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Decision-makers weighing the next move: Scott Jackson, Mick McGarry, Brad Macdowall, Valerie Horsley.
A new financial audit puts Hamden in the red — and potentially a target for a state bail-out, an option town leaders say they’re not at this point planning to seek.
The town ended fiscal year 2020 with a $2.3 million negative fund balance, according to a newly released financial audit.
Along with a state BBB credit rating, that qualifies the town for Tier III financial support from the Municipal Accountability Review Board (MARB), the state agency that can swoop in to overrule decisions of municipalities hopelessly in the red.
Town Finance Director Scott Jackson said that one year in the red will not be enough to motivate Hamden to seek MARB support.
“At least, administratively we are not even talking about that,” Jackson said.
Members of the Legislative Council said they would wait to decide about the possibility of MARB until hearing from auditors on March 29.
“The council will receive the audit from the auditor, and there will be a variety of questions we have. One of them could be about MARB,” said Council President Mick McGarry.
Through MARB, the state can pour in tens of millions of dollars to rescue a municipality’s finances in return for control over some of its local decisions, such as union contracts. It has done that so far in three communities: Hartford, West Haven and Sprague. For years now people have wondered if Hamden would be next.
“The state comes in and controls how you manage your debt and expenses,” Council member Brad Macdowall said. “The debt and the expenses don’t go away, Hartford doesn’t bail you out; they come in and they have full control over how you get your expenses under control.”
Hamden can opt into receiving guidance from MARB. Jackson, who served on the MARB in West Haven, said that there is nothing mandatory about involving the state and while Hamden qualifies, the town would not be forced into it.
“There is nothing as of now that is mandatory,” Jackson said. “It is a voluntary requisition for assistance. And it takes a good long time and a lot of work to actually get state support dollars.”
In fiscal year 2020, Hamden’s net deficit position increased by $5 million. The auditors attributed the increase in deficit due to changes in pension benefits. This year was the first year that Hamden committed to paying the actuarially recommended amount into the pension fund after years of paying significantly less.
“It’s still a little problematic in that we are not able to balance the budget while making that full pension contribution, which is ultimately what you need to make happen,” said Christian McNamara, a member of the Fiscal Stability Committee.
The Fiscal Stability Committee, a subcommittee of the Legislative Council, includes members of the public as well as council members and administrators. McNamara, speaking as an individual rather than on behalf of the committee, said that these payments are part of the town’s longstanding financial turmoil, but are a crucial part in the recovery.
“Ideally what this long-term planning process would show is a structural deficit that kind of stabilizes and is in kind of a manageable range such that, through a combination of further opportunities to raise revenue including some amount of increase in tax and trimming of expenses, we could get to a budget that is balanced,” McNamara said.
McNamara said he is sure there are pros to participating in a MARB bailout, but also cons. Fiscal Stability Committee Chair Valerie Horsley agreed that it could be helpful, but said that the town should try to balance the budget on its own first.
“Would it be helpful for the state to come give us money? Sure,” Horsley said. “But it is not going to solve all of our problems. I think we have a plan this year to get us on track to restoring our fund balance.”
Horsley, like McNamara, mentioned improving tax collection as a potential source of revenue.
Taxpayers are already under immense pressure due to the pandemic, McNamara said, but he hopes that with transparency from town leaders, they will see the long term benefits of short-term tax raises.
“There is a general understanding that Hamden is in a pretty tough spot financially,” McNamara said. “I think my sense is that residents are willing to endure a little bit of pain as long as how they can see the roadmap of how the pain gets us to the other side of this.”
Jackson: Learning From Past Mistakes
Jackson, a former Hamden mayor, said he tried laying off town employees to cut money spent on salaries when he served in the office. Looking back, he said, that was one of the worst decisions he made, instead of raising taxes.
“I am not speaking for the mayor or the council but in large major, raising taxes is always on the table,” Jackson said. “It’s a tool provided by the Connecticut general statutes.”
At a meeting of the Fiscal Stability Committee on March 2, Jackson mentioned the idea of using debt restructuring savings to balance the fiscal year 2021 budget. The restructuring was intended to allow the town to balance the 2021 budget while making a full debt payment of $22.5 million, according to McNamara. The restructuring allowed the town to temporarily pay $16.3 million while using the $6 million as surplus to bring the fund balance back to positive.
But other communities (like Hartford) have gotten in trouble eliminating short-term budget problems by scooping money from short-term debt restructuring that leaves bigger bills waiting down the road.
“Basically, if we need to rely on temporary debt service savings to balance the budget in FY21 it means that our budget is still imbalanced from a long-term perspective,” McNamara noted.
Macdowall said he attributes the current financial strife to “dishonest” town budgets that “don’t fully fund what it costs to run the town.”