Paul Bass Photos
Clerkin & Jones at announcement of a year-end surplus.
The Harp administration declared it has turned a corner on the city’s struggling finances — while an independent report pointed to looming concerns behind the numbers.
The declaration came at a City Hall press conference Tuesday, where Mayor Toni Harp reported that besides finishing fiscal year 2014 with a $4.7 million surplus, her administration has wiped out an $4.7 million negative general-fund balance from the year before (leaving the city $22.045 ahead).
The fiscal year ended June 30.
Harp also projected a $2 million surplus for the end of the current fiscal year, meaning the city would slowly be building back up its “rainy day fund.” That fund disappeared in the last years of the DeStefano administration, leading ratings agencies to sound alarm bells that raised the cost of borrowing money.
“We are not making this progress with one-time revenues,” Harp remarked, citing a previous practice of plugging budget holes with one-time asset sales.
Harp and her fiscal chiefs, Controller Daryl Jones and Budget Director Joe Clerkin, attributed the news to a number of steps taken by the administration, the Board of Alders, and city department heads:
• Cutting expenses, especially at the Board of Ed, where Harp successfully pushed earlier this year to wipe out a $4 million shortfall within six months. (Click here to read about that.) The police department, among others, came out at budget or below, compensating for out-of-control overtime costs at the fire department. School Superintendent Garth Harries later told the Independent that a wide range of cost cuts included closing down “dramatically underenrolled middle-school classrooms,” not refilling some central-office positions after people retired, cutting some non-essential part-time jobs. He said the schools also “strategically” offset some costs through the use of grant money.
• Twice refinancing city debt — similar to refinancing a home mortgage to get up-front cash and a lower interest rate. The two bond refinancings took place in 2013 and then with another $64 million in August of 2014. The refinancings lowered the interest rate, which puts the city on a better long-term footing as well, Jones said. The city was able to save $14.5 million in the refinancing. That money will cover a combined $13.8 million shortfall in the city’s self-insurance funds covering medical expenses and litigation settlements, with the rest of the money going toward the rainy-day fund.
• Putting the city’s property liability insurance out to bid. The city ended up saving $350,000 a year by switching the contract from the Marshall & Sterling to the H.D. Segur insurance company. The city will get more coverage for less money, Harp said.
Not mentioned at the press conference was a one-time asset sale, land on Route 34, that did add an unplanned-for $2.65 million to city coffers for the 2014 fiscal year. That sale was part of developer Robert Landino’s $50 million Route 34 West plan, which is expected to boost the city’s tax rolls in the future.
Board of Alders President Jorge Perez hailed Tuesday’s fiscal news while cautioning against overstating the case.
“This is much better news than the prior year, when we ended in a deficit. However, before we go and make any pronouncements that we have restored the city’s fiscal stability, I would remind people that we have a long way to go,” Perez remarked. “You can do only so much refinancing. You can only sell so much property. We need to stay focused on the structural issues,” such as high pension and health costs, declining tax revenues (from lower assessments), and an upcoming required change in accounting rules on reporting underfunded pension liabilities.
Similar caution appeared in the most recent report by the city’s independent Financial Review and Audit Commission (FRAC). The report, by committee Vice-Chair Joseph Dolan, supported the idea of using the cash savings from the bond refinancings to close out the city’s self-insurance fund deficits. But it cautioned that the technique may hurt the city down the road.
The city has “front-loaded” the savings from those refinancings, the report noted. It gets cash up front now to close those two deficits. “But ultimately the piper must be paid” when interest payments spike later on and annual debt payments become larger than before, not smaller. That will start happening in five years, when the new debt service will become $0.4 million more costly than the old one, and will grow to a $11.5 million negative difference in fiscal year 2024, according to the report. (Click here to read it.)
Clerkin responded that the deal still saves the city money. For starters, the city would have had to take on new debt to address the self-insurance deficit if it hadn’t used savings from the refinancing. Instead, it’s now eliminating a deficit that would be costing taxpayers years to close. Meanwhile, under the refinancing, the city will still be paying in 2024 the amount of money it had originally budgeted to spend this year on bond payments; the new deal moves the drop in payments one year out, to fiscal year 2025, he said.
The report also noted that the industry standard for rainy day funds is 5 percent of the city budget — which would amount to $25 million for New Haven. The city has a long way to go to reach that goal.
And the most recent monthly financial report submitted by Clerkin’s office to the Board of Alders, covering August, project a $3.6 million deficit this fiscal year in the fire department alone, mostly due to overtime. The FRAC report, which is dated Oct. 2, suggested speeding up the seating of academy classes by outsourcing “the protracted background check process,” which now falls on the shoulders of the over-burdened police department.
At the press conference, Harp said she is taking steps to address the fire department’s fiscal problems, including by planning two new classes of cadets on top of the class of 45 recruits currently at the training academy. “The way you solve overtime issues is by having an adequate number of people on the force,” she said.
Harp said she’s committed to continue shoring up the city’s finances through “sustainable” long-term measures, like strengthening the retirement funds, doing multi-year financial planning, following through on “promising economic development projects” that’ll add to the tax base, and continued paring of department budgets.
Jones and Clerkin said they hope these and other steps will convince bond ratings agencies to improve their assessments of the city’s finances. Moody’s recently changed from “negative” to “stable” its A‑minus outlook rating; Standard & Poor’s’ rating remains a Triple B‑plus, and Fitch’s an A‑minus with a negative outlook.