Old Debt Plugs Old $10M Shortfall

Thomas Breen photoJust two weeks after the city was downgraded by two different credit rating agencies in part for using restructured debt to fund normal operating expenses, alders voted to use $10 million in restructured debt to fund shortfalls in the past fiscal year’s normal operating expenses.

At a meeting Monday night in the Aldermanic Chambers on the second floor of City Hall, alders unanimously voted to transfer the $10 million from last fiscal year’s debt services budget towards closing deficits in the police, public safety communications, parks, workers’ compensation, and youth services finances for the fiscal year that ended June 30.

The ordinance amendment to Appropriating Ordinance #1 for Fiscal Year 2017-2018 (FY18) was submitted by Acting Budget Director Michael Gormany back in May in anticipation of $10 million worth of deficits in the five different areas of the city budget.

The city actually ended the fiscal year with an $11.5 million general fund deficit.

However, this $10 million transfer will not reduce that $11.5 million overall deficit, city spokesperson Laurence Grotheer told the Independent.

That’s because the $10 million being transferred had already been accounted for as debt service “savings” in the city’s June 2018 monthly financial report. Those “savings” are now being applied to various department accounts that ended last year in the red.

“It was a money transfer for FY18,” Grotheer said, “but it was to resolve individual department accounts as part of the process to come up with a final [general fund deficit] number for the year end.”

The transfer allocated $2.9 million to the police overtime budget, $2.8 million to the fire overtime budget, $2.9 million to the fire salary budget, $450,000 to the other contractual services line of the youth services budget, $250,000 to the public safety overtime budget, and $700,000 to the workers’ compensation line item in the employee benefits budget.

The proposed amendment notes that $10 million could be taken out of the debt service line item because “Debt Service is projected to be under budget for FY2017-18 due to the August 2017 refunding/restructuring.”

That August 2017 refunding freed up roughly $31.8 million in the FY18 city budget by scooping up some of the year’s existing required debt payments and tossing them a decade into the future.

The city wound up paying only $28.1 million towards its debt service last year, which is around $38 million less than the $66.4 million budgeted for debt service before August’s refunding.

Last fiscal year’s “scoop and toss” of $31.8 million, as well as this current fiscal year’s refunding of $160 million in existing debt, helped earn the city downgrades from the credit rating agencies Standard & Poor’s (S&P) and Moody’s, both of which criticized the city’s financial management for covering general operating expenses with debt.

Although she ultimately voted for the transfer along with the rest of her colleagues, Downtown Alder Abby Roth said the alders should not encourage the city to keep up this practice of paying for general operating expenses with debt.

“The administration has a practice of counting money received from refunding and restructuring debt as revenue in the operating budget,” she said. “FRAC [the independent Fiscal Review and Audit Commission] has warned that debt should not be used for operating expenses and that the budget should be balanced without such gimmicks. This is because refunding and restructuring debt increases the city’s debt burden in the long run on top of imposing significant transactional costs on the city.”

She praised the alders on the bond commission for pressuring the city to commit to putting together five-year financial plans going forward. But, she said, that promise doesn’t excuse existing bad behavior.

“As this request shows,” she said, “the administration has not followed through on its one-year budget plan and so going forward we as a Board of Alders must use our power to control transfers to ensure that they act fiscally responsible.”

Click on the links below to read other stories about the city’s structural deficit and ideas for closing it.

Record Bond Sale OK’d; Discipline Vowed
Like Hartford, New Haven “Scoops & Tosses”
Fixing the Budget: Fire Choices
S&P Downgrades City Credit Rating
City Will Refinance Debt To Avoid Takeover
S&P Downgrades City Credit Rating
Mayor Open To Idea Of Fewer Top Cops
City Ends Policy As It Begins To Pay Off
Hey, Buddy, Can You Spare $30 Million?

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posted by: Noteworthy on August 8, 2018  7:50am

And the Band Played On Notes:

1. This is no surprise - it’s also no surprise that this $10 million, on top of a previous $9 million transfer into the health account still leaves the city - not with an $11.5 million deficit but a $14 million deficit. The Harp House has already pilfered Yale’s extra $2.5 million and applied it to the deficit in order to cook the books and make the numbers look better.

2. No alder should be praised for anything. There is a long way from paying operating expenses with debt for political gain and the hard choices and decisions that have to be made to reduce spending to match cash flow. That they made their job easier by taxing our families to the tune of $30 million is criminal and reckless and shows a disregard for us that is without conscience.

3. The departments who were overbudget should have their directors demoted, fired or removed from executive management. They aren’t one off miscalculations or mistakes - there is a pattern and practice of disregard to these budget overruns and they’ve been allowed to do so with impunity.

4. Their arrogance is astounding. That Harp rewards them with new contracts, expansive pay raises is galling. The biggest offenders: NHPD Chief Campbell; NHFD Chief Alston who not only exceeded his salary line, he exceeded his overtime line both by millions and millions of dollars. He really brought his Jersey City creds with him.

5. Let’s see these 5-yr budget meetings, the crackdown on the budget meetings in public. I’d love to see stories and witness what promises to be another paper over, whitewash BS job that means nothing.

6. This is what happens when there is political in-breeding - the kind so ingrained in the corrupt Democrat Town Committee. The DNA of common sense, fidelity to taxpayers and a commitment to do what’s right and in the best interests of our families gets corrupted. It breeds cynicism and is a cancer on our city.

posted by: Ulmus Civitas on August 8, 2018  8:12am

Thanks Roth. So then why vote in favor of this at all, is there no other option? I do believe Roth is one of the alders who truly is civic-minded but I think the majority of the board have not been properly educated in financial literacy. A well-trained military wouldn’t arm their soldiers with weapons that could destroy people, neighborhoods, and cities without proper instruction and practice. Similarly, the BoA has serious financial power in their hands and yet, it seems that they were not given any instruction manual or real-life scenario training. Clearly, their decisions, along with the mayor’s, have and will cause people to leave New Haven due to deadly financial mistakes…
A friend of mine went to retrieve a U-Haul from the store on Whalley and when he arrived he was told they were out of all trucks and the next closest was in Essex. The salesperson said they wouldn’t have the truck he wanted in for a few days because all the other ones were leaving Connecticut. It stuck with me, I don’t know if the writing is already on the wall but it didn’t feel particularly cheerful. I’m not leaving but we need to organize and educate our financial decision-makers. If only there was an independent and experienced group that we could call on and actually listen to, oh wait…!

posted by: opin1 on August 8, 2018  9:05am

What proposals are in motion to stop this?  Are there any ideas on the table either in the mayor’s office or at the BOA to make some significant spending cuts?

I think we need to close another couple schools, reduce school administrators at Meadow St, and reduce the number of police officers and fire dept employees (which means also reducing shifts, not just having existing employees work overtime). (The Mayor should reduce the size of her administration’s staff but I know she would NEVER do that). Pensions need to be scaled back for all new employees. 

Or now that we’ve taken out more loans to pay off the current year’s expenses, is it back to business as usual continuing to spend and not make any cuts?

posted by: THREEFIFTHS on August 8, 2018  9:30am

The people must rise up to stop this Totalitarianism. To do that follow they should follow the plan from the book Animal Farm.

Old Major, the old boar on the Manor Farm, summons the animals on the farm together for a meeting, during which he refers to humans as “enemies” and teaches the animals a revolutionary song called “Beasts of England”.When Major dies, two young pigs, Snowball and Napoleon, assume command and consider it a duty to prepare for the Rebellion. The animals revolt, driving the drunken, irresponsible farmer Mr. Jones, as well as Mrs. Jones and the other human caretakers and employees, off the farm.

posted by: 1644 on August 8, 2018  10:09am

Presumably, a no vote would send the city to the MARB, which would be better than self-government, an exercise at which New Haven is failing.

Five leaf:  Yes, CT is failing, with lots of people moving out.  One reason it is pointless for the city to expect more from the state.  The state, thanks in large part to Harp,  is burdened with huge liabilities, including bonded debt service and unfunded retiree pensions and medical benefits.

3/5’s:  Did you ever finish Animal Farm?  That revolution didn’t work out so well, especially for Boxer.  I wish Animal Farm were taught more in our schools.

posted by: LookOut on August 8, 2018  10:22am

good point quercifolia….I have a friend who recently closed down with moving business in CT because his expenses were sky high.  So many more truck were leaving CT than returning that he had to pay drivers and gas to bring empty moving trucks back.

Please ask the last one out of CT to turn out the lights.

posted by: FacChec on August 8, 2018  11:59am

I agree with Notes;

What in god’s name qualifies the bond commission for praise? This is the very same sad fiscally dismissive alders that cause the year after year unanimous acceptance of this refunding of bonds to pay current debt. (This is a charter violation (no one cares about unless it doesn’t favor the city.)
Rather than provide curative measures to eliminate default budgeting by the Mayor, who budget blames the state of CT. for under funding, which is a lie, these marauders go ahead and provide the vote which is burying taxpayers to the tune of over $1.5 Billion is overall debt.

Alder Roth praised the alders on the bond commission for pressuring the city to commit to putting together five-year financial plans going forward. But, she said, that promise doesn’t excuse existing bad behavior. Nor did it fiscally plan the current 18/19 budget just passed.
Moreover, it does not excuse past bad behavior which established the aforementioned recurring fiscal debt.

And in the end Roth like the others….. “Ultimately voted for the transfer along with the rest of her colleagues,”

This action and the actions to follow, ($160 M refunding) deserves no praise; it is a condemnation of all the Alders.

posted by: robn on August 8, 2018  2:16pm

Mayor harp has betrayed us all.

posted by: robn on August 8, 2018  2:26pm

FAC,

I care that its a charter violation and so will the eventual bankruptcy proceeding.

posted by: Esbey on August 8, 2018  4:28pm

Alder Roth is doing a great job, as are her tiny handful of allies on the board.

And: the New Haven Independent has provided amazingly in-depth and fair coverage of this budget mess. I so admire this site’s vision of an effective local press.

posted by: Bill Saunders on August 8, 2018  4:47pm

Abby Roth,

You are a bright, refreshing voice on the Board.
To maintain that credibility, it was imperative that you voted ‘NO’ on this issue.

Why would you vote ‘in accord’ with practices that you came out against ‘on the floor’?

The citizens have given you a vote—use it as an opposition voice, especially if that is the position you voice in public chambers!  I had had some hope for you—but it is clear you are just part of a staged ‘floor show’.

If you ‘couldn’t’ vote ‘NO’,  ‘Abstinence’ would have sent the proper message….

posted by: FacChec on August 8, 2018  6:55pm

Dispite plans to the contrary, planing for future to “Keep the city “fiscally responsible.”... The Alders are at it again…. see below and attached link.

CITY OF NEW HAVEN MEETING AGENDA FINANCE COMMITTEE
City of New Haven Meeting Agenda Finance Committee Monday,August 13, 2018 6:00 PM Aldermanic Chambers to act upon the following; ORDER TO APPROVE CORPORATION COUNSEL TO ENTER INTO OUTSIDE LEGAL SERVICE AGREEMENTS WITH FORECLOSURE ATTORNEYS-FY 2019.
1. ORDER TO APPROVE CORPORATION COUNSEL TO ENTER INTO AN OUTSIDE LEGAL SERVICE AGREEMENT WITH DENTONS US LLP EFFECTIVE JULY 1, 2018. (DISCLOSURE COUNSEL-FY2019).

2. FROM THE CHIEF ADMINISTRATIVE OFFICER SUBMITTING TO THE BOARD OF ALDERS A NOTICE, IN ACCORDANCE WITH FISCAL YEAR 2018/19 POLICY AMENDMENT, REGARDING FUNDS NEEDED TO SUPPLEMENT THE CURRENT FIRE OVERTIME BUDGET.

3. FROM THE CHIEF ADMINISTRATIVE OFFICER SUBMITTING TO THE BOARD OF ALDERS A NOTICE, IN ACCORDANCE WITH FISCAL YEAR 2018/19 POLICY AMENDMENT, REGARDING FUNDS NEEDED TO SUPPLEMENT THE CURRENT POLICE OVERTIME BUDGET.

4. ORDER TO READ AND FILE THE UPDATED BUDGETARY AND FINANCIAL REPORTS FOR THE MONTH OF JUNE 31, 2018 IN COMPLIANCE WITH ARTICLE VIII SECTION 5 OF THE CHARTER.

5. FROM THE CITY/TOWN CLERK SUBMITTING AN ORDINANCE AMENDMENT TO APPROPRIATING ORDINANCE #1 AUTHORIZING CORRECTION OF TITLED POSITION 120 IN CITY CLERK’S OFFICE TO READ “BILINGUAL CITY CLERK SPECIALIST” INSTEAD OF “CLERK TYPIST (BILINGUAL)” AND AUTHORIZING BUDGET TRANSFER FROM LINE ITEM 403 (101) TO FUND CORRECTED POSITION 120.

6. FROM THE CITY/TOWN CLERK SUBMITTING AN ORDINANCE AMENDMENT TO APPROPRIATING ORDINANCE #1 AUTHORIZING CORRECTION OF TITLED POSITION 120 IN CITY CLERK’S OFFICE TO READ “BILINGUAL CITY CLERK SPECIALIST” INSTEAD OF “CLERK TYPIST (BILINGUAL)” AND AUTHORIZING BUDGET TRANSFER FROM LINE ITEM 403 (101) TO FUND CORRECTED POSITION 120.

http://ct.mypublicnotices.com/PublicNotice.asp?Page=PublicNotice&AdId=4684637