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Saturday’s meeting, at about hour 5.
Does $7M tax increase loom in Hamden?
The council took that vote, and a few other consequential ones, in a budget deliberation session that lasted from 9 a.m. Saturday until a few minutes before 4 p.m.
No changes the council makes in its budget deliberations are final until it passes its full amended budget, which it must do by Friday.
In April, Mayor Curt Leng proposed a budget that included a $7 million restructuring of the town’s debt. Hamden has about $22.2 million in debt payments due in the next fiscal year, which begins July 1. Leng proposed issuing about $7 million worth of restructuring bonds to lower next year’s debt payment to about $15 million, smoothing the payments out over the future. The town would then pay higher debt service payments in following years.
At the recommendation of financial advisers, the council voted not to include that debt restructure in its budget. It will still consider the restructure, which may allow it to close the current fiscal year’s projected deficit, but it will not anticipate its savings in the budget. Eliminating the restructure added $7 million to the budget total. If the council cannot find other places to cut to make up for that, that would mean raising taxes. (One mill of property taxes represents $1 per $1000 of assessed property value. That is, with a mill rate of 48.86 mills, residents in Hamden pay $48.86 per $1000 of property value.) Yet the alternative — banking on a risky restructure — could be catastrophic.
In a memo sent to the council Friday, Leng recommended adding $2.5 million back into the total debt service line, thereby lowering the amount of the restructure.
That was not the recommendation the town’s finance team and its financial adviser gave the council the next day.
“As late as Thursday evening I was recommending an addition of $2.5 million to the account to try and keep the mill rate lower for residents,” Leng wrote to the Independent, explaining the last-minute pivot.
“On Friday it became clear in reviewing the very latest info with advisors and underwriting experts that the responsible path was full funding at this time.”
Finance Director Curtis Eatman and the town’s financial adviser, Barry Bernabe, recommended that the council eliminate the debt restructure from the budget entirely, bumping the budgeted debt service payment back up to $22.2 million, which the council voted to do. Bernabe and Eatman recommended still doing a $7 million debt restructure but not including it in next year’s budget. They said they recommend using the $7 million in savings from the restructure to help offset the current fiscal year’s deficit.
That means adding another $7 million in corresponding revenue. If that revenue comes solely from property taxes, it would correspond to a tax increase of about 2 mills, or close to 4 percent.
Keeping the restructure in the budget would put the town in a dangerous situation, Bernabe said.
The restructure would involve issuing $7 million in bonds to pay debt service payments.
“There’s a lot of questions about whether we could actually complete that transaction,” Bernabe told the council. That is, it’s not clear whether anyone will be willing to buy Hamden’s bonds.
The town has a $15 million debt service payment due in August. If the town is going to do the restructure, it must complete it by then, which would mean talking to rating agencies by the end of June and issuing bonds in July, said Bernabe. That’s a short time frame for such a project, he said.
Then there are the town’s fiscal woes on top of the compressed timeline.
The town is currently projecting a large deficit in the current fiscal year of somewhere between $8 and $10 million. It only has $2 million in reserve in its fund balance, meaning if it does not find ways to drastically cut costs or find another source of revenue, it could end up closing the fiscal year a few million dollars in the red.
When the town tries to issue the restructuring bonds, rating agencies will ask about how it plans to mitigate that deficit, said Bernabe. Without the restructure, there may not be a way, he said, and without a plan for fixing the deficit, bond rating agencies would not be kind to the town’s bond package. The town already has some of the lowest bond ratings in the state. It may be hard to get buyers, leaving the town in a very tough spot. By budgeting for a debt service payment of the full $22.2 million, the town would show rating agencies that it has a plan to mitigate its deficit, which would increase its chances of success with the restructure.
Budgeting the full debt service payment also prevents a potentially catastrophic situation if Hamden is unable to restructure its debt. If the town left the restructure in the budget, budgeting a $15 million debt service payment, and then was not able to issue the bonds necessary for the restructure, the town would end up $7 million underwater on its debt payments. It would also give the town no way to mitigate the current fiscal year’s deficit, and it would give the town $7 million less in revenue in the next fiscal year.
“If we don’t do the debt restructuring, I don’t know how the town is going to get the $7 million to get the fund balance back to zero” (from a negative balance), Bernabe said.
“I’ve been working with the town for a long time, and I am nervous,” he told the council. “I’ve got to be honest, I’m stressing over this quite a bit.”
To compound his worries, debt service payments reflected in the budget do not show the whole picture, said Bernabe. The debt service does not yet include the bonding for the town’s 3R Initiative — a large school district restructuring project the council approved last year. As approved, the project would add millions to the debt service, though as Council President Mick McGarry made clear Saturday, the project will need significant alterations in light of the town’s financial situation.
A debt schedule that does not include the 3Rs shows the town’s debt payments peaking at $28.1 million in 2030. With the addition of the 3R bonding, said Bernabe, that number will top $30 million.
The 3R Initiative is not yet included in the town’s bond maturity schedule because the town has not issued bonds for it, though it has approved them. Last year, the town issued $18.5 million in bond anticipation notes (BANs) for a number of projects, including the 3R initiative. BANs allow the town to cover some initial costs of capital projects before it goes out to actually bond, and get long-term financing, for those projects.
The town now has $18.5 million from those BANs due to Webster Bank in August, on top of its $15 million debt service payment. In order to pay those notes back, it will need to issue the long-term bonds the BANs anticipate, another factor in the world of Hamden’s debt that Bernabe said makes him nervous. With the bond market as it is, he said, municipalities with low bond ratings like Hamden get punished with hefty penalties when they go out to bond. If things are really bad, he said, they sometimes don’t even get market access. If the town cannot bond for those projects, Bernabe said, there may not be a plan B. But no matter what, it has to pay Webster Bank back.
$7 Million Of The Way There
When Bernabe mentioned that the debt restructure could be used to close the current fiscal year’s projected deficit, a few council members did a bit of a double take.
The town’s plan to close out the current fiscal year has been a point of contention in recent weeks between council members and the mayor. At a meeting in May, council members tabled three financial transfers to make legally required payments in order to send a message to Leng’s administration. They said they wanted Leng to say what the projected deficit is, and what the administration’s plan is to fix it.
At the next meeting, Leng gave a presentation. He said the projected deficit lies somewhere between $8 and $12 million. He mentioned a number of steps he plans on taking to mitigate it, but did not go into detail. The debt restructure was one of many options he mentioned. He did not provide details in writing.
That wasn’t enough for some council members, and they ended up passing two tabled transfers and tabling the third again in order to keep up the pressure.
“We’ve been asking since the budget process began for a deficit mitigation plan,” said Councilman Harry Gagliardi Saturday, after hearing Bernabe say the debt restructure could help close the deficit. “We just got it.”
The restructure is only a piece of the plan to close the deficit, though. If it works, the restructure could get the town $7 million of the way to closing the current fiscal year whole. It will also need other ways of cutting costs, as the projected deficit is larger than $7 million.
Council Eyes 52 Mills, Counts On $6 Million Covid-19 Relief
The council also took a vote on another controversial budget line Saturday.
In his proposed budget, Leng included a $5.1 million revenue line to account for Covid-19-related aid from the state. After Leng presented his budget, members of the town’s state delegation said they did not think it was realistic to expect that revenue.
Leng later recommended increasing that revenue line to $7 million. On Saturday, the council voted to set the line at $6 million.
Finance Director Curtis Eatman urged the council to set that line “as conservatively as possible,” saying he did not have any concrete assurance that the town will get the money.
But council members had the specter of increased tax bills hanging over them. The debt restructure vote they had just taken had effectively added 4 percent to residents’ property taxes.
If they eliminated the Covid-19 relief revenue line, that would have meant raising taxes about another 1.4 mills, or approximately 3 percent.
The idea of a line that council members could fight for was also appealing, some members said. Many members who supported keeping the line relatively high acknowledged that it might be a stretch, but they argued that at least it’s a line they have control over, and that they can try to put pressure on state lawmakers to achieve.
Council members agreed that if the town does not receive the $6 million from the state that it hopes for, it will probably have to levy a mid-year tax increase on residents.
As they eyed the mills that eliminating the Covid-19 relief line would add to residents’ tax bills, the discussion turned to the mill rate itself. Knowing that keeping taxes as they are may be impossible, council members began to voice how high they are willing to go.
They landed on 52 mills. That would be a mill increase of 3.14 mills over the current fiscal year, or about a 6.4 percent increase.
McGarry warned the council that it has already surpassed 52 mills. It will have to cut much more, he said, to keep the tax rate there, up from 48.86 in the current fiscal year.
In his budget presentation, Leng said that increasing taxes too much this year is not an option, since so many people are out of work and struggling to make ends meet already due to the pandemic. He proposed raising the mill rate by only one mill.
There seemed to be consensus on the council, among both parties, that limiting the mill rate increase to one mill will be impossible.
At the previous Saturday’s meeting, Eatman had told council members that the changes they had made so far had brought the working mill rate to 51.72. Though they had slashed $2.4 million from expense lines, they had also slashed revenue lines that seemed too high, and they had lowered the tax collection rate, meaning the mill rate must be higher to achieve the same amount of tax revenue. In terms of the mill rate, those changes to the revenue lines more than canceled out the cuts they had made to expenses.
Over the course of the next week, the council continued making cuts, including slashing six vacant police officer positions as well as four other support positions in the department. But the council also continued cutting revenues, and eliminating the debt restructure added another two mills.
Eatman said he would compile another report on where the mill rate stands. As of Monday evening, the report was not yet ready.
The council has until Friday to pass its amended budget.
Hamden must reduce the number of "required" police, fire, public works employees - only "required" in the sense that union contracts make them "required." Those contracts were the result of politicians (past & present) who agreed to union workforce expansion in various quid pro quo arrangements whereby they received union support for re-election. Incredibly, as the financial situation of the town has continued to grow even more dire in recent years, the mayor has INCREASED the size of the police force - adding more payroll, benefits, long-term pension obligations.
Voters, keep this in mind: it was only ~1 year ago that the mayor attempted to fatten the police dept & police union (again) by adding SROs to each elementary school in town, even though the school board and school district never requested them. He was simply attempting to reward the police union with new jobs before the election, even as they knew how dire the financial circumstances were/are for the town. Quid pro quo.
With the chickens coming home to roost, if voters do (as they should) demand cuts on the number of "required" jobs in police, fire, public works, no doubt there will be fear-mongering from the administration and the unions. They will argue that suddenly every citizen's life, home, and property is in danger because of 10-20% fewer employees in their bloated departments. It will be scare tactics. There will likely be some "statistics" arguing for how many police, fire, etc we "need" for safety; no doubt those stats will be from state and national organizations whose purpose is to enlarge the unions of police, fire, public works. Hopefully, citizens will be wise enough to see past it.
When they do, citizens & voters need to recall that these are the same people who (as was recently revealed) have spent years posing as "volunteers" at community service events in OTHER towns across CT while in fact they were getting paid OVERTIME by Hamden taxpayers to show up in uniform as "volunteers."