Thomas MacMillan Photo
Clerkin reports to aldermen Monday night.
As New Haven’s bond rating falls, Budget Director Joe Clerkin announced a new sign of trouble: The city will likely empty out its “rainy day fund” for the first time since the early ‘90s.
Clerkin shared the news with the Board of Aldermen’s Finance Committee on Monday evening in City Hall.
He said the city is headed toward a negative fund balance, a deficit in the money set aside for emergency and unplanned expenditures. The fund balance is the money left over after the rest of the budget is spoken for.
With the city looking at a $3.5 million deficit coming out of the last fiscal year, the fund balance may be all gone, Clerkin said. He said he won’t know the size of the negative fund balance until some time near the end of September.
A negative fund balance can lead to “cash flow problems,” to the city not being able to meet its financial obligations, Clerkin said. It hasn’t gotten to that point yet, he stressed. But he said the city needs to correct its course, to build up cash reserves in order to avoid reaching that point.
The city’s plunging fund balance is one reason bond ratings agencies recently lowered their appraisals of city debt. In the last four months, three agencies have downgraded their ratings of city bonds. Lowered bond ratings can increase the cost of borrowing money, as investors get nervous about trusting the city with their money.
Hill Alderman Jorge Perez (pictured), president of the Board of Alderman, said board leadership is working with the city budget director and controller on a plan to address the decreased bond ratings. He said the plan should be ready in the next month.
“Issues”
The fund balance is a “statement of the accounting position of the city,” of the city’s fiscal strength or weakness, Clerkin said.
The city aims to have 5 percent of the budget allocated as fund balance, a goal it hasn’t hit in recent years.
For two years in a row, the city has ended up with deficits in the general fund, which have drained the fund balance. In fiscal year 2011-12, the city ended up with a deficit of $8 million. “That was a punishing, punishing year,” Clerkin said.
The fund balance has also been diminished because for several years the city has had “structurally imbalanced” budgets that relied on one-time revenues like the sale of the Martin Luther King School and Wall and High streets, Clerkin said.
A negative fund balance is “indicative of a structural problem,” he said. If the city operates with a negative fund balance for some time, “at some point, you end up with cash flow issues.”
“We’re not there yet,” Clerkin said. The city is meeting its financial obligations and doesn’t at this point have to borrow money to pay its bills. “But there has to be a plan,” Clerkin said.
Clerkin told the Finance Committee Monday evening that the city is looking at another $3.5 million deficit from fiscal year 2012 – 13. That’s coming largely from the Board of Ed, which has a food service deficit of $2.8 million, plus an operating deficit of $600,000.
That deficit will likely push the city over the edge into a negative fund balance, Clerkin said.
Meanwhile, the lowered bond rating likely means the city will pay about a quarter-percent more interest on its debt, Clerkin said.
East Rock Alderman Justin Elicker, a Democratic mayoral candidate, asked Clerkin to prepare a list of whatever bonding has been approved but not yet issued.
“Emergency”
The discussion of ways to find savings continued into the next item on the agenda of Monday night’s meeting: a presentation by Chief Dean Esserman (pictured) on overtime in the police department. Esserman said a projected $1 million overrun in the police overtime budget has been reduced to just $24,000.
Overtime is nevertheless an ongoing challenge, he said, since he has fewer officers on the force than when he took office two years ago. Even with the addition of new recruits, retirees leaving the force have outpaced rookies joining.
Perez asked if, without violating the union contract, civilians could take on more duties within the department, to put more cops on the street.
Esserman said he has found two places to do that in administration. He pointed out that the board did not approve a new civilian budget position in the department’s public information office, now consisting solely of sworn police Officer Dave Hartman, who gets overtime when he’s pulled out of bed to to go to a midnight crime scene and talk to the media.
Esserman said a huge consumer of police hours is running background checks on new police and fire department recruits. “I have to take officers off patrol to do background checks,” he said.
The fire department, which just had a big recruitment drive, will need “an unbelievable amount” of background checks, said Perez. “This needs to be treated as an emergency.”
Perez asked Esserman and Chief Administrative Officer Rob Smuts to come up with an “action plan.”
“We cannot, we cannot end up with a deficit,” Perez said. He added that a surplus would be preferable.