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“Rainy Day Fund” Evaporates
by Thomas MacMillan | Aug 20, 2013 7:23 am
Posted to: City Hall, City Budget
As New Haven’s bond rating falls, Budget Director Joe Clerkin announced a new sign of trouble: The city will likely empty out its “rainy day fund” for the first time since the early ‘90s.
Clerkin shared the news with the Board of Aldermen’s Finance Committee on Monday evening in City Hall.
He said the city is headed toward a negative fund balance, a deficit in the money set aside for emergency and unplanned expenditures. The fund balance is the money left over after the rest of the budget is spoken for.
With the city looking at a $3.5 million deficit coming out of the last fiscal year, the fund balance may be all gone, Clerkin said. He said he won’t know the size of the negative fund balance until some time near the end of September.
A negative fund balance can lead to “cash flow problems,” to the city not being able to meet its financial obligations, Clerkin said. It hasn’t gotten to that point yet, he stressed. But he said the city needs to correct its course, to build up cash reserves in order to avoid reaching that point.
The city’s plunging fund balance is one reason bond ratings agencies recently lowered their appraisals of city debt. In the last four months, three agencies have downgraded their ratings of city bonds. Lowered bond ratings can increase the cost of borrowing money, as investors get nervous about trusting the city with their money.
Hill Alderman Jorge Perez (pictured), president of the Board of Alderman, said board leadership is working with the city budget director and controller on a plan to address the decreased bond ratings. He said the plan should be ready in the next month.
The fund balance is a “statement of the accounting position of the city,” of the city’s fiscal strength or weakness, Clerkin said.
The city aims to have 5 percent of the budget allocated as fund balance, a goal it hasn’t hit in recent years.
For two years in a row, the city has ended up with deficits in the general fund, which have drained the fund balance. In fiscal year 2011-12, the city ended up with a deficit of $8 million. “That was a punishing, punishing year,” Clerkin said.
The fund balance has also been diminished because for several years the city has had “structurally imbalanced” budgets that relied on one-time revenues like the sale of the Martin Luther King School and Wall and High streets, Clerkin said.
A negative fund balance is “indicative of a structural problem,” he said. If the city operates with a negative fund balance for some time, “at some point, you end up with cash flow issues.”
“We’re not there yet,” Clerkin said. The city is meeting its financial obligations and doesn’t at this point have to borrow money to pay its bills. “But there has to be a plan,” Clerkin said.
Clerkin told the Finance Committee Monday evening that the city is looking at another $3.5 million deficit from fiscal year 2012-13. That’s coming largely from the Board of Ed, which has a food service deficit of $2.8 million, plus an operating deficit of $600,000.
That deficit will likely push the city over the edge into a negative fund balance, Clerkin said.
Meanwhile, the lowered bond rating likely means the city will pay about a quarter-percent more interest on its debt, Clerkin said.
East Rock Alderman Justin Elicker, a Democratic mayoral candidate, asked Clerkin to prepare a list of whatever bonding has been approved but not yet issued.
The discussion of ways to find savings continued into the next item on the agenda of Monday night’s meeting: a presentation by Chief Dean Esserman (pictured) on overtime in the police department. Esserman said a projected $1 million overrun in the police overtime budget has been reduced to just $24,000.
Overtime is nevertheless an ongoing challenge, he said, since he has fewer officers on the force than when he took office two years ago. Even with the addition of new recruits, retirees leaving the force have outpaced rookies joining.
Perez asked if, without violating the union contract, civilians could take on more duties within the department, to put more cops on the street.
Esserman said he has found two places to do that in administration. He pointed out that the board did not approve a new civilian budget position in the department’s public information office, now consisting solely of sworn police Officer Dave Hartman, who gets overtime when he’s pulled out of bed to to go to a midnight crime scene and talk to the media.
Esserman said a huge consumer of police hours is running background checks on new police and fire department recruits. “I have to take officers off patrol to do background checks,” he said.
The fire department, which just had a big recruitment drive, will need “an unbelievable amount” of background checks, said Perez. “This needs to be treated as an emergency.”
Perez asked Esserman and Chief Administrative Officer Rob Smuts to come up with an “action plan.”
“We cannot, we cannot end up with a deficit,” Perez said. He added that a surplus would be preferable.
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what a nice parting gift from Johnny D. Upon his departure, every last crumb in the city accounts has been siphoned off to his contributors. We are doing a great job of following the Detroit road map.
Guess we now know what Destefano and his cronies knew just before they all retired with fat pensions: house of cards.
Step 1: WIthhold pensions from all city Admin who retired in last three years who have income fro other sources until clarity is gained as to what should have been known.
Step 2: Eliminate free parking for New Haven residents with hybrids [this, by coincidence, is Destefano and Nemerson].
1. This is no surprise. The finance committee, the mayor, Jorge Perez and all the aldermen have been warned, told, testified to and all that talk has to a large degree been ignored.
2. Whatever actions are taken now, are being taken after the end of the fiscal year - which means, city leaders will be cooking the books to avoid a deficit.
3. This budget, like last year’s budget was unbalanced from day one of each fiscal year. Yet, Perez, Paolillo and the rest of them did nothing but grin. They are posers - pretending to be concerned but not really.
4. This will be part of a cascading waterfall of revelations as DeStefano winds up his tenure and stays out of sight except to pose himself with the governor and any other feel good story.
5. DeStefano should be forced to testify as to how it is, that a fundamental responsibility has been so badly shirked.
6. Solutions: Hire enough police and fire employees to meet the national average and no more. Limit overtime to 15% of the budget, not 30% and then run over it. Close at least two schools completely, not grades at schools and keep the entire operational expense for fewer students; ban travel; hiring freeze for all but essential employees; trim payroll from 5,000 to 4,000 through attrition; Re-org the fire department and close a fire house as suggested by outside consultants 4 years ago; don’t build a new ESUMS school until its budgeted amount is lowered to $50 million or less.
7. Stop saying you’re concerned and be concerned. Take action and it better not include raising property taxes again for the stupid spending decisions you’ve been warned about for years.
Toni Harp told the Register that New Haven is no Detroit, that’s it’s insulted and irresponsible to make that connection. Really??
Given these revelations - why does Perez and the Democrat establishment support Toni Harp when she has the same record as DeStefano, has never cut anything and has like New Haven, always increased spending?
Chief Esserman is right there are positions such as the press position that if the alders allowed would have been turned into civilian positions. A few others are the victim advocate,detail room and extra duty officers. The above changes would save salary and overtime cost. This would return a total of six officers to the street at a significant savings.
Good Morning New Haven.
Do you see that dapper guy in that glass box, dressed in a suit and tie, a tie whose die match the signage announcing to all One City?
Already to go, waiting to be set loose, One City Henry, there, all need be done is break him lose. Instructions are clear, in case of emergency break this man loose. Time has come to open that box so One City Henry may liberate his dear city of that fiscal fear so no debilitating debt will not harm this man’s dear City. Oh no, not in his City, One City Henry.
One City Henry, not so nice, can ruffle feathers, but cock sure of what needs to be done, big house but no mansion, big tax bill but paid on time, partner who pays her fair share, the man with the Midas touch, One City Henry for mayor.
Tic-tot September 10 fast approaches.
Well it’s not all doom and gloom. By 2015-2016 the new apartment block on Howe and Chapel, College and Crown, the old bank building at Church and Elm and 100 College St should be finished(and Star Supply could’ve been finished if the NIMBYs didn’t kill it over ~omg parking~), there is a lot of development going on that can help the future budget
Madcap, those may be promising signs, although like pretty much every other development proposal in New Haven over the past couple decades, chances are that at least half of them will not actually happen.
Even if they all do happen, we’re going to need a lot more development than that.
Unfortunately, the Board/DTC leadership has put a lid on that. Until they are replaced, expect a rapid slide.
While I generally laud Chief Esserman, I must agree that if it appears we are overstaffed on a per captia basis, yet still rank as the 8th most dangerous city, are we getting what we’re paying for?
As for the structural deficit, there certainly is some room for improvement. We can and should reduce administrative positions among the city and not just through attrition but also through extensive analysis and performance reviews. The unions must get on board with this and I believe Senator Harp can make the case for it effectively.
The City must reach out to internal developers and provide incentives for external developers to use local/minority work force. The City should also make its permitting structures easier and make it so that no Alder is in charge of a zoning review in his/her neighborhood. This will increase the odds that the benefit of New Haven, and not a particular neighborhood, is kept in mind when making decisions.
Not sure if the City has the ability to do this, but no pension plan should be paid out until a worker qualifies for medicare or social security. It’s silly to pay a cop a pension after twenty years when s/he is 42 or 45, and they simply move to another district and maintain the same type of job.
Lastly, let’s get rid of pensions for all new employees. They are simply a legal ponzi scheme that has decimated corporation after corporation and city after city. Matching 401k plans for all.
Atticus, to follow your point, care to recall what the four candidates said about defined benefit vs. defined contribution at the police union debate?
Related yet unrelated question…
Can anyone tell me..
What is the threshold for a city to go bankrupt? And or how high can property taxes go for the city to go bankrupt?
and if anyone can answer this one to, If the city does go bankrupt what happens to the PD and FD and other city employees pensions of people getting them and those who are not yet getting them?
These questions are important questions, can we ask the homeowners and renters to take on much more financially? Is it fair to be building new schools or doing any major spending at this point in the game when so many peoples retirements will be effected?
So I wonder whatever happened with the developer at Ninth Square who wanted the continious zero real estate tax bill. Have not heard anything on that lately. The silence is deafening ... especially with all the Mayoral campainging going on and the inevitable black hole in the budget.
I would think that a good part of the background checks could be outsourced to the private sector.
I find it very hard to believe that Police overtime went from 1 million to 24,000, would love to see how that was done in hard figures. I have doubts to the accuracy. Putting six more Officers on the street sound like a massive under taking when in reality it probably would at the most put 1 or 2 officers on the street a day. LONG TERM solutions are needed , and no candidate has yet to offer hard answers. And isn’t John Destefano still Mayor have not heard anything from him on the issue, not that he would take any responsibility anyways.
As a general rule, in order for a municipality to seek bankruptcy protection under Chapter 9 of the Bankruptcy Code, it must be able to demonstrate that it is unable to pay its debts as they come due. See http://www.afgi.org/resources/Bankruptcy_Primer.pdf.
The main economic hit would occur to bondholders whose investments weren’t secured. With that said, pension obligations of the City could likely be renegotiated but this is tricky. In addition, labor contracts could be renegotiated but again, it’s not easy. Since New Haven can pay its debts, it is not eligible for bankruptcy protection.
Also, New Haven is not Detroit now or Detroit ten years ago. Detroit is a sprawling metropolis and one of the largest cities in the U.S. It has one of the largest land masses in the country. In addition, Detroit was more populous in 1920 than 2010. Indeed, between 1990 and 2010, its population declined by roughly 30%. With that, most of its major industry also disappeared. Its financial problems were exacerbated by not recognizing this shift.
New Haven has seen its economy shift from manufacturing to education, pharmaceuticals, and healthcare. Information technology is now making inroads as well. It simply is not Detroit. Now, if Yale leaves, let’s have a different conversation.
Good point Atticus on New Haven being a far cry from Detroit. If anything the state would send in emergency managers like they did with Waterbury. I also find it hard to believe Yale would not help out in someway. There is no way they would want to be a Ivy league school in a bankrupt town.
I don’t understand why the police department uses a police officer as a spokesperson. Hire a civilian spokesperson who is able to use social media and talk with the press. This would allow officer Hartman to go back on the street. They used a civilian 10 years ago and it worked fine.