City leaders: Changes are coming
Pledge to rein in costs, make needed policy changes
NEW HAVEN — This could be a year of intense financial review.
After two credit agencies downgraded New Haven’s rating, dinging it for ending the year in a deficit with little in savings, while carrying a high-debt load and poorly funded pension liabilities, the city is pledging to create a five-year budget plan with needed policy changes.
“It is very sobering,” aldermanic Majority Leader Richard Furlow, D-27, said of the feedback from S&P Global Ratings and Fitch as
New Haven went out to the market for $58 million in new capital funds and $160 million in refinanced debt.
For the first seven years of the refunded bonds, the city will save $108 million in debt service over what it would have paid under the current debt service schedule. In the next nine years however, it will pay $197.6 million in debt servicing just due to the refunding.
Furlow and others said the city needed the flexibility the refunding offers for those seven years to start to get its structural problems under control, while stabilizing an environment where development continues to grow.
“What got us to this point and what we have to do as legislators is to make some serious changes,” Furlow said. “We are going to be meeting weekly to make sure we get this five-year plan developed and not one penny is spent that shouldn’t be. It is crucial or we are going to be back in this position in five years or three years,” Furlow said.
The preliminary bond sale document put the city’s existing general obligation debt service at $755,302,355 by 2038 with $67 million due this fiscal year. It peaked at $69.7 million in debt service payments in fiscal fiscal 2020 and then continued to drop to $3.3 million in 2058 after which it is cleared.
With the refunding, the payment schedule in effect in 2018 equals the old payment schedule after which it continues to decline. From 2027 through 2032 it mostly equals out around $53 million a year, before spiking in 2033 and dropping back in 2034.
The restructuring generates a budgetary savings of $31.2 million which is expected to boost the fund balance to cover unanticipated shortfalls in state aid and high medical costs; cover the $11.5 million deficit in the General Fund and put $2.5 million extra in each of the two
The city said there will be budgetary savings ranging from $18.9 million to $4.1 million for fiscal 2020 through 2025 because of the refunding.
The majority leader said they are looking at changing the tax deferral program for future developers; paying the pensions in September rather than at the end of the year and bringing in their own experts as they go through the city’s finances.
Furlow promised that the alders will also tackle the police and fire departments’ huge overtime costs.
“We are going to get this overtime under control. Everyone is not going to be happy about it, but these are the measures that we are going to have to do,” he said.
The majority leader said the difference this time that makes him confident it will get done is having a five-year planning document and sticking to it to counter the “weak management and structural imbalances” citing by the rating agencies.
“To be honest with you I was flabbergasted that we still don’t have a plan in place,” Furlow said.
Furlow, aldermanic President Tyisha Walker-Myers, D-23 and Alder Aaron Greenberg, D-8 were unanimous in their vote for the bonds, as they joined Mayor Toni Harp and Controller Daryl Jones in approving the sale as the five members of the Bond Sale Committee.
Furlow said they did not want, as an alternative, to send out supplemental tax bills to cover the fiscal 2018 deficit.
But perhaps their biggest fear was being forced into the Municipal Accountability Review Board, where the state takes over your financial decisions.
“As long as we can make sound fiscal financial decision, then we are not going to do it. We are going to help this administration the best we can,” he said.
He said it also did not make sense to issue tax anticipation notes as the payback would be too soon.
As a resident with family
going back almost 100 years in New Haven, Furlow said, “I owe it to the city to do the right thing.”
Harp is on board with the aldermanic leadership’s agenda.
Some alders, who weren’t involved in the decision however, said the bond sale wasn’t the best move for the city.
Alder Darryl Brackeen, Jr., D-26, said in an email, “If we don’t deal with our fiscal situation now, we will continue to hurt future generations.”
He said the city needs a more aggressive development plan in addition to finding other sources of revenue. Brackeen said the administration should look at regionalization and continue to fight for more PILOT (payments in lieu of taxes. Brackeen said he would have preferred to have had more legislative input, although the board ultimately decides where the $31.2 million will go.
Alder Abby Roth, D-7, said the administration’s solution to financial problems is to refinance debt.
“This is not a solution — it is creating temporary cash savings, while increasing what we will owe in the future: Fitch predicts the city’s current refunding will cost the city taxpayers $10 million in the long run,” she said.
“We must stop irresponsibly increasing our future debt and start addressing the underlying structural problems by seriously engaging all stakeholders so that we can make hard but necessary decisions about how to reduce huge cost drivers such as pension, health care, and police and fire overtime,” Roth said. She said the police and fire contracts are a good opportunity to do that.
She also wants to engage the MARB for advice.
Alder Steven Winter, D-21, said the city should have looked at other options before refinancing.
He said it is irresponsible to add to the city’s debt if the city hasn’t explored all other options, like issuing tax anticipation notes connected to the next installment of property tax payments,” Winter said in an email before the vote.
Winter said he’s not surprised by the city’s recent credit downgrade because it hasn’t taken steps to “substantively address its structural budget deficits. Further downgrades are likely unless significant steps are taken to bring spending and revenue into alignment.”
The alder supports the suggestion of the Financial Review and Audit Committee to get an independent cost study of police and fire staffing levels and move more pension funds to lowcost, passive investments.