PROSPECT — What to do about surety bonds? That’s the question troubling the Planning and Zoning Commission. However, one developer feels the commission doesn’t need to fret about it.
“I don’t think everyone has to hit the panic button,” Anthony D’Onofrio, a Southington-based developer currently working on a subdivision in town, said before the commission during an Aug. 7 public meeting.
The issue before the commission stems from state legislation, Public Act 11-79, enacted during the last legislative session. The law, which goes into effect Oct. 1, makes revisions to procedures relating to site plan and subdivision bonds. Among the changes is language that states municipalities must accept surety bonds.
Currently, when a developer comes to the town for approval of a subdivision site plan, the town usually asks for a guarantee, in the form of cash, a savings account, or a letter of credit, that the road work will be completed to code. The town currently has the right to specify what type of bond it requires.
The new law takes away that right from towns, and opens it up to the possibility of having to accept surety bonds. A surety bond acts like an insurance company, stepping into the shoes of the developer and asserting any defense it can to make it hard for the town to collect its money. Surety companies are notorious for making the process as difficult as possible to collect.
The town is concerned that if it had to call a surety bond on a faulty road it will face a lengthy legal battle to secure the money.
Planning and Zoning Commission Chair Donald Pomeroy said the town has two courses of action it can take. Either accept surety bonds for subdivisions, which he said could lead to litigation in the future, or not accept any bonds at all.
If the town didn’t accept any bonds for subdivisions, developers would be given conditional approval pendent on the completion of the project and would not be able to sell any lots in the subdivision until the town approves the road or roads built.
This option would put the onus on developers to complete the project out of their own pockets before being able to sell off lots. The commission is fearful that by doing this development would come to a standstill in Prospect.
As the commission expressed concerns over surety bonds, D’Onofrio argued that there isn’t one small developer in the state who would actually use one because they are more expensive. He said developers who choose to use a surety bond have to pay 100 percent collateral to secure the bond and a fee to the surety company.
“I didn’t realize they were this difficult,” zoning Commissioner Gregory Ploski said.
D’Onofrio added that the act states towns have to accept the bonds, “in a form acceptable to the community.” He called this language the town’s “saving grace.”
D’Onofrio said the town could draft strict conditional arrangements for any developer to use surety bonds that would protect the town and make it unappealing for developers to use them.
“I certainly don’t see the panic,” D’Onofrio said.
Attorney Jennifer Yoxall of the firm Carmody & Torrance, who represents the commission, said she’s still concerned surety bonds could be defended even with an agreement in place. She said she’d have to speak with people in the firm about the idea to get more information.
The act makes four other changes. Besides the surety bond issue, the only other change that will have a significant impact on the town is a revision that states towns can’t hold a maintenance bond on a road once the town accepts it. Normally, a maintenance bond is held for a year to ensure the road doesn’t need repairs.
However, the town doesn’t have to accept a road, if it doesn’t want to, until a year after it’s complete. But, that would leave the developer responsible for the road, including plowing and other services, and the town would not be able to have school bus stops on it.
D’Onofrio, who was among a handful of developers that attended the meeting, again tried to ease the nerves of the commission on the issue.
The act was pushed by the Home Builders Association of Connecticut. D’Onofrio, who’s associated with the group, explained the impetus behind changing the law on maintenance bonds was that there were towns in the state that were going overboard with their bond requirements, demanding long-term maintenance bonds.
D’Onofrio said the act will be revised in the coming legislative session and the portion on maintenance bonds is expected to be changed.
The commission made no decision on what to do about surety bonds and the issue will be discussed again at later meetings.
Pomeroy said the commission doesn’t want the town to get stuck with a bad road but doesn’t want to hurt developers either.
“We’re just a bunch of lay people trying to do what’s best for the town,” he said.