2-Year Capital Borrowing Plan Pitched

Thomas Breen photoThe city plans to borrow money every two years, rather than every single year, to pay for cop cars, tree trimming, computer upgrades, and other long-term capital improvement projects.

According to the city’s finance staff, that every-other-year borrowing model could save the city hundreds of thousands of dollars and hundreds of staff work hours every biennium.

The mayor’s financial team made that pitch Monday night during the Board of Alders Finance Committee’s first public hearing and workshop on the Mayor Toni Harp’s proposed $556.6 million new fiscal year operating budget and $70.7 million capital budget.

The committee meeting brought out fewer than 20 people, many of whom were city department heads, to the Hillhouse High School auditorium at 480 Sherman Pkwy.

Acting City Budget Director Michael Gormany and City Controller Daryl Jones kicked off their presentation to the alders with a description of a new cost-saving initiative directed at an area of the budget that doesn’t usually get a lot of attention during public budget hearings: the capital budget.

Unlike the general fund budget, which covers regular operating expenses like staff salaries, pensions, and healthcare, the capital budget finances large-scale and long-term improvements to physical infrastructure owned by the city, such as streets, sewers, vehicles, and parks.

While the general fund is paid for primarily through city property taxes and state aid, the city covers capital projects by borrowing money through the issuance of five-year, 10-year, and 20-year bonds.

Starting next fiscal year, Gormany told the alders, the mayor would like to have the city begin borrowing money every two years, rather than every single year, to finance capital projects.

There are a number of benefits to be realized from this shift to a two-year capital plan, Jones said.

First and foremost, the city would save on the amount of money it pays every year to lawyers and bond rating agencies just to facilitate the actual issuance of capital bonds.

“Normally the city spends between $500,000 and $700,000 a year to actually borrow money” for capital projects, Jones said. By issuing bonds every other year, the city would save that much every off year.

Jones said the city would increase its savings by tens of thousands of dollars on top of that because the money not spent during off years on legal and rating agency fees could instead be left to accrue interest in city bank accounts.

The second benefit, Jones said, is in “soft dollar savings” related to manpower used to put together the capital budget in the first place.

“Every year,” he said, “staff has to put together the capital budget. We estimate it costs around 280 hours of their time to actually go out and put that budget together and do it every single year. along with the regular general fund operating budget. That saves times, and gets them more focused on the general fund and more focused on continuing to monitor the capital program.”

Third, he said, taking a slightly longer perspective on capital projects encourages the city to prioritize upgrades to critical areas of city infrastructure long in need of attention, such as the Board of Education’s information technology (IT) systems. 

“This allows us to take a more proactive stance on deferred maintenance which is growing,” he said.

Fourth, he said, the two-year plan would push the city towards reducing its share of five-year bonds, which tend to have higher interest rates than 10-year and 20-year bonds, and towards shifting financing for those shorter-term projects from capital borrowing and toward the general fund.

Minus a $10 million capital request for a new Department of Public Works headquarters and an $8.9 million capital request to replenish the Scott Lewis settlement fund, Gormany said, the current fiscal year’s capital budget is $38.9 million. With the new proposed two-year capital plan, he said, capital borrowing would be at $36.1 million for the next fiscal year and $34.6 million for the year after that, adding up to $70.7 million for the biennium.

“As you can see,” he told the alders, “we’ve continued that downward trend that we’ve done in the past few years in terms of capital borrowing.”

Board of Alders President and West River Alder Tyisha Walker-Myers asked about oversight: if departments are asking to borrow more money up front, what will the city’s finance team do to ensure that departments are on track and not overspending early in the biennium?

“We don’t want a department to run out of money a year and two months” into the two-year capital plan, Gormany said. He said he and Jones currently meet with department heads on a quarterly basis to discuss capital projects. He said the two will meet with department heads even more frequently if the alders sign off on the two-year borrowing plan.

Will the two-year borrowing plan affect the city’s bond ratings? East Rock Alder Anna Festa asked.

Nope, Gormany replied. Bondy rating agencies are interested primarily in capital borrowing over five-year periods. “They’d still rate us effectively the same as they’ve rated us in the past.”

So why not borrow money for capital projects every five years, Festa continued, if there are so many savings to be realized by limiting bond issuances and proactive planning?

Jones and Gormany said they want to ease into this idea with a two-year capital plan to start.

“If it works,” Gormany said, “we can expand in coming years.”

“Take Consideration Of The Future Of New Haven”

Monday night’s meeting was also the first public hearing on the proposed new budget. Only four members of the public testified. (The proposed budget doesn’t raise taxes.)

One speaker, Alex Guzhnay, begged the alders to consider the mid- and long-term consequences of excessive city borrowing in the short-term.

Guzhnay, a Fair Haven resident and junior at Achievement First’s Amistad High School on Dixwell Avenue, directed his comments less towards the proposed capital budget initiative and more towards the city’s underfunded pensions and its recent decision to “scoop and toss” $160 million in existing debt in order to free up cash in the short-term while pushing higher debt payments a decade into the future.

“My goal is to stay here in New Haven,” Guzhnay said, “even though my friends might think I’m crazy for wanting to stay here. I keep hearing in the news, I keep seeing that the city keeps kicking the can down the road. It just worries me as a student, as a hopeful future resident of New Haven, that we keep doing this and passing all this responsibility to future generations and my peers and me.

“I just hope that you guys find ways to address it. I know it’s tough. We might have to make cuts somewhere. I wouldn’t consider myself an advocate for any cuts ... but I think it’s time to make the decisions now before I have to make the decisions or my peers have to make the decisions 10 years down the road. I hope you guys take that into consideration when making this budget. Take consideration of the future of New Haven.”

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posted by: Kevin McCarthy on March 12, 2019  7:58am

Going to a two-year bonding cycle makes sense, for the reasons Germany notes. But there will be pressure, political and non-political, to create exceptions to permit off-year bonding. If the BOA goes forward with this proposal, they will need to forgo seeking funding for pet projects in the off-year.

posted by: Patricia Kane on March 12, 2019  10:08am

Until the Mayor gets control of police and fire overtime, no changes should be approved.
  We need to fund the study to determine proper staffing levels so that vague political judgments can be substituted with data and professional judgments.

posted by: jim1 on March 12, 2019  11:35am

Looks like standing room only….. No tax increase this year, people don’t care to go to meetings.  WAIT FOR NEXT YEAR’S LARGE TAX INCREASE.

posted by: jim1 on March 12, 2019  12:33pm

We are going to be buried in debt while Toni and her friends make out like bandits.  All of her patronage hiring and political gifting continues while teachers and school help get diminished and affordable housing is still impossible…likewise Section 8. Newhallville remains a slum and the police remain without a reasonable contract or chief.  Slumlords based in NYC continue to get rich using LLC’s and outrageous rents.  The city continues to sell off assets cheap to any corrupt buyer.  All this BS playing out right in front of us as she coerces her reelection and I bet many in the Dem committee are bought and sold to her as well unless they have a change of conscience.