Legislators Question Budget Projections

After Hamden Mayor Curt Leng released his proposed 2020 – 2021 operating budget last week, Hamden’s state legislators questioned one of the key assumptions that would stave off a large tax hike.

On April 6, Leng presented his new proposed $246,936,456 operating budget to the Hamden Legislative Council over the Zoom teleconferencing app. He announced that he was proposing a tax hike of .98 mills, or about 2 percent. (A mill is the unit of a tax rate, and is equivalent to $1 per $1,000 of assessed property value. That is, if a house is assessed at $1,000, and the mill rate is one mill, a homeowner will owe $1 in taxes.)

That relatively small tax hike came as a surprise to some council members, including Republican Marjorie Bonadies, who said she had expected a much larger increase based on the town’s financial situation.

Municipal budgets include revenues and expenses, which must be equal, as state law requires towns to balance their budgets. Leng’s proposed budget would fund an $11 million increase in expenses between the current fiscal year and the next. That means the proposed budget must also include another $11 million in revenue.

Most of that revenue increase can be found in two lines: $5.5 million from higher taxes, and $5.1 in a grant from the state for financial relief due to Covid-19.

According to state legislators, there are no grounds to believe the town will actually receive that $5.1 million.

“I can’t in good conscience tell the council ​‘yes, you’ll get 5 million,’” said State Rep. Mike D’Agostino (pictured above), who represents Hamden’s 91st Genearly Assembly District. Both he and State Rep. Josh Elliott (88th District) said they do not yet see any clear reason to believe the state could provide the town with an additional $5 million.

“It’s certainly fine to be aspirational,” said D’Agostino. ​“We both certainly wish that they had reached out to us before they included that in the budget.”

Elliott (pictured below) had more choice words for Leng’s budgetary choices. ​“This administration has shown a tendency to create imaginary numbers, and this is just another case of that happening,” he said.

State Sen. Martin Looney, who represents half of Hamden, said he thinks there will likely be some aid from the state to municipalities, but that ​“I think it would be speculative to put a number on it at this point,”

When he presented his budget, Leng said the Covid-19 aid line was based on information he had received from the governor about aid to towns for education, public safety, and other costs associated with the virus. On Thursday, he clarified. Information is shifting and uncertain, he wrote to the Independent, and ​“this year’s Hamden Mayor’s proposed budget reflects that with placeholders, as we continue working with our fellow elected officials, advocating for the serious financial needs of our community.”

“The COVID line is one of those placeholders,” he wrote. ​“This type of funding isn’t something that we can just hope for. It is something that towns and cities across the nation desperately require in order to continue to provide the public safety and other core local government functions that our people count on every day.”

Leng said the town has already been informed that financial assistance is on the way from the federal stimulus package and from FEMA, which will be distributed to municipalities by the state.

Yet in both cases, those federal funds may be used only for costs associated with the virus, and for a few reasons, may not be eligible to pay for operating expenses in the next fiscal year, as the Covid-19 aid line in the proposed budget seems to indicate they would do.

“The council will be looking for strong justification for that line,” said Council President Mick McGarry. ​“And it would be difficult to keep that line in the budget without reliable justification.”

CARES Act And FEMA Aid

Leng wrote to the Independent that ​“we have been informed that financial assistance has already been approved in the first few federal stimulus packages for public safety, education, community services, and community development.”

At the end of March, the federal government passed the CARES Act to help the country weather the economic downturn resulting from the pandemic. While large chunks of the $2 trillion stimulus package give cash to individuals and businesses, another piece provides funding for state and local governments. The Coronavirus Relief Fund is supposed to fund expenses incurred at the local level by Covid-19. Connecticut is estimated to receive around $1.4 billion from the fund.

While much of that money is supposed to be distributed to municipalities by the state, it has restrictions.

The CARES Act requires that payments from the Coronavirus Relief Fund are used only to cover expenses that are incurred by Covid-19. Covered costs also cannot be accounted for in the most recently approved budget, they must be incurred between March 1 and Dec. 30, 2020.

According a document prepared by the Office of Fiscal Analysis that breaks down the various pieces of aid the state is slated to receive, ​“it does not appear that these funds can currently be used to offset revenue loss related to the economic turndown.”

That means that while Hamden will likely receive funding from the CARES Act, that funding will not be eligible to cover normal operating expenses in the fiscal year that is set to begin on July 1, 2020. For one thing, it is intended to cover expenses that have already been incurred, or that will be incurred only in the first half of the next fiscal year. Second, those funds can’t be used to pay for general operating expenses to begin with.

“If we’re incurring the expenses this fiscal year, I would hope that we could record the grant this fiscal year,” said the Legislative Council Finance Chair Kristin Dolan.

Leng said the town is also expecting aid from FEMA. The federal government recently approved a FEMA allocation for Connecticut, which will reimburse 75 percent of the costs of emergency medical care and disaster prevention. Leng said the town is already keeping track of expenses that are reimbursable through FEMA.

The Office of Fiscal Analysis document also outlines a number of other potential federal grants the state will get. That includes $139 million in two pockets of money for school districts and other educational institutions. There are also pockets of money for childcare, community development, and many other virus-related costs. It is not clear how the various pockets will be distributed. As the document notes, information is incomplete, and in some cases, the state does not know yet how much it will get. These other pockets of money are separate from the $1.4 billion Coronavirus Relief Fund, and could help Hamden on top of funds from the $1.4 billion.

Yet neither FEMA funds nor CARES Act funds can be used to pay for normal operating expenses, let alone be included as revenues in the town’s operating budget.

Leng’s proposed 2020 – 2021 budget does not reflect extra costs associated with the virus. The cost projections in the budget reflect only the normal costs of operating the town. But the inclusion of the Covid-19 aid line means that in order to pay for those regular operating costs, the budget relies on $5.1 million in aid that may not be eligible to fund those expenses.

Some costs reflected in the operating budget might be reimbursable by federal aid dollars. For instance, in the 2018 – 2019 fiscal year, the town charged some Public Works Department salaries to a FEMA grant for cleanup of the 2018 tornado, according to Finance Director Curtis Eatman. In the audit for that fiscal year, those FEMA reimbursements were reflected as a decrease in the expense lines of the Public Works Department, rather than as revenues.

The budget already has another revenue line that accounts for situations like that. It includes a $1.35 million capital projects/grants reimbursement line in the miscellaneous revenues section that counts funds for capital and other grant or bond-funded projects as revenues. At the end of the fiscal year, those reimbursements are then accounted for by the auditors as expense reductions in the specific departments where the funds were used.

In all likelihood, Covid-19 will incur a number of expenses in the coming fiscal year that can be paid for with federal aid. However, those expenses may come on top of the normal expenses of running the town. If that is the case, and the council leaves a $5.1 million Covid-19 aid line in its budget, that would leave a $5.1 million hole in the budget because the federal aid money, however much it totals, would pay for extra expenses. It would not pay for the $5.1 million of operating expenses that the town would have to pay for without the virus, and which it is currently budgeted to fund.

Another federal stimulus might be on the way. House Democrats have proposed a new package that would pay individuals more than the $1,200 many are already receiving. It could include more money for municipalities that would help them cover the budget shortfalls many anticipate.

“We are advocating for direct federal assistance through the U.S. Conference of Mayors and working with our Congresswoman Rosa DeLauro,” Leng wrote. ​“As we learn more about the total federal and state assistance specifics and the total funding amounts, we will work to continue to craft the very best budget that we can.”

Complicating the picture is the uncertainty of the state’s financial situation.

Specifically, the state stands to lose a significant amount of money in its own revenues. Looney said the state’s two ​“workhorse taxes” — state income tax and sales tax — will very likely see lower totals due to the virus. Many residents are now without incomes to tax, and many are not out spending money like they normally would, generating sales tax revenue. Looney said the state is trying hard to avoid cuts to state aid to school districts, but that nothing is certain at the moment.

With the state’s financial situation in limbo, it’s unclear both how much it will be able to fund municipalities on its own, and how much federal aid will go to patching holes in the state budget rather than keeping municipalities afloat.

Based on that uncertainty, D’Agostino said it’s unwise for towns to expect more money from the state than what was already budgeted for them in the state’s two-year budget. ​“Right now, I think it’s wishful thinking to think that towns will get more than what they’re already allocated, if that,” he said.

Other Revenues

In his budget presentation, Leng said the town can expect to see lower revenue figures due to the virus. As many people are out of a job, some may not be able to pay their taxes. Building projects might stall, lowering revenues from building and other permits. People might use town resources less to avoid fees, which are another source of revenue for the town.

Yet the other revenue lines in the budget do not reflect the economic disaster that the world now faces. In most cases, revenue projections throughout the budget are comparable with or higher than revenue figures in years when the economy was strong.

For the past few years, revenues in Hamden have consistently come in under budget, prompting politicians to criticize Leng for ​“inflating” revenue projections. In the 2018 – 2019 fiscal year, for example, actual revenues fell $5.4 million short of budgeted total. In order to make up for the shortfall, the town paid $6.7 million less into its pension than it had budgeted, and found cost savings in a number of departments.

For the current fiscal year, Eatman told the Independent that before coronavirus struck, town revenues were running 2 – 3 percent under budget, or between $4.7 and $7 million dollars.

Revenue projections in the proposed budget are lower relative to those of years past. However, they are still higher than the actual revenues the town has seen in the last few years.

The proposed budget includes 102 revenue lines. Only nine of those budgeted revenues are lower than what department heads projected those revenue lines will be in the current fiscal year. 42 of those budgeted revenue lines are higher than department projections.

Department head projections of current fiscal year revenues total $226.7 million, about $20 million less than the total of revenues in the proposed budget. If Eatman’s projection of a 2 – 3 percent revenue shortfall is correct, that difference would be more like $15 – 17 million. Of course, some of that difference is accounted for by an increase in taxes and increases in state aid revenues that are determined by formulas.

Some of that difference, however, is driven by revenue lines that are not determined by any changing formulas. 

Revenues in the 2018 – 2019 budget excluding state aid and taxes driven by formulas that change from year to year (including property taxes and car taxes) totaled $13.3 million. Department head projections of those same revenue figures in the current fiscal year total $14.1 million. In the mayor’s proposed budget, those revenues total $18 million. (By comparison, they totaled $19.9 million in the current fiscal year’s budget.)

For instance, the mayor’s budget anticipates $2.9 million in back taxes. The notes in the budget say that figure is based on a three-year average. The average of what the town actually collected in back taxes in the last three years, however, is only $1.9 million, which was the amount the tax collector recommended for that figure.

The budget also anticipates increases in building department revenues. Notes in the budget say those higher numbers are due to an expected increase in largescale construction projects. The average revenue from the department in the last three years was $1.3 million. The proposed budget anticipates $1.9 million in revenue from the department. Leng did not answer a question about what new construction projects he anticipates.

Yet if the council lowers any of those revenue projections, it will either have to accompany the changes with expense cuts, or it will have to raise taxes. Last year, the council failed to realize any significant cuts in its budget deliberations, but it did lower some revenue projections that appeared high. The budget they ended up passing would have raised the mill rate by 1.26, while mayor had proposed raising it by only .77 mills. Leng vetoed the council’s budget because of the tax increase.

In crafting the budget, Leng was faced with the choice of tackling long-term liabilities or keeping taxes under control. He opted for keeping taxes under control (though that meant still increasing them by one mill). He said in his presentation that he had wanted to tackle long-term liabilities, raising the mill rate further, but that with so many people out of jobs, it would not be fair to do so.

Now the council is faced with the same dilemma as Leng. If it decreases revenue projections, it has to come up with that revenue elsewhere, and the only place it can turn is taxes. Otherwise, it will have to make significant cuts.

“It’s going to be a tough budget year,” said McGarry. ​“Outside of whatever is happening with the Covid-19 thing, it’s going to be a very difficult budget year.”

“But we’ll figure it out,” he added. The council must approve a revised budget by June 5.