“Scoop & Toss” Transparency Debated

The next time New Haven decides whether to ​“scoop and toss” municipal debt, a small group of officials will continue to make the call without a broader debate and vote among the full Board of Alders — despite the efforts of a city alder to make a change.

At least, that was the outcome of the latest vote on an effort to change the process by which municipal debt restructurings take place.

East Rock Alder Anna Festa made an attempt to change the process last week during the most recent meeting of the Board of Alders, reviving a debate over whether a small subcommittee helmed by aldermanic leadership and top city financial staff should maintain sole control over the debt restructuring process — even if such actions increase New Haven’s long-term debt costs without public debate.

An amendment Festia introduced — and which a majority of her colleagues rejected in a voice vote — sought to open up the process by which the city is allowed to ​“scoop and toss” municipal debt, just as it did in the summer of 2018. Namely, Festa sought to require that the full Board of Alders get a chance to review and vote on any bond refunding that would increase the city’s long-term debt costs. The term refers to a practice by governments by trying to solve short-term budget problems by refinancing long-term debt, collecting up front cash to pay immediate bills while saddling taxpayers with larger debt payments over decades; analysts attributed the city of Hartford’s fiscal collapse to that practice.

A majority of Festa’s colleagues, led by Board of Alders Majority Leader and Amity/Westville/Beaver Hills Alder Richard Furlow, shot her proposal down when it came up at the meeting, held in City Hall last Monday night. They argued that New Haven’s current quicker process, which limits debts votes to a small committee comprised of aldermanic leadership and top city financial staffers, is a more responsible set-up.

The debate in City Hall revived a years-old effort by a small group of alders to shift responsibility and oversight for debt restructurings with long-term costs from aldermanic leadership to the full board itself.

The debate also raised questions about the merits and drawbacks of acting quickly when so many millions of dollars are on the line — and about which decision-making powers should be vested entirely with aldermanic leadership, and which should be spread across the full city legislature.

Festa introduced her debt process proposal, as an amendment to Appropriating Ordinance #3.

That’s the part of the city budget that allows municipal government to issue general obligation bonds (i.e. borrow money), primarily in order to fund long-term capital projects. (Because the city is now on a two-year capital budget schedule, the alders did not vote on Monday night to borrow any new money for any new projects.)

Accordingly, Festa’s proposed amendment didn’t have to do with any specific expenditures or projects. It also didn’t have to do with any specific plans by the administration or her colleagues.

Rather, it targeted an obscure but consequential few words buried at the end of a sentence on page 376 of the budget book in a subsection of Appropriating Ordinance #3 called ​“Section VI: Refunding Bonds.” 

That sentence currently reads: ​“BE IT FURTHER ORDAINED by the New Haven Board of Alders, acting pursuant to the due authorization of the General Statutes and Special Acts of the State of Connecticut, that General Obligation Refunding Bonds of the City (the ​“Refunding Bonds”) are hereby authorized to be issued from time to time and in such principal amounts as shall be as determined by the Mayor and Controller to be in the best interests of the City for the purpose of refunding all or any portion of the City’s general obligation bonds outstanding (the ​“Refunded Bonds”) to achieve net present value savings or to restructure debt service payments.”

In her amendment Monday night, Festa sought to remove the final six words of that sentence — that is, to remove the words ​“or to restructure debt service payments” — but to otherwise leave that part of the budget as is.

Festa: "No Transparent Public Process"

The reason behind such a proposal, Festa explained, concerns public accountability, transparency, and good process around whenever the city is looking to restructure debt payments in such a way that increases the city’s debt services costs in the long run.

“There is no transparent public process” around such ​“scoop and toss” debt restructuring actions, Festa said, ever since this part of the budget was first changed back in 2014. ​“Let’s bring back the public process.”

The ​“scoop and toss” that Festa was referring to took place in the summer of 2018. At that time, the previous mayoral administration refunded $160 million in existing debt in a bid to take advantage of low interest rates, reduce short-term debt obligations, and level off a spiky debt payment schedule over the coming decade and a half.

That bond refunding also added millions of dollars of new debt service payments for future generations to bear and resulted in a long-term, net present-value cost to the city of around $10 million. By reshuffling debt service payments and adding higher costs in the years ahead, it also allowed city government to undertake a large-scale borrowing to cover short-term operating expenses.

Festa raised her sentence-altering amendment Monday because the full Board of Alders didn’t get to vote up or down on that bond sale back in 2018. 

That’s because the budget vests that decision-making power solely with the Bond Sale Committee, which consists of the mayor, the city controller, the Board of Alders president, the Board of Alders majority leader, and the Board of Alders third officer.

While that Bond Sale Committee has been in place and charged with overseeing and issuing refunding bonds since 2008, the alders updated the relevant section of the budget in 2014 to explicitly grant the committee permission to oversee debt restructurings. 

That meant that only this subcommittee, and not the full Board of Alders, got to vote in 2018 for the ​“scoop and toss” debt refunding. 

Festa argued on Monday night that removing the words ​“or to restructure debt service payments” fromt hat sentence in Appropriating Ordinance #3 would permit the full Board of Alders, and not just the Bond Sale Committee, to debate and vote on if and when the city ever decides to ​“scoop and toss” again. 

She introduced the very same amendment earlier this month during the Finance Committee’s deliberations on the FY23 budget. And, back in 2019, then-Downtown Alder Abby Roth and current Prospect Hill/Newhallville/Dixwell Alder Steve Winter proposed an identical amendment in a bid to achieve the same goal pursued by Festa on Monday night.

Once again, Winter backed up Festa’s proposal during the debate on the floor Monday night.

“I think in situations where we can show that there’s going to be a long-term financial saving to the city, we should move quickly and we should delegate that decision to the leadership of the board,” he said.

“But in the case where, if a financial analysis shows in the long run that we’re increasing costs, in that situation, I think the city’s better off having a slower, more deliberate process.”

Furlow: Quick Process Needed To Keep Up With Interest Rate Changes

Ultimately, that argument lost out to the majority’s contention that the Bond Sale Committee should be able to move quickly when refunding debt — and that aldermanic leadership is plenty accountable as is.

Furlow said that the current process is in place because it gives the city ​“enough time to capture a good interest rate” when restructuring debt payments. ​“It’s just a common sense reason that was put in place in 2014.”

Furlow also argued that there is indeed a broader discussion among alders that takes place prior to such a debt restructuring. He informs all of the alders of leadership’s planned vote prior to such a vote. Those alders could request a public hearing or workshop on the matter if they so choose. He also noted that this type of debt restructuring has taken place only once since the process change in 2014.

East Rock Alder Charles Decker added that ​“board leadership is elected by us,” and the alders themselves are elected by constituents. Thereby, leadership is already held accountable to the public — via the publicly elected alders who choose them.

“There’s an accountability mechanism already,” Decker said.

While she did not speak up on the matter Monday night, Board of Alders President and West River Alder Tyisha Walker-Myers threw opposed Festa’s debt-restructuring-process amendment during the most recent Finance Committee meeting about the budget.

She said during that meeting that the alders changed the process in 2014 so as to give the Bond Sale Committee permission to act quickly to keep up with changing interest rates. And she said that ​“colleagues have the ability to talk to their colleagues every day of the week,” meaning that if an alder has a concern with an action taken by leadership, there is a structure in place for voicing those concerns.

During that same committee meeting, Festa and Winter spoke up in support of Festa’s amendment. ​“In cases where there’s going to be a long-term increase in our costs because of a refunding, I think that this is an important public policy question where it would be beneficial to have a slower process with a public hearing and more input,” Winter said at the time. ​“I think in this case, if costs are going to be increased in the long run, we ought to have a public conversation about it.”

Edgewood Alder Evette Hamilton disagreed. ​“Decisions are made every day,” she said during the committee meeting. ​“I trust the leadership of this board and the group to make crucial decisions when necessary.”

Ultimately, Festa’s amendment on Monday night failed in a voice vote.