City Notches $16.9M Surplus, Credit Bump

City Budget Director Gormany and Mayor Elicker on Wednesday.

City of New Haven FY22 data

Last fiscal year's budget surplus data.

Increased state and Yale aid — along with vacancy-induced salary savings — helped propel city government to a $16.9 million budget surplus as well as a slightly higher credit rating.

Mayor Justin Elicker and city Budget Director and Acting Controller Michael Gormany reported that sunny fiscal outlook Wednesday afternoon during a press conference on the second floor of City Hall.

Elicker and Gormany said that city government saw a $16.9 million surplus for the general fund budget for Fiscal Year 2021 – 22 (FY22), which ended on June 30. Added to the roughly $20 million fund balance that city government had going into last fiscal year, that brings New Haven’s rainy day fund” to $36.9 million.

The mayor and budget director also celebrated the Fitch rating agency’s recent upgrading of New Haven’s general obligation bonds credit rating from BBB to BBB+ thanks in part to the same positive fiscal trends that led to last year’s surplus.

Overall, it’s really good news,” Elicker said about the surplus and the credit upgrade. It underscores that we’re going in the right direction.” He said it also gives the city a fiscal buffer as we head into what is likely to be a recession.”

The city really had a strong second half of the fiscal year,” added Gormany, which contributed to these savings.”

The surplus and credit upgrade come as New Haven has seen a combined $60 million annual bump in fiscal aid to its general fund thanks to increased payments from the state and Yale University. It also comes as the city has received roughly $115 million in one-time pandemic-relief aid through the federal American Rescue Plan Act (ARPA), and as the city’s taxable grand list increased by a whopping 32 percent thanks to the latest citywide property revaluation. The current fiscal year, meanwhile, saw a 4.4 percent increase to the city’s general fund budget — which meant that, even with a 9 percent cut to the mill rate and a two-year reval phase-in, many property owners saw an increase in their local taxes.

Click here to read the city’s FY22 pre-audit report” which includes data about last fiscal year’s surplus, and click here to watch a video recording of Wednesday’s press conference in full.

So. What were some of the key drivers of last year’s surplus?

Elicker detailed a few during the presser. Those included:

• An increase in annual state municipal aid to New Haven’s general fund through the Payment in Lieu of Taxes (PILOT) program by roughly $50 million.

• An increase in annual voluntary payments by Yale University to New Haven’s general fund by roughly $10 million for each of the next five fiscal years.

• A $7 million bump in local property and motor vehicle tax collections, thanks largely to people paying back taxes, which is really good news,” Elicker said.

• Roughly $3.5 million in vacancy savings on city employee salaries because of just how many jobs remain empty at City Hall right now. New Haven and cities around the nation and a lot of private sector entities as well are really struggling with staffing issues right now,” the mayor said. We have over 200 vacancies. While that puts a lot of pressure on all of our staff across many departments, it did lead to some financial savings this year.”

• A $1.63 million surplus in real estate conveyance tax collections thanks to just how many local properties have been bought and sold during the pandemic.

• A $1.6 million bump in building permit and inspection revenue thanks to the surge in new construction across town.

• Roughly $2.3 million in savings in the city debt service, which Elicker credited to both low interest rates and his administration’s making sure to not refinance [existing city debt] in an irresponsible way” that passing along higher debt burdens to future generations.

Elicker and Gormany also pointed out city health care expenditures last fiscal year came in roughly $8.6 million above budget. That very significant increase in the cost of health care” is likely due to the fact that employees that were refraining from seeking certain medical care during the height of Covid, this past year started to seek that medical care,” Elicker said.

The mayor added during the press conference that, while a $36.9 million rainy day fund is a good start, it’s not as high as the city would like it to be. He said that best practices for municipal government budgeting state that a fund balance should equal approximately two months of operating expenses, or 18 percent of the city budget. For New Haven, that would be over $100 million.

Credit Upgrade

An online writeup about the Fitch credit upgrade, which occurred on Sept. 29, also cited increased aid from the state and Yale as key drivers for a more positive fiscal outlook for city finances.

The one-notch upgrade reflects the improvement in the city’s operating results and reserves dating back to fiscal 2019 and improvement in city revenues primarily from the state’s revised PILOT program, substantial growth in the tax base reflected in the most recent five-year revaluation and Yale University’s voluntary contribution agreement that, combined, will help absorb growth in city spending,” that writeup reads.

Fitch expects management will continue recent efforts to manage expenses in line with natural revenue growth despite upward pressure tied to likely growth in salaries, medical and pension benefits and debt service. Expenditure flexibility is limited following prior years’ budget cuts including reductions in staffing.

The city’s elevated long-term liability burden associated with debt and weakly funded pensions is expected to remain a burden on the budget. However, the city continues to fully fund the pension actuarially-determined contribution (ADC) and it has lowered investment rate of return assumptions, which will increase annual contributions but should improve funded levels over time. Prudent management of new revenue growth to align with long-term growth in spending will be needed to avoid future structural imbalance and maintain adequate reserves, which is paramount to at least a maintenance of the rating.”

Click here to read that writeup in full.

Towards the end of the Current Developments” section of that Fitch report, the rating agency analyst alludes to the injury and paralysis of 36-year-old Randy Cox while in police custody — and the $100 million federal civil lawsuit recently launched by Cox and his attorneys.

The city has been named in a lawsuit related to the injury of an individual detained by police and management will need to manage the potential financial impacts related to the outcome of this lawsuit,” the report reads.

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