 16, 2005.) Yale has been rated Aaa/AAA by both Moody s and S&P on the long-term ratings and VMIG-1/A-1+ for the short-term ratings, in regards to the Y-1 fixed-rate issue and both the Y- 2 and Y-3 variable-rate issues. Yale has had to constantly work on the operating budget because the University is trying to retain some of the world s top faculty as well as deal with ongoing budget deficits for which there is a draw from reserves. The University has retained a former CEO at Procter & Gamble and Yale graduate, Mr. John Pepper, as CFO for two years. Mr. Pepper has been attempting to work through some of the budget issues, and also trying to improve the actual operations of the University. The endowment has grown from $1 billion in the mid-1980 s to $12.7 billion as of June 30, Informal estimates for June 30, 2005 are close to $15 billion. Yale has one of the most outstanding endowment management returns of 16.1% annually over 20 years. Returns on endowment management have yielded over 19% in both FY 2004 and preliminary FY A TEFRA hearing was held on September 2, 2005 which was attended by John Canham Clyne and John Moy of the Connecticut Center for a New Economy, as well as several representatives from Yale University and Authority staff. Mr. Moy read a statement asking certain questions and expressing the concerns of The Connecticut Center for a New Economy relative to the Yale F financing, which statement and those comments were attached to the memo sent to all Board members. One of the projects that the University is participating in with the Hospital is a cancer center, which does not include a proposed nearby parking garage and medical office building. The Series Y TEFRA Notice is only for the cancer center itself, and only on land already owned by the Hospital. Yale will be allocating specific amounts of the bond proceeds to specific projects in the TEFRA description as they proceed. Ms. Rubin asked if the University is likely to come back in this fiscal year for additional financing to which Mr. Williams responded no, that this bond issue is likely to last months. [Executive Director s Note: Mr. Moy s statement, the minutes of the TEFRA meeting and Yale University s response are included in the Board material.] Minutes of the Board of Directors Meeting 10

13 CONSENT AND/OR BOND ISSUE RESOLUTIONS Eastern Connecticut Health Network Issue, Series C Ms. Rubin introduced Resolution (Eastern Connecticut Health Network Issue, Series C Authorizing), which resolution was read and considered. Mr. Biacamano moved for adoption of Resolution , which was seconded by Mr. Cohn. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph. D. Loomis Chaffee School Issue, Series F Ms. Rubin introduced Resolution (Loomis Chaffe School Issue, Series F Authorizing), which resolution was read and considered. Dr. Sullivan moved for adoption of Resolution , which was seconded by Dr. Cibes. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. Minutes of the Board of Directors Meeting 11

14 Suffield Academy Issue, Series B Ms. Rubin introduced Resolution (Suffield Academy Issue, Series B Authorizing), which resolution was read and considered. Dr. Cibes moved for adoption of Resolution , which was seconded by Mr. Cicchetti. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. Yale University Issue, Series Y Ms. Rubin introduced Resolution (Yale University Issue, Series Y Authorizing), which resolution was read and considered. Dr. Sullivan moved for adoption of Resolution , which was seconded by Mr. Cohn. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. CHEFA FINANCIAL OPERATIONS Mr. Asher reported on the Authority s financial operations for month ending July 31, The excess of revenues over expenses for the month ending July 31, 2005 was $184,000 primarily due to the fact that interest rates are going up, and CHEFA is budgeted at an assumed yield of 2.5% for FY 2006 investment income. Expenses are under budget in July, even though two new Minutes of the Board of Directors Meeting 12

15 positions have recently been added, and there is still one vacancy. Program-related expenses are also under budget. OTHER REPORTS At this time, Ms. Rubin requested a change in the agenda. Ms. Rubin also congratulated Staff on a clean audit for the year. Election of Vice Chairperson Ms. Rubin asked for a motion to submit Mr. Colangelo s name for Vice Chairman to the Board of Directors. Mr. Biancamano made the motion and Dr. Cibes seconded the motion. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. Ms. Rubin moved that the Board review of the Strategic Business Plan for FYE June 30, 2005 be tabled to the October 25, 2005 Board meeting which was seconded by Mr. Cohn. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr. Dori Taylor Sullivan Minutes of the Board of Directors Meeting 13

16 ORAL REPORTS Mr. Gray congratulated the Accounting Staff on another good year related to the audit results, and stated that the Authority can still get better and will do so. Grant Committee Mr. Gray stated that he will request a meeting of the Grant Committee in October to discuss the strategic investments grant reserves, for which the planning is moving along. Targeted Investment Grants Program for Domestic Violence Mr. Gray stated that he has had several meetings with Jeanne Milstein, the Officer of Child Advocacy at the Office of Policy and Management and the Connecticut Coalition Against Domestic Violence, the internal organization through which federal funds flow to many of the shelters in Connecticut. The Authority has expressed a desire to enter the prevention side of domestic violence issues in its grant program. The Coalition has submitted a proposal to CHEFA that still needs work. The Coalition is proposing that the Authority fund, for a period of 3 years, an additional ten hours, per shelter, of child advocacy services. Currently, there is only enough funds in the budget to fund approximately 15 hours per week of child advocacy, which is inadequate. The additional monies will help the Coalition to focus more on the prevention side of domestic violence. Nursing Program Mr. Gray discussed the nursing program, stating that he is still working with Dr. Sullivan. At this time, they are reviewing the final report of the statewide group regarding what point should the Authority intervene. At this time, all the literature reviewed has suggested that nursing faculty and clinical sites would prove to be most beneficial. Mr. Gray stated that he hopes to convene a meeting of the Grants Committee in October with one or possibly both programs. Medical Malpractice Captives Grant Program The Authority has exchanged documents with both groups which submitted applications for the grant. The Authority is close to reaching an agreement with the Griffin Hospital and Milford Hospital group on the documents. The Bristol Hospital, St. Francis Hospital, St. Mary s Hospital, and New Britain General Hospital is currently working on some internal issues in terms of how they will organize themselves under the captive. Pharmacy Grant Program Mr. Gray stated that he has a draft MOU submitted to the Department of Social Services on which Shipman & Goodwin has commented. The Authority will allow DSS to partner their Minutes of the Board of Directors Meeting 14

17 funds with those of the Authority for 240B Pricing Pharmacy Grants and provide reporting back to the Authority. Ms. Rubin asked who the recipients would be. Mr. Gray responded that funds would be distributed to the FQHC s for 240B Medicare pricing for drugs. Compensation for Quasi Public Agencies The Compensation Committee for Quasi Public Agencies has issued a list of best practices and reforms in terms of benefits and pay practices for quasi publics. Mr. Gray stated that the Board will receive a grid that will show where the Authority stands either in compliance or not in compliance with recommendations for both benefits and compensation. Mr. Gray stated that for the most part, the Authority is in full compliance with the recommendations. Language from CHEFA s incentive policy was used in the report issued by the Compensation Committee. The only area in which the Authority may not be in compliance with the guidelines is in the area of corporate credit cards. The Authority does have several cards issued to Staff members and in the Authority s name. Although there has never been a problem of misuse here at the Authority, due to problems in other agencies, the Authority may have to further tighten its controls of these credit cards by limiting the number of Staff issued cards. Ms. Rubin stated that the Governor s office is asking that the Board vote on whether or not the Authority will be adopting all of the new policies, and cautioned that the Board read the policy carefully for the next Board meeting. Dr. Sullivan posed a question regarding the consultant s report to which Ms. Rubin responded that all of that information, including information regarding the director s salary would be part of the next Board package and will be discussed at the Human Resources Committee meeting. Mr. Gray stated that he delayed the Human Resources Committee meeting previously scheduled for this month due in part to a large response to the Bond Counsel RFP, that there would not have been enough time to review all of them adequately. Dr. Cibes asked if the Human Resources Committee would have a chance to review all of the individual policies being voted on or just the report, to which Mr. Gray responded that the Committee would be voting on the individual policies and in cases that there was not a policy or a clear policy that he would write policies. Therefore the Committee would be voting on the actual policies. The Authority will be measured against the actual policies and not the report. Ms. Rubin and Dr. Cibes mentioned that the Compensation Committee for Quasi Public Agencies had given a positive response for CHEFA policies. They were very well received. Ms. Rubin commented that she and Dr. Cibes attended multiple meetings at the Governor s office. The policies grid for the Authority was endorsed and Ms. Rubin stated that everyone within the organization has goals to meet. Minutes of the Board of Directors Meeting 15

18 Report of the Consultant Committee At this time, Ms. Rubin requested that counsel leave the board meeting so that the Board could discuss the results of the Consultant Committee meeting, and that all candidates would be notified formally of the results of the Committee s decisions. At this time, Mr. Asher introduced two new staff members, Andrew Kwashnak, Data and Systems Analyst, and David Wasch, Child Care Program Manager. Consultant Committee Meeting Due to the absence of Mr. Colangelo, Mr. Cohn reported on the results of the Consultant Committee regarding the results of the Bond Counsel RFP process, which took place prior to today s Board meeting. Currently, the following firms of Hawkins, Delafield & Wood LLP; Robinson & Cole LLP; Day, Berry & Howard LLP; serve as Bond Counsel to the Authority. Finn Dixon & Herling LLP and Soeder & Associates serve as Bond Counsel for the EasyLease Program. Winston & Strawn LLP also served as Bond Counsel, but withdrew in In terms of the interview process, all of the current firms that serve as bond counsel plus Edwards & Angell/Palmer & Dodge LLP, Lewis & Munday, and Pullman & Comley LLC were interviewed. After interviewing all of these firms and a subsequent internal discussion among the Committee members, the following firms are recommended to the Board to serve as Bond Counsel to the Authority: Hawkins, Delafield & Wood LLP, Robinson & Cole LLP, and Finn, Dixon & Herling LLP with Soeder & Associates for the EasyLease and EasyLoan programs. Day, Berry & Howard will be retained as workout counsel only. The firms of Pullman & Comley LLC and Lewis & Munday were added as Bond Counsel to the Authority. Dr. Cibes requested clarification on the selection of the number of new firms and deletion of one firm, to which Mr. Cohn responded that two new firms are being added to the list of selected bond counsel firms and there is a partial deletion of one of the firms currently in use at this time. Mr. Cohn moved for approval of the recommendation of the Consultant Committee meeting for 1) the selection of the firms of Hawkins, Delafield & Wood LLP, Robinson & Cole LLP, Pullman & Comley LLC, and Lewis & Munday, as Bond Counsel to the Authority; 2) Finn, Dixon & Herling LLP with Soeder & Associates for the EasyLease and EasyLoan programs; 3) Day, Berry & Howard LLP be retained as workout counsel only, all for a period of 3 years. Mr. Cohn made the motion to approve the recommendation of the Consultant Committee meeting to which Ms. Boone seconded the motion. Minutes of the Board of Directors Meeting 16

19 Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. EXECUTIVE SESSION At 4:30 p.m., Ms. Rubin requested a motion for the Board to move into Executive Session for the purposes of discussing a legal matter. Ms. Boone moved that the Board enter into an Executive Session and Mr. Cohn seconded that motion. Upon roll call, the Ayes, Nays, and Abstentions, were as follows: William J. Cibes, Jr., Ph.D. At 4:55 p.m., the Board returned from Executive Session. Ms. Rubin reported that no votes and no other actions were taken. Minutes of the Board of Directors Meeting 17

20 DATE OF NEXT MEETING The Chair reminded everyone that the next Board Meeting is scheduled for Tuesday, October 25, 2005 at 2:00 p.m. There being no further business, at 5:00 p.m. Ms. Boone motioned to adjourn the meeting. Mr. Cohn seconded the motion. Upon roll call, the Ayes, Nays, and Abstentions were as follows: William J. Cibes, Jr., Ph.D. Respectfully Submitted, Richard D. Gray Executive Director Minutes of the Board of Directors Meeting 18