A New York agency has downgraded the city’s bond rating. Don’t worry, said mayoral spokesman Derek Slap (pictured); City Hall’s dealing with it.
Fitch Ratings made the announcement of Friday. It assigned an “A-” rating to a $51 million general obligation bond issue to be sold on Jan. 11. At the same time, Fitch changed from “A’ to “A-” its rating of the city’s $524.6 million in outstanding bonds.
This all matters for several reasons. The bond rating affects how much interest the city (and therefore taxpayers) will pay on city government debt; higher payments mean higher taxes and/or less money for parks, schools or cops. The agency’s report card signals to markets how independent outsiders view city government’s fiscal management.
“The city is doing everything it can to run a tight fiscal ship,” said mayoral spokesman Slap. “When you have a city that’s built out and doesn’t have apple orchards to build strip malls,” its options are limited.
Fitch gave several reasons for the downgrade. It scored City Hall for relying too much on one-time revenues like the proceeds from the sale of the Water Pollution Control Authority (WPCA). It said New Haven carries too much debt; debt payments equal more than 10 percent of city spending. The city carries $4,094 in debt for every citizen. New Haven also underfunds its pensions, the agency said.
The agency sounded a backhanded note of optimism on pensions:
“[A] recent change in investment professionals is expected to improve the rate of return on pension assets.”
“The city’s financial position has weakened over the years, marked by a continual reliance on nonrecurring revenues for operations and reduced financial flexibility,” Fitch reported. “The city’s general fund balance target of 5.0 percent of expenditures has not been met since fiscal 2003, and officials have no plan for restoring structural balance at this time.”
Fitch did have some praise for the city’s performance. It highlighted the city’s aggressive tax collection, its nurturing of retail growth, and its pending deal with Yale-New Haven Hospital for payments in lieu of taxes if that new cancer center ever gets built.
“The report points to strong fiscal management, responsible management of finances,” said mayoral spokesman Slap. He noted that Fitch’s downgrading was based partly on forces beyond the city’s control, like reliance of federal and state aid. Slap said that points up the need for property tax reform in Connecticut (a central plank of Mayor DeStefano’s gubernatorial campaign).
Slap said debt payments will decline over the next few years. The city has saved money by refinancing some debt. Restructuring medical benefits for city employees has saved the city $5 million a year, as has an energy conservation effort, according to Slap. The city has also cut spending cut slashing the workforce from 1,821 to 1,514 over the last four years.
“I don’t think we’re wasting any money,” said Board of Aldermen President Carl Goldfield (pictured). “I’m always concerned,” he said. “I think that’s why it’s impossible for the city to act as the regional resource everyone wants it to be and rely on a shrinking tax base.” This report is yet more evidence that Connecticut needs a “rational” alternative to the current property tax system.
Goldfield added that the debt the city has incurred to rebuild schools is worth it.