New Haven has decided that rather than seek a Hartford-style state bailout to balance its books, it will refinance its debt again.
Mayor Toni Harp disclosed that information during her most recent appearance on WNHH FM’s “Mayor Monday” program.
Harp’s financial team met on June 27 with state budget director Ben Barnes, who oversees the Municipal Accountability Review Board (MARB). The finances of two financially struggling cities — Hartford and West Haven — are currently under MARB’s control in return for bailouts.
Barnes met with city Controller Daryl Jones, acting Budget Director Mike Gormany, Kathleen Foster form the corporation counsel’s office, and Robinson & Cole bond lawyer David Panico, who’s serving as the city’s bond counsel.
“I initiated the meeting” after speaking with Mayor Harp about New Haven’s fiscal challenges, Barnes told the Independent. He said that if New Haven will need a fiscal rescue under MARB, it should act now, not later in the fall, because then it’ll be too late for the Malloy administration to act. The new administration taking office in January would then handle the matter, and that could take a while.
Harp said on “Mayor Monday” that her administration concluded that the city doesn’t need to enter into an agreement with MARB at this point. The fiscal situation isn’t that dire, she said. She said the city can clear up the last fiscal year’s projected $15 million deficit and its long-term structural deficit — which is estimated at $30 million — on its own.
“I think that is one of things that you do when you have no other options. We certainly don’t believe we are there yet,” Harp said.
She revealed that the administration plans to refinance its debt to pay off the projected $15 million deficit from the fiscal year that ended June 30.
“We have to find a way to cover our debt for last year. We figured out how to do that. We’re going to refinance bonds and get the savings to take care of that. Hopefully by the middle of August, before we close the books, all that will be taken care of.”
Depending on how her administration conducts the refinancing — or the re-refinancing since it has done so before — such action might trigger an involuntary takeover by MARB.
Under the law creating MARB, which the legislature passed last November, deficit bonding — borrowing extra money to reduce a deficit — automatically triggers a community to be placed into Tier 3 of the MARB program along with West Haven and Hartford, Barnes said. (Click here to read about the program’s tiers.)
Barnes said that theoretically, if the city can save enough money by restructuring debt without bonding for more money than it currently owes, then no automatic takeover would ensue. In other words, if the administration restructures debt for the same amount of money it currently owes and ends up with no new added amount of outstanding bonds, then no automatic takeover. If the administration does de facto new borrowing through “refinancing,” then it is on shakier ground.
But “it would be pretty hard to realize that level of refunding savings just from lower interest rates,” Barnes said. “Especially since they’ve been doing it [refinancing] all along. I am confident they will make sure that whatever they do will not trigger MARB.”
“Maybe they can find a way to get enough money out of that” restructuring and throw in added contributions from the city’s independent parking authority and from Yale, Barnes said.
(Read more about MARB here.)
MARB executed an involuntary takeover of West Haven’s finances because of deficit bonding. In such takeovers, the city has to submit an acceptable five-year plan for cleaning up its mess. That hasn’t happened yet, Barnes said. When it does, West Haven will receive $16 million over two years to retire deficits and support their budget.
MARB has the right to reject municipal labor contracts when communities are placed under Tier 3. That has already happened with one contract in West Haven. The city and its unions get to return with new versions of the contract; if they never pass one that MARB accepts, they could be moved into Tier 4 of the program. Then the matter goes to arbitration. Not conventional arbitration, where each side gets to pick members of an arbitration panel (a process that often favors labor). But a pro-management process in which MARB picks the sole arbitrator.
Hartford voluntarily entered an agreement with MARB to surrender control over its finances in return for a $550 million bailout, in which the state will pick up the cost of the annual $40 million debt service payments.
Mayoral spokesman Laurence Grotheer said Monday that the city won’t be doing de facto new borrowing. “Its not new borrowing,” he said. “It’s restructuring [existing] debt to achieve savings.”
“It’s still mid-July,” Grotheer said, “and it’ll take another few weeks for all of the numbers to fall into place.”
Grotheer said the city won’t go to market to finalize any refunding deals until it knows exactly what the final fiscal 2018 deficit is. “Until that number is firm,” he said, “the city won’t go to market to finalize a refunding.”
Mohit Agrawal, who chairs the independent Fiscal Review & Audit Commission, expressed caution about any refinancing.
“It’s not a surprise. It’s the same old, same old,” Agrawal said of the planned refinancing. “At the end of the day, we need a comprehensive strategy to make sure we can do fundamentally good budgeting on a true basis, not these ‘balanced budgets’ the city comes out with.”
Longer term, Mayor Harp said her administration plans to begin preparing five-year budgets to make sure it puts enough money into its rainy day fund “so if there are things that happen at the state level, as they did this year, we will be able to handle them.”
She said her administration will tell large nonprofits like Yale that it expects them to increase their annual voluntary payments in lieu of taxes when personal property gets reassessed every five years. to reflect the added amount of personal property taxes they’re not paying.
Thomas Breen contributed reporting.
Click here to read other stories about the city’s structural deficit.
• City Ends Policy As It Begins To Pay Off
• Mayor Open To Idea Of Fewer Top Cops
• Hey, Buddy, Can You Spare $30 Million?
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This episode of “Mayor Monday” was made possible with the support of Gateway Community College and Berchem Moses P.C.