Leng Proposes 2% Tax Hike, Debt Restructure, Anticipates Covid-19 Aid

As communities across the nation reel from the financial blow that Covid-19 has dealt them, Hamden Mayor Curt Leng presented a budget Monday evening that would contain a 2 percent property-tax increase while delaying future financial obligations.

Leng’s proposed 2020 – 2021 operating budget would raise property taxes by about 2 percent.

Usually Leng would come to the Legislative Council chamber to present his new budget directly to the council. This year, with all gatherings at town buildings suspended, he made his Monday evening presentation alone, save for the phone that livestreamed it over the Zoom videoconferencing app, next to the Quinnipiac River.

He said he chose the location intentionally, to highlight the strange times the town finds itself in.

As many Hamden residents face their own financial woes after losing jobs due to the pandemic, increasing taxes too much, Leng said, was not an option. Therefore, his budget included a tax increase of only .98 mills, bringing the mill rate to 49.84. That is a 2 percent increase over last year’s property tax rate.

“Before this current crisis I intended to attack more of our long-term liability issues, and painfully ask for a higher tax increase for our residents,” he said. ​“This is not the right thing to do at this time,” because residents can’t afford it. ​“They just can’t. They’re at the brink already.”

Increasing the mill rate by only .98 mills, and saving residents from a crushing tax increase this year will come at a cost.

“In this budget we are going to have to kick the can down the road,” Leng said, using an expression that his political opponents have often lobbed at him, accusing him of pushing off long-term liabilities and increasing debt to keep taxes low in the short-term. ​“And I hate that statement … but in order to actually protect our residents, we have to do it.”

The admission formed a stark contrast with previous presentations on the budget. Last year, Leng said his 2019 – 2020 budget would ​“pick that can up and… crush it.” Hamden’s long-term liabilities, including its massive pension and debt obligations, have sent its taxes soaring and have brought the town to a perilous fiscal position. Now, with the virus forcing the country’s economy to a screeching halt, Hamden and every town in the state will take a blow whose nature and scope no one yet knows.

One-Mill Formula: Debt Restructure

Limiting the town’s tax increase was no small feat. Minority Whip Marjory Bonadies said she was surprised to hear that the proposed budget would increase taxes by only about one mill.

“My eyes just shot wide open, like, ​‘Are you serious?’” she said. ​“Honestly I was expecting between a three and five mill increase. Because I know where we are right now.”

Coming into this budget season, the town had a number of major expense increases looming. For the first time ever, Hamden will pay its full actuarially required contribution (ARC) into its pension. The ARC is the amount the town must pay into the fund to fully fund it by the end of a 30-year period. Hamden has been ramping up its pension payments to ARC because it is required to do so by state law. In the 2019 – 2020 fiscal year, the town must pay 85 percent of ARC, which is around $19 million. State law requires a full ARC payment in 2021. Leng’s proposed budget includes that full payment of $23.6 million — a $4.6 million increase over the current fiscal year.

The town also originally anticipated a $4.3 million increase in its debt service line, from $17.9 million in the current fiscal year to $22.2 million next year.

Those two anticipated increases alone would account for a nearly $9 million increase in operating budget expenses. On top of those major expense drivers, just holding the line on expenses in most departments would be nearly impossible because of union contracts. In the police department, for example, union step increases account for about a $400,000 increase, with similar increases in the fire and public works departments due to contractual raises. Medical insurance costs grow each year, accounting for about a $1.3 million increase in the proposed budget. The Board of Education, which is also beholden to contractual increases, asked for about a $2.1 million increase, of which the mayor granted about $1.6 million.

The mayor managed to hold taxes to only a one mill increase by anticipating major revenue increases in a few key lines, and by anticipating a few major expense savings.

The budget did not eliminate any positions or cut many services. It saved about $30,000 by reducing library Sunday hours. The town will save money on its summer programming, which will have to be canceled, said Leng. Leng said the budget also reduced public works waste pickup.

The bulk of the savings on the expense side of the budget comes from a proposed debt restructure that would save the town $7.1 million in the next fiscal year by pushing off debt payments onto future years. Though the town’s debt burden in 2021 is anticipated at $22.2 million, the budget proposes that the council pass an ordinance pushing off that payment to reduce the 2021 debt payment to $15.3 million (which includes a new $200,000 capital investment account).

In the 2022 fiscal year, debt payments would shoot back up to the original schedule, with a total debt obligation of $24.2 million. By the 2024 fiscal year, the debt payment would rise to $28 million, as has already been scheduled. Finance Director Curtis Eatman said the town would start to see the effects of the restructure in 2025, when the deferred payment would begin to increase the town’s debt burden further.

This would not be the town’s first debt restructure. The council passed a restructure in 2018 that pushed $12.25 million of debt into the future.

The expense lines also include a $2.5 million union concessions line. That line reduces the overall expenses by anticipating savings through attrition, union concessions, incentive savings, and efficiency savings. The current fiscal year’s budget includes the same $2.5 million savings line, though the town has not negotiated any union concessions savings in the current fiscal year. It did, however, in the previous fiscal year. Leng said Hamden has saved about $2 million from union concessions over the past two years.

Similarly, the budget includes a $350,000 efficiency savings line that anticipates savings among a number of departments.

The concessions and the efficiency savings lines are counted as negative lines in the budget, meaning the budget total is achieved by subtracting them. That means that town’s actual total expenses in the next fiscal year, with the debt restructure, total $249.8 million, and the town must realize those $2.85 million in savings to achieve the $246.9 million expense total proposed.

Covid-19 Aid, Taxes

To meet an $11 million increase in expenditures, Leng’s budget anticipates a few major revenue increases.

The good news, Leng said in his address, ​“is that the government has begun to provide significant stimulus and reinforcement to an economy that is on the brink of collapsing.”

Last week, he said, Gov. Ned Lamont notified towns that they will receive some form of block-grant-like aid due to Covid-19 that can be used for education, public safety, community services, and economic development.

David Bednarz, a spokesperson for Lamont, said in an email to the Independent that Connecticut should receive $1.45 billion from the federal CARES Act. ​“A portion of that money will be distributed to municipalities to offset expenses related to the pandemic,” he wrote. The exact amount of aid to each town is ​“still under development.”

Leng’s budget anticipates $5.1 million in a grant from the state to help cover the cost of Covid-19.

In addition to extra costs, the pandemic will likely reduce town revenues. ​“We can’t predict what we’re going to have in reduced revenue funding,” said Leng. ​“It’s going to be significant. I don’t have a dollar for it. No one has a crystal ball.”

But the revenue lines in other parts of the budget do not reflect the current fiscal crisis, and match revenue projections one might find in a year when the economy is strong.

The budget anticipates a $5.5 million increase in revenue from municipal property taxes over the current fiscal year. In the current fiscal year, the town expects to collect $170 million in property taxes. Leng’s proposed budget expects $175.5 million in property taxes.

Eatman said that in the proposed budget, a one mill tax increase corresponds to about $3.56 million in additional revenue. That means about $3.56 million of the $5.5 million would come from the mill increase. The rest of the anticipated additional tax revenue is the result of a small increase in the town’s grand list value.

But the grant list was valued before the coronavirus crisis struck. With the virus now wreaking havoc on markets across the globe, real estate values will likely decrease, lowering the grand list value. The tax figure also assumes a 99 percent collection rate. With residents out of jobs and struggling to buy food, more than 1 percent may fail to pay their full property taxes.

If all revenue projections hold, the town would be able to weather the 2021 fiscal year with only a moderate tax increase. The next year, however, it would need to immediately find a new major source of revenue, or make massive cuts, to stave off a hefty tax hike.

The budget includes a projection of revenues and expenses for the next three fiscal years. Though only a projection, it shows a stark picture of the town’s financial future.

By the 2022 fiscal year, the town’s revenues would increase to $250.4 million, but expenses would far eclipse them, reaching $260.2 million and saddling the town with a $9.7 million deficit. Without another major source of revenue or major cuts, the town’s only option would be a tax increase of about 2.75 mills, or around 5 percent, to cover that anticipated deficit. The deficit would then grow to $13.7 million in 2023, and $17.4 million in 2024, if the town holds the line on taxes.

Department Reshuffling

For years, politicians in Hamden have been saying the town needs to be more business friendly to grow its grand list. Leng’s proposed budget takes a step in that direction.

Aside from fire department permits, the budget restructures a few departments to create a ​“one stop shop” for permitting, all housed in the Engineering Department. The zoning enforcement officer and her assistant would move from Planning and Zoning to engineering. The Building Department would come under the auspices of the engineering, as would the expenses associated with health inspections. Business applicants would be able to come to just the Engineering Department for all their permits, rather than having to run around to a few different offices.

The ​“planning” half of the Planning and Zoning Department would move into Economic Development. That would include the town planner, assistant town planner, a secretary, and an administrative assistant.

The budget would move some of the Youth Services Department to Community, Development and Grants, and the rest to Arts, Culture and Special Projects. The Recreation Department would also move to the arts department.

Capital Plan

Leng’s budget includes a six-year capital plan. It is only a guideline, and the council would not approve any bonding or grants by passing it, as those votes must happen separately.

The six years of planned projects $84.8 million in infrastructure and equipment improvements; $25 million of that would come in 2021, with smaller amounts following.

The plan does not outline exactly how the projects would be funded. Some the town would have to bond for, and some would come from grants.

Leng’s proposed operating budget is now in the hands of the council, which must now amend and approve it by June 5. Deliberations will begin on April 14 and 15 when department heads present their budgets, over Zoom, to the council.