Over­sight Looms in a Conn. City

The Bond Buyer - - Front Page - By Paul Bur­ton

WEST HAVEN, Conn. –- Fear­ing more dra­co­nian rule from Con­necti­cut’s over­sight board for cities, West Haven of­fi­cials ex­pect to dis­cuss re­vi­sions to the city’s five-year fi­nan­cial plan on Mon­day night.

Af­ter years of bud­get deficits, the loss of man­u­fac­tur­ing business and in­ter­nal bick­er­ing, 55,000-pop­u­la­tion West Haven trig­gered the radar of the new Mu­nic­i­pal Ac­count­abil­ity Re­view Board last Novem­ber when the city is­sued $16.1 mil­lion of deficit-re­duc­tion bonds. The of­fer­ing still left West Haven $1.4 mil­lion short for fis­cal 2017.

An es­ti­mated gap of $7.4 mil­lion ex­ists for FY18, which be­gan July 1, with no rev­enue en­hance­ments in the bud­get.

“We have a ter­ri­ble fi­nan­cial con­di­tion,” first-year Mayor Nan- cy Rossi said at an Aug. 27 coun­cil meet­ing. She is re­luc­tant to raise taxes, al­though her ad­min­is­tra­tion has cut ex­penses and im­ple­mented lay­offs and fur­loughs.

Con­necti­cut’s Gen­eral As­sem­bly cre­ated the 11-mem­ber MARB when it passed its fis­cal 2018 bud­get. The lone mu­nic­i­pal­i­ties un­der its watch, West Haven and state cap­i­tal Hart­ford, are in Tier III un­der a cat­e­go­riza­tion sys­tem.

Tier III sta­tus en­ables MARB to ap­prove city bud­gets, a five-year re­cov­ery plan, la­bor con­tracts and

pro­vide feed­back on bond is­suance. Tier IV, the strictest over­sight, would ex­pand the board’s role, in­clud­ing tighter bud­getary con­trol and the abil­ity to ap­point a fi­nan­cial man­ager.

“We have to work with the MARB or we go to Tier IV,” Rossi said. “If we go into Tier IV, any­thing can hap­pen. We would be far worse off.”

West Haven’s woes have prompted MARB to wield the Tier IV ham­mer.

“The ques­tion is, do they have to go to the fi­nal tier, Tier IV?” said Howard Cure, di­rec­tor of mu­nic­i­pal bond re­search for Ever­core Wealth Man­age­ment. “The [state’s pos­si­ble] ap­point­ment of a fi­nan­cial man­ager raises ques­tions about just how much author­ity there would be for the mayor and other elected and ap­pointed of­fi­cials. That’s al­ways a nat­u­ral source of frus­tra­tion and con­tention be­tween the two.”

MARB re­jected a pro­posed five-year plan in June, then on Aug. 22 asked for more changes de­spite cit­ing progress. The state board’s ap­proval of the five-year plan, on which UHY Ad­vi­sors con­sulted, would release about $8 mil­lion in an­nual re­struc­tur­ing funds from the board. Those funds could re­duce the city’s deficit un­der gen­er­ally ac­cepted ac­count­ing prin­ci­ples by the end of FY19.

“Plan adop­tion will also re­duce the city’s fi­nan­cial fore­cast­ing by forc­ing it to de­velop bud­gets us­ing re­al­is­tic pro­jec­tions,” said Moody’s In­vestors Ser­vice, which rates West Haven’s gen­eral obli­ga­tion bonds Baa3 -- just above junk -- with a neg­a­tive out­look.

S&P Global Rat­ings as­signs West Haven a BBB rat­ing.

Over­sight board chair­man and state bud­get Di­rec­tor Ben­jamin Barnes said West Haven should re­store its fund bal­ance to about 5% of the city bud­get. While say­ing 10% was more de­sir­able, Barnes ac­knowl­edged that 5% was more re­al­is­tic.

“The mem­bers were pleased with the progress that was made but have a few more amend­ments for the plan,” Rossi said.

The over­sight board also wants West Haven to bol­ster fund­ing of its lo­cal pen­sion sys­tems, curb re­tiree health­care obli­ga­tions and trim fu­ture em­ployee health­care costs, no­tably for its three fire districts. In its memo to city of­fi­cials, the board said it also wants “op­er­a­tional im­prove­ments.” It also wants more in­for­ma­tion from the Board of Ed­u­ca­tion about set­tled and open la­bor con­tracts.

“I would like to see an­other it­er­a­tion of this plan be­fore I feel com­fort­able sup­port­ing it at the full MARB level,” Barnes said.

Af­ter coun­cil ap­proval, the over­sight board’s West Haven sub­com­mit­tee and then the full board would have to sign off.

Ac­cord­ing to Moody’s, the back-and-forth with MARB highlights the city’s chal­lenges in over­haul­ing it­self.

“The MARB’s in­sis­tence on a mul­ti­year fi­nan­cial plan is credit pos­i­tive for the city, al­though it will force West Haven to make dif­fi­cult short-term de­ci­sions such as cut­ting staff or rais­ing taxes,” said Moody’s.

Moody’s ex­pects MARB and West Haven to reach a com­mon ground, “Still, those [re­struc­tur­ing] funds would not rep­re­sent a long-term so­lu­tion to the city’s re­cur­ring deficits,” Moody’s added.

Hart­ford poses a dif­fer­ent dy­namic, said Cure.

“Hart­ford had un­der­funded PILOTs [pay­ments in lieu of taxes] and the mayor there has a per­sonal relationship with the gover­nor,” said Cure. “Here [in West Haven], they’ve just had trou­ble get­ting their arms around their deficits.”

Mayor Luke Bronin was Gov. Dan­nel Mal­loy’s chief coun­sel be­fore his elec­tion to the city of­fice in Novem­ber 2015. The state in March -- un­der a deal crit­i­cized in many cor­ners of Con­necti­cut -- agreed to pay off the prin­ci­pal on Hart­ford’s $540 mil­lion of gen­eral obli­ga­tion debt over 20 to 30 years.

New Haven Mayor Toni Harp has said her city does not in­tend to ap­ply to join MARB.

West Haven has seen its tax base shrink over the years, largely due to the loss of man­u­fac­tur­ing. Ger­man phar­ma­ceu­ti­cal giant Bayer closed its 113-acre Bayer Health­Care re­search fa­cil­ity in 2008, only five years af­ter a ma­jor facelift. Yale ac­quired the prop­erty for lab­o­ra­tory space, but while the uni­ver­sity makes pay­ments in lieu of taxes, the par­cel ef­fec­tively went off the tax rolls.

A pro­posed ho­tel along In­ter­state 95, at the site of a Sta­ples re­tail out­let that closed in 2002, has yet to ma­te­ri­al­ize.

“There is some de­vel­op­ment, but you won­der if they would en­dure an­other re­ces­sion,” said Cure.

Tran­sit-ori­ented de­vel­op­ment re­mains a po­ten­tial. Metro-North Rail­road, a unit of New York’s Metropoli­tan Trans­porta­tion Author­ity, opened a West Haven sta­tion five years ago. A hulk­ing tire fac­tory, va­cant since the early 1980s, re­mains a tempt­ing, let elu­sive, tar­get for re­de­vel­op­ment.

Eco­nomic de­vel­op­ment is still a lo­cal quandary, ac­cord­ing to David Ric­cio, who lost the gen­eral elec­tion to Rossi last Novem­ber.

“So many de­vel­op­ment plans of oc­cu­pancy need to be ad­dressed,” said Ric­cio, a for­mer coun­cil mem­ber. “Down­town re­vi­tal­iza­tion has been kicked down the road from ad­min­is­tra­tion to ad­min­is­tra­tion.”

West Haven, which in­cor­po­rated as a city in 1961, re­mains po­lit­i­cally di­vided.

Rossi, a for­mer coun­cil­woman and the city’s first fe­male mayor, won the elec­tion with a plu­ral­ity last fall. She de­feated twoterm in­cum­bent Ed O’Brien by just 136 votes in the Demo­cratic pri­mary, then beat him again two months later with O’Brien -- who ap­proved the deficit bor­row­ing late in his ten­ure -- run­ning as a write-in can­di­date. Repub­li­can Ric­cio was third.

The city’s fis­cal sit­u­a­tion hov­ered over a 75-minute pub­lic speak­ing ses­sion at the Aug. 27 coun­cil meet­ing de­spite the ab­sence of the five-year plan from the agenda. Parochial wor­ries in­cluded po­ten­tial as­set sales; de­clin­ing main­te­nance de­spite a 22% rise in the bud­get since 2005; ex­treme aus­ter­ity mea­sures such as the re­moval of two snow days for cross­ing guards; and an opaque cul­ture at City Hall.

Rossi said her ad­min­is­tra­tion is com­mit­ted to trans­parency. “I be­lieve ev­ery­thing should be taped,” said Rossi, who posts record­ings of meet­ings on her Facebook page.

Even amid aus­ter­ity -- Rossi elim­i­nated 12 po­si­tions ear­lier in the year -- the city could re­store con­fi­dence in City Hall by beef­ing up its op­er­a­tions, said MARB board mem­ber Patrick Egan. He noted that Rossi, in a prior meet­ing, ad­mit­ted she was re­view­ing job de­scrip­tions.

“That’s not a mayor’s job,” said Egan, a for­mer New Haven as­sis­tant fire chief and pre­vi­ously pres­i­dent of the New Haven fire­fight­ers union.

“To me, the way the city is cur­rently struc­tured from the top down is thin,” Egan added. “There should be a staff in place that makes this city run. And if it costs a lit­tle more on the in­vest­ment end, then that makes me feel more com­fort­able about giv­ing money to the city.”

Rossi’s ex­ec­u­tive as­sis­tant, Louis Es­pos­ito, was dou­bling up as city pub­lic works com­mis­sioner for sev­eral months un­til she hired Tom McCarthy for the po­si­tion. Rossi cut the pub­lic works salary to $95,000 from the pre­vi­ous $103,000.

“It’s be­low mar­ket rate, if you will, but we’re a poor town,” she said.

How ef­fec­tively Con­necti­cut can fix West Haven and other cities, given its own fis­cal struggles, re­mains an open ques­tion.

The state’s own prob­lems with re­peated deficits shows “how vul­ner­a­ble the weaker cities are,” said Cure. “If the econ­omy’s weak, the econ­omy’s weak, and then there’s not much the state can do.” ◽

MTA / Patrick Cashin

Hopes for tran­sit-ori­ented de­vel­op­ment from the West Haven, Con­necti­cut, train sta­tion that opened in 2013 have yet to play out.

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