nothin Rainy Day Fund Gets A Lifeline | New Haven Independent

Rainy Day Fund Gets A Lifeline

Thomas MacMillan Photo

The city refinanced $16 million in bonds and came up with an extra $4.1 million, which might start to close a budget hole.

On Monday night, the Board of Aldermen officially received a proposal to reallocate $4.1 million from debt service to the rainy day fund.”

The measure, proposed by Budget Director Joe Clerkin (pictured), would use money saved by the re-financing of city bonds to replenish the city’s fund balance, known as the rainy day fund.” The fund was hit hard during the 2012 – 13 budget, which ended on June 30. The rainy day fund ended the year $4,713,306 in the red.

The city’s depleted fund balance was one reason that several bond ratings agencies recently downgraded the city’s debt. A lowered bond rating could mean the city had to pay more to borrow money. The city’s current efforts to replenish the rainy day fund could help to stop the bond-rating tailspin.

Alderman Jorge Perez, president of the board, noted that the city’s diminished fund balance wasn’t the only reason the city’s bond ratings sank, but it’s a major one,” he said. And this is starting to address it.”

Here’s how the proposal would work, according to Clerkin:

In August, the city announced it had refinanced $16 million worth of bonds issued in 2003 and 2005. This move allowed the city lower the interest it owed on the debt from 4.6 percent to 2.95 percent.

The city would find further saving by adjusting its planned payments. It would setting aside $4.4 million it had planned to pay toward bond debt.

In another development, the city took in $1.2 million extra in bond sales to fund the current year’s budget. People paid a premium to buy city bonds, adding up to $1.2 million.

The $4.4 million and the $1.2 million add up to $5.6 million. That’s $4.1 million more than the city had anticipated seeing after refinancing. That’s the total that Clerkin now proposes to put toward the city’s fund balance, which is $4.7 in the red.

The city ended fiscal year 2012 – 13 with an negative fund balance for several reasons. First, the city had an operating deficit of $4.5 million. Second, it had additional cost overruns in self insurance ($4 million) and in the Board of Ed’s food service and daycare spending ($3.4 million and $1.6 million). It added up to $13.5 million, which reduced the city’s $8.8 million rainy day fund to a $4.7 million hole.

The $4.1 million transfer won’t fill that hole completely, but it will fill most of it.

I think the ratings agencies would view this positively,” Clerkin said. But in their view its probably a weakness we still have.”

The move is helpful, but the ratings agencies aren’t likely to say you guys are good to go,” Clerkin said.

Conceptually, I think it’s a great idea to replenish the rainy day fund,” said Alderman Perez. Whether Clerkin’s plan is the best way to do it is a matter for the Board of Aldermen’s Finance Committee, he said.

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