Thomas MacMillan File Photo
Perez: “We don’t have a cushion.”
The city could end the fiscal year as much as $8.5 million in the red — but have only $1.86 million in its “rainy day” fund to cover it.
Those two facts have city lawmakers pressuring the DeStefano administration to come up with a plan now, not next spring at the last minute, to avoid running the government over New Haven’s mini-version of a fiscal cliff.
The latest figures come from city Budget Director Joe Clerkin. His office’s latest monthly financial report, covering the period ending Sept. 30, identifies emerging problems that can add up to another sizable deficit for the fiscal year ending next June 30. They include:
• Yale has postponed plans to build two new residential colleges. The city budget counted on $4 million in building permits from that effort, $4 million that may not now materialize.
• The city budget assumes that Yale-New Haven Hospital will increase its annual voluntary payment to New Haven by $1.6 million because it has taken over the Hospital of St. Raphael. That is not a given.
• The city’s budget assumes that the state will send us $3.9 million in tax relief. The real figure may end up being $500,000 less, based on last year’s experience.
• The city’s budget counted on $2.5 million in labor concessions. But so far the city has come to terms with only one union on a new contract.
Paul Bass Photo
Clerkin (right) and top fiscal officer Mike O’Neill face aldermen last month.
“If all those things go wrong,” Clerkin said Monday, the city could face an $8.5 million deficit.
On top of that, police and fire department overtime bills were already $1 million over budget just three months into the fiscal year. At that pace, the overtime overage could hit $2.7 million by fiscal year’s end.
New Haven ran an $8.7 million deficit last fiscal year. But it had $10.6 million in its “unassigned fund balance” — i.e., the rainy day fund — to cover it.
That meant that it started this year with a perilously low $1.859 million in that fund.
And that means the city can’t afford to run another big deficit. It must start now to get overtime under control and find other ways — cuts if necessary, sale of city property if that makes sense — to avoid that deficit.
That message came from aldermen at a recent Finance Committee meeting. They held off approving what would normally be a routine request to borrow some money to cover lawsuit settlements, pending presentation of a broader plan to keep down debt and avoid that projected deficit. Read about that here.
“This is like your [the city’s] personal piggy bank,” East Rock Alderman (and possible mayoral candidate) Justin Elicker remarked at that hearing. “We had $10.6 million in the piggy bank last year. We have $1.8 million this year. If we make the same decisions next year, we’ll be over by $6 million. We have to make hard decisions like cutting programs, laying off people.”
He and fellow Aldermen Jorge Perez and Doug Hausladen emphasized coming up with plans for either cuts or asset sales, or both, right away. Last year the city waited until April to wrestle with the pending deficit. It tried, and failed, to get a sufficient price for selling a parking garage, lacking the time or leverage to find the right buyer.
Aldermanic leaders repeated that message in a private meeting with the DeStefano administration last week. The administration followed up two days later with meetings Friday with the police and fire chiefs to discuss both short- and long-term plans to rein in overtime and figure out staffing needs. Chief Administrative Officer Rob Smuts, who participated in the meetings, said he’s in the process of making “digestible” research he’s done into projecting, for instance, how many people will retire in coming years, for instance, and the benefits of combining the police, fire and public works mechanic shops.
“We cannot finish on a deficit” this year, Perez said Monday. “We don’t have a cushion.”
What would happen if the city runs out of a money by having too big a deficit?
It would probably have to borrow short term to pay its immediate bills while it proceeded with a cost-cutting plan, Clerkin said.
The city obviously doesn’t want to get to that point, because it would, in turn, raise the cost of borrowing money — digging the government into a deeper fiscal hole.
If the city exceeds its rainy day fund, “you can kiss good-bye our current bond rating,” Perez said. “In essence, you’re bankrupt.”
Another long-term challenge for the city: Boosting the rainy day fund itself. Even at $10.6 million last year it was far lower than the level considered sound by credit ratings agencies. They expect cities to maintain rainy day funds covering 5 percent of the operating budget. In New Haven that would mean about $24 million.
Many cities have struggled to maintain their rainy day funds over the course of the recession.
Hartford’s rainy day fun fell below zero in fiscal years 2008 and 2009, and has since climbed back up, according to mayoral spokeswoman Maribel La Luz; she said it is currently at $3.1 million out of a budget of around $550 million. Bridgeport currently has set aside $16.5 million in its rainy day fund, around 4 percent of its budget, according to mayoral spokeswoman Elaine Ficarra.
West Haven last officially had a rainy day fund, said current Mayor John Picard — but even then “they were using grant money, which they weren’t supposed to do.”
If the city exceeds its rainy day fund, "you can kiss good-bye our current bond rating," Perez said. "In essence, you're bankrupt."
The fact that the City is essentially bankrupt should come as no surprise to someone who has been a City leader for decades.
Unfortunately, Perez, James, Marchand, Eidelson, and his fellow "BOA Leadership" gave up the chance to ameliorate this situation when they voted down the millions in State & Federal money for bus & transit system improvements, which could have brought billions of dollars worth of development and 1,500+ good union jobs to our City.
They voted this down behind closed doors despite overwhelming public testimony from citizens, and the City, in favor. When people said it was the most shortsighted decision in the history of New Haven, they weren't joking.
It was also one of many moves, like Charter Revision, showing a complete lack of transparency within the new Board.