NB Politicus

City Hall Watch: Deferring Municipal Debt Payment Means Cash Now, Higher Interest Next Year

Posted in city government, municipal budget, New Britain, property tax by nbpoliticus on February 10, 2017

By John McNamara

The Stewart administration is shifting $6 million from a scheduled payment on the city’s rising municipal debt— creating an election year windfall to avert yet another tax increase.  The Common Council approved what representatives of William Blair & Company, the city’s bond counsel, called a “re-structuring” of  a $28 million bond at a special meeting  on January 11th.

Expect Mayor Stewart to trumpet a “savings” to avert her third property tax hike or claim a hefty boost to the city’s “rainy day fund” as municipal budget talks get underway in a few weeks.

CITY HALL WATCH

CITY HALL WATCH

But using the city’s credit card to increase cash flow in the current fiscal year is hardly a savings or proof of Stewart’s fiscal prudence. It obligates the city to shell out more to bond holders in the out years. Pushing debt obligations to 2018 and beyond  guarantees all the borrowed money (short and long-term debt for capital projects and allowable expenses) will come with considerably higher interest rates.

“We’ve been seeing  the rates increasing from last year,” William Blair’s Richard Thivierge told the Common Council. “Some debt rates have gone up 60 to 80 basis points.”

Ward 5 Alderman Carlo Carlozzi, who extensively questioned bond counsel along with Alderman Manny Sanchez on January 11, expressed some frustration on the new deal with creditors which will lower the payment this year from $28,315,000 to $21, 600,000. “The city always seems to be restructuring its debt.”  Carlozzi said,  wondering out loud if moving the debt was kicking the can down the road at higher interest rates.

Bond counsel representatives explained that the city is not re-financing — which is usually done to get lower rates — but is deferring the debt a portion of which stems from borrowing  in Stewart’s first two terms. Because of the city’s “high debt base” Thivierge said the city needs to “levelize” its debt service by slowing down its payments. Always the obliging middle man in extending the debt, Thivierge called it “budgetary prudence.” In political terms that’s a euphemism for not having to raise taxes or cut services in an election year.  Pressed by Carlozzi’s questions, the Mayor,  Finance Director Lori Granato and Bond Counsel tacitly acknowledged the city could pay down its debt at a lower interest rate this year, but that the extra $6 million will be needed in the next budget after July 1.

Obligating the city to pay more for debt at the start of 2017 stems from structural factors that cash-strapped cities face. New Britain, according to the state Office of Policy and Management (OPM), is the slowest growing grand list in the state with 97% of the land developed and a considerable amount of real property owned by the state or nonprofit institutions. This inelastic tax base, reliance on the property tax and dependence on state aid that this year exceeds $100 million makes the current system unsustainable no matter who is mayor or serves on the Common Council. All of this is why the bond lenders hold cities in a cycle of  borrowing for needed capital improvements not favorable to fiscal stability and residents. Raising taxes is good. Cutting services is better. Selling off municipal assets (such as watershed) is even better for improving your bond rating and pleasing the lenders on Wall Street.

The situation has been made worse in New Britain by “structural deficits” first identified by Mayor Tim O’Brien when he took office in 2011 and quickly acknowledged by Erin Stewart when she succeeded O’Brien despite her politicking that the budget mess was created entirely by O’Brien in one term.

Both mayors pointed to the four terms of former Mayor Tim Stewart who, with the acquiescence of Democratic common councils between 2003 and 2010, relied on one-time fixes and phantom sales of land.  With increases in spending and freezing the tax rate year after year during the first Mayor Stewart’s terms,  a financial hole was created that the city is still climbing out of.

“We had an issue a few years back when someone came into office and said there were structural problems in the budget,” said Carlozzi at the bond authorization meeting, alluding to former Mayor O’Brien sounding the alarm more than five years ago. “That person was heavily criticized. We now have heard for the last three years that we have structural issues with the budget. That individual was correct.”

As Alderman Carlozzi made clear at the Council meeting paying off your credit card debt sooner rather than later would be a good thing.  In 2017, however, the restructuring of debt is a way to paint a hunky-dory financial picture that relies on the city’s mountain of debt getting higher.  What is especially misleading is the “rainy day” or “tax stabilization” fund being counted in the millions of dollars. Implying that the surplus stems from more efficiencies and prudent fiscal management as Stewart boasts is false. It is based almost entirely on restructuring borrowed money and a 2014 property tax increase — the largest in city history.

The bottom line is that in a municipal election year all that glitters is not gold when it comes to city finances. Bond authorizations cannot be used to meet current operations only capital improvements.  But in New Britain and other financially struggling cities increasing debt costs for ready cash carries a heavy price tag due and payable sooner rather than later.

 

“Revolutionary” State Budget? Property Tax Relief, New ED Aid For NB Is Part of Democratic Package

by John McNamara

A tentative agreement among Democratic leaders on a biennial state budget  that begins July 1st appears to be good news for New Britain and other municipalities in terms of property tax relief and continued aid to the under-funded city schools.

Late Saturday (May 31) Democratic legislative leaders and representatives of the Malloy Administration agreed on a revenue package that will drastically cut the car tax. The measure will set aside the city’s property tax rate of 49 mills on vehicles and cap the tax for cars to no more than 29 mills in a statewide formula.   The levy on vehicles will be in effect for the 2015 tax year if OK’d in a final vote. At the same time the plan will designate a percentage of sales tax revenue for transportation and new funding to cities and towns to reduce burdens on property taxes.

New Britain's legislative delegation will wrap up the 2015 session June 3. From left Rep. Bobby Sanchez (25), Rep. Peter Tercyak (26), State SenatorTerry Gerratana (6) and Rep. Rick Lopes (24). Absent from photo is Rep. Betty Boukus (22)

New Britain’s legislative delegation will wrap up the 2015 session June 3. From left Rep. Bobby Sanchez (25), Rep. Peter Tercyak (26), State  Terry Gerratana (6) and Rep. Rick Lopes (24). Absent from photo is Rep. Betty Boukus (22). ( F Gerratana photo 2014)

The Democratic package, if approved by the Legislature, represents the most significant change in Connecticut’s tax structure in decades, making the system more progressive and fairer to New Britain and other cities.

Taxes will most certainly  increase by a smidgen for high-income individuals with the ability to pay. For most citizens burdened by one of the nation’s heaviest property tax burdens there is relief.  State Senate President Martin Looney (D-New Haven) called the proposal “revolutionary” and said “this budget meets the state’s obligations and provides historic property tax relief for the people of Connecticut,”  It includes provisions to:

–  Raise the income tax rate on millionaires from 6.7 to 6.99 percent

–  Maintain the state sales tax at 6.35 percent and designating half a percent each to local property tax relief and the Malloy transportation initiative. Proposed sales taxes on accounting, engineering, advertising and dry cleaning were eliminated from the plan.

– Triple the tax on computer and data processing from 1 to 3 percent.

– Adjust Payment In Lieu of Taxes (PILOT) grants to municipalities with high mill rates where state property and nonprofit institutions hold significant amounts of property.

As the legislative session ends New Britain’s legislators have been mobilizing to retain a fair share of municipal aid,  support state-funded programs and maintain New Britain’s share of education funding.

Details will be forthcoming over the next several days, but it is likely that the delegation has succeeded and the city will improve on the $85 million (covering 68%)  it now gets under state cost sharing formula to underwrite the education budget proposed by the Stewart administration at a flat-funded $124,183,673.

Despite billion dollar deficits confronting the Malloy administration and legislators in  state budgets since 2011, New Britain’s education aid has steadily increased over the last four years.  It will do so again if the budget package wins approval by Wednesday, June 3.

To be sure New Britain schools will remain under-funded in comparison to comparable communities in the absence of more equity in the way educational funding is distributed. The state budget package now on the table, however,  is a step in the right direction.  New Britain has fallen behind more sharply than others because of a consistent pattern of the city setting budget priorities that stiffed the schools year after year, but increased spending in municipal government. This year is no exception.

Attention now turns to the adoption of the municipal budget. The Common Council is due to act on  the Stewart Administration’s $224,757,851 budget and 49 mill tax rate by mid-June.  No matter how the city acts there is now room for optimism on property tax relief and education aid given the prospect of a “revolutionary” state budget plan being adopted.

Board of Ed Should Consider CT Health Partnership; "Significant" Savings To Support Services Possible

Posted in health insurance, municipal budget, property tax, public education by nbpoliticus on June 11, 2012

When State Comptroller Kevin Lembo talked with city officials last winter he came bearing potential good news that the city could gain hundreds of thousands of dollars for its municipal and schools’ budgets without a new tax or cut to services.

It may sound too good to be true but it is real and obtainable as the city grapples with the threat of cuts and layoffs and the need to adequately fund public education.  There is a way for cash-strapped New Britain government to realize significant dollars it doesn’t have now.

The new money — potentially hundreds of thousands of dollars — wouldn’t be part of  state aid allocations but would come from savings of the CT Partnership Plan,  a new state law that allows cities and boards of education to join the state health plan effective July 1, 2012.  In effect in more than 20 states throughout the country,  the partnership plan, adopted after a three-year legislative effort by House Speaker Chris Donovan, utilizes the power of pooling employee groups to lower insurance premium costs, which have been a rising cost item for City Halls and Boards of Education in recent years.

In rolling out the CT Health Partnership in March,  Lembo said his analysis found that 50 municipalities, including New Britain, would receive lower premium rates under the partnership for health insurance. “Over 50 municipal employers analyzed so far would receive lower premium rates under the CT Partnership Plan — 30 percent of those with rate reductions greater than five percent,” declared Lembo who prior to being elected Comptroller in 2010 was the State Health Advocate.

Opponents of the partnership, including former Mayor Stewart and former Ald. Lou Salvio, have complained that adoption of the health partnership would be a state takeover — a false and ridiculous claim that distorts the issue and continues a status quo of rising health premiums.  The partnership takes over nothing, but restructures good health coverage in a way the reduces the costs.

“Our initial analysis of more than 50 municipal employers revealed significant savings of five to eight percent in some cases — real money for municipalities seeking local property tax relief,” stated Lembo.

The O’Brien Administration and the city’s labor unions are apparently on board with the idea and ready to implement it.  To date the the Board of Education has yet to commit to the idea.

To achieve the savings in the partnership plan both school and municipal labor force need to be part of it. The Board of Education needs to give the idea fair and serious consideration.

Rell’s Local Aid: Placing More Burdens On Cities

Posted in city politics and government, property tax, state aid by nbpoliticus on February 27, 2009

The mayors of Bridgeport and New Britain have forged a bipartisan alliance to praise Gov. Jodi Rell’s budget package for level funding of education aid to cities and towns. All cities and towns will get the same amount for the single largest local expense item — the schools.

According to a New Britain Herald op-ed by Bill Finch (D-Bridgeport) and Tim Stewart (R-New Britain) and James Craven’s story sharing their togetherness, Rell’s proposal is a good start to the budget process for their towns. To be sure a status quo Educational Cost Sharing (ECS) for all 169 cities and towns is a good idea. It will mitigate somewhat the annual tug of war between city halls and boards of education.

But a closer look at Rell’s state aid formula shows that cities lose out in a big way compared to their suburban neighbors. At a February 19th Democratic Town Committee meeting on state aid and the federal stimulus package State Rep. Peter Tercyak (D-26) pointed out why Rell’s budget — estimated to be $2 billion out of balance in the early going — tilts against cities and their residents more than suburbia.

Cities such as New Britain have always relied on payments in lieu of taxes — PILOT funds — to offset the presence of state property, hospitals and agencies in their towns. Otherwise, taxable land is tax free when a state- or nonprofit owns it. The economically distressed cities, by and large, house the bulk of tax exempt property; the more affluent towns do not. PILOT funds, though not providing a dollar for dollar exchange back to the community, offset the presence of tax-exempt property with much needed revenue.

Rell’s budget slashes PILOT funds by double digit percentages. In Bridgeport, the Governor would cut PILOT money for colleges and hospitals from $11,200,500 to $10,041,445, a 10.35% decline. Aid for state-owned property in goes from $2,676,768 to $2,450,950, an 8.44% drop.

According to the percentage decreases, New Britain takes a bigger hit than Bridgeport on PILOT money. The current $3,561,936 for colleges and hospitals will drop down to $2,793,464, 21.57% less; payments for state-owned property go from $4,255,399 to $3,407,080, 19.94% less.

While Rell’s 0% decrease on ECS is welcome news for Bridgeport and New Britain; it’s equally welcome news for every town, rich and poor. Finch and Stewart may as well have been the mayors of New Canaan and Avon in offering praise for Rell’s budget.

The PILOT funding shows that in tough economic times Rell gives the rich towns a better deal than economically stressed cities. It’s just one more disadvantage that cities face and the long driveway towns won’t in paying for and delivering essential services.

That’s something Finch and Stewart can’t be so happy about and didn’t mention in their strong praise of Rell for level ECS funding. The Legislature now has the hard task of setting aside Rell’s fuzzy math and dealing with the most difficult budget cycle since the early 1990s.

Revaluation Makes Tax Increase Inevitable According to the Mayor

Posted in city politics and government, property tax by nbpoliticus on April 14, 2008

A $219.5 million municipal budget was submitted to the City Council last week that will bring a tax increase to residential owners because of state-mandated revaluation, Mayor Timothy Stewart and most city officials say.

According to published reports a tax rate of 34.98 ($34.98 per $1,000 valuation) will take effect July 1 if the budget is adopted. While the tax rate is dropping, new property assessments from a recently completed revaluation will mean higher bills for homeowners and owners of multi-family units.

As with all property revaluations, burdens on small property owners and tenants increase because of the regressive nature of the property tax and Connecticut’s over reliance on it to pay for essential services and schools. Residential owners in New Britain bear the brunt of higher tax bills while industrial properties will decrease under the current system.

Mayor Stewart, who rode to victory over incumbent Lucian Pawlak five years ago because of 40% re-assessment hikes, says now there is little that can be done to avert an increase in property bills because of revaluation. The budget proposal he submitted is essentially a level funding one with no layoffs and a slight increase in the education budget.

Between now and June the municipal budget will get more scrutiny from the City Council whose members will be seeking ways to extract more savings without cutting services. A key point of the debate will be whether the $118 million allocated for the school district will remain the same or be increased to deal with serious resource shortfalls cited in recent outside reports about the high school’s accreditation, student achievement and morale in the school district.

Also to be determined is whether a local property tax credit will be extended to seniors and individuals on fixed incomes — a form of relief adopted by the Council and agreed to by the Mayor last fall. This issue, which would extend an existing state credit program for seniors with local funding, has been resisted by Stewart. The impact of revaluation, however, will increase pressure to provide the senior tax credit if not every year at least this year.