Optimistic Revenue Projections Questioned

$2.1 million from Quinnipiac. $2.5 million in union concessions and attrition savings. $340,000 in electrical permits.

Some say those numbers are too optimistic, even ​“inflated.” Others say that optimism is warranted — even necessary — and par for the course.

No one, however, disagrees that Hamden needs those numbers to hold, or the town will arrive at June 30, 2020 with a hole in the budget.

Those are a few of the revenue and savings projections that Hamden Mayor Curt Leng included in his proposed 2019 – 2020 fiscal year budget. They are emblematic of a dynamic that long-serving council members say has played out in Hamden and other towns for decades at least. The mayor is optimistic in the revenues, and the council then questions whether to slash those projections or hope for the best.

“Traditionally mayors are optimistic in their revenue projections,” said District 8 Rep. Jim Pascarella, one of the longest-serving council members. He said that some mayors have been more optimistic in their revenues than others, but that every mayor he’s worked with has estimated revenues on the higher end.

Hamden is far from the only place where the revenues err on the higher side.

It is common practice among mayors everywhere to put optimistic revenue projections in their budgets, Yale School of Management Professor Doug Rae told the Independent.

Some Legislative Council members argue that the practice is a part of the reason Hamden is now in such dire straits. That perspective often comes from the body’s newer members.

“Most everything that I point out is because as an outsider, a lot of this is upsetting, whereas some people have been doing these shell game finances forever, but that’s why the town is where it is,” said Majority Leader Cory O’Brien, who has been on the council for a year and a half.

In 2018, the Yankee Institute, a conservative Connecticut policy think tank, scored Hamden as the Connecticut town with the ​“greatest financial challenge of all.” Hamden’s fiscal woes are mostly the result of decades of underfunding the town’s pension. Over the years, town officials skimped on pension payments while liabilities accumulated. In 2014, almost out of funds to pay current pensioners, the town floated a $125 million pension obligation bond. Now, as the town tries to dig itself out of its pension chasm, pension and bond payments squeeze budgets and sends the mill rate soaring, with little possibility of a tax decrease anytime soon. 

To compound the town’s problems, in recent years, state revenue has become unpredictable because of the state’s financial woes. Last year, Hamden received $5 million less in state aid than the town had anticipated.

The town ended the 2017 – 2018 fiscal year with a $9 million budget shortfall. $5 million of that was a result of the unexpected drop in state funding.

Though the low state revenue came as a surprise, both O’Brien and At-Large Rep. Lauren Garrett, another relatively new member of the council, have said the other $4 million could have been predicted from the day the budget was passed. They attributed the $4 million to ​“inflated” revenue projections.

In Hamden’s operating budget, revenues are listed by department. When the mayor crafts the budget, he or she must make sure that the expenses do not exceed the revenues, as the budget must be balanced in order to prevent a deficit.

A vast majority of the town’s revenues come from taxes and from the state. The mayor’s proposed budget anticipates around $190 million in tax revenue and $30 million in state aid to the town and Board of Education in the next fiscal year. Together, those two revenue categories amount to around $220 million of the $235,998,505 budget the mayor has proposed, or about 93 percent of total revenues.

The other $16 million, or 7 percent, comes in much smaller portions from line items scattered throughout the budget. Those revenues include fees for town services, permits for use of town property and from bureaucratic processes (e.g. building permits), a voluntary gift from Quinnipiac University, and a number of other such non-tax non-state sources. 

Now that the council is in the process of reviewing the mayor’s budget proposal and discussing line items with department heads, council members have begun again to scrutinize the revenues.

Non-tax revenue projections in the proposed budget, not including potential ECS formula change, add up to $200,000 less than last year, said Leng, and $3 million less than the year before. He said that the revenues in 13 out of 19 departments are projected at lower levels than last year.

Council members agree that this year, the new projected revenues are not as high as they have been in the past. Last year, said Betty Wetmore, one of two Republicans on the council, was much worse — in her words, ​“horrendous.”

Though individual revenue line items are often only a few thousand, or at most a few hundred thousand, above what some council members believe are the more realistic numbers, those small overages add up, said O’Brien. 

Some council members argue that the revenues in the proposed budget, though lower than last year’s, are still high. Garrett said that she went through the budget and calculated $6 million in revenues that she does not believe the town will actually receive. That is around a mill and two-thirds. District 2 Rep. Harry Gagliardi came up with a similar figure.

If you ask council members why the mayor errs on the optimistic side when deciding on his revenue estimates, they tell you it’s so that he doesn’t have to raise taxes.

Mayors ​“try to avoid a tax increase at all cost,” said Wetmore, not only referring to Leng but to other mayors she has worked with in the past.

Hamden has some of the highest taxes in the state, and if the council accepts Leng’s proposal, the town’s mill rate will increase by .77 mills to 48.73.

If the non-tax revenue projections in the budget were lower, something else would have to give. That would mean either lowering expenditures, which could mean cutting programming, or raising taxes, or both.

“If you underestimate your non-tax revenues, then what you do is you overtax our residents,” said Leng. He said he tries not to overestimate to the point where there is a deficit to climb out of, but that he also doesn’t want to be too conservative with the revenues and end up taxing residents more than is necessary.

Council President Mick McGarry said that a certain degree of optimism is important.

“Mayors have to be optimistic about the future of their town. You have to bet on the future. You have to hope that things will be better,” he said. He added that in general, it seems that mayors are more optimistic while councils and boards tend to be more fiscally conservative.

Garrett, O’Brien, and other council members said that they believe the revenue projections in the proposed budget may simply end up creating a budget shortfall again. 

“Right now, we are intentionally running deficits, and using borrowed funds to supplement our budget and that results in having to pay interest on debt,” said Garrett. ​“We need to start coming up with budgets that will result in, bare minimum, a balanced budget, best case scenario, a surplus so that we can put it in our fund balance.”

It’s About The Timing

When estimating revenues, the mayor and department heads can look at numbers from previous years and base projections off of those, but there’s no telling if they will hold. How much actually ends up coming in by June 30 simply depend on factors that, in most cases, are out of the town’s control, and can vary from year to year.

“It’s throwing darts at a moving dartboard,” said McGarry.

In each line item of the budget, both revenues and expenditures, the department head must submit a projection to the mayor’s office. It then goes to the finance department, which may adjust that projection. The mayor then decides what number to put in his final budget proposal.

In many revenue lines in the budget, the mayor proposed amounts slightly higher than those that had been submitted by department heads. That happens for a variety of reasons, said Leng.

Oftentimes, the projections that department heads submit are more conservative because they want revenues in their department to exceed what has been budgeted, he said.

For example, in the Planning and Zoning Department budget, there is a line item for revenues from anti-blight fees, which property owners pay if they violate anti-blight ordinances. Town Planner Dan Kops budgeted $20,000 in revenue from that line, while the mayor budgeted $50,000. In the 2017 – 2018 fiscal year, the department collected around $54,000 from anti-blight fees, but the department projected that in the current fiscal year, it would only collect $20,000. As of Feb. 1, it had collected only $7,500.

Kops told the Independent that he decided to submit the $20,000 projection because he was ​“just being conservative.” He said it’s not like the department can make an effort to increase that number if it’s coming in low, and that ​“it just depends on what happens during the year with properties.”

Leng, on the other hand, opted for the higher projection, which indeed has a precedent. 

Leng said another reason his revenues are sometimes higher than the department head projections is that the two numbers are produced at different times in the fiscal year. He used the building department as an example. In the building department budget, the department projection for revenue from plumbing permits was $78,196, while the mayor budgeted $120,000. As of Feb. 2, when the department heads submit their budgets, only $43,396 had been collected from plumbing permits. But by March 15, said Leng, the department had collected more from that line item, making him confident in his higher projection.

Leng said that his projections for certain tax revenues were also the result of timing. At a meeting with department heads on March 27, the council examined the Tax Department’s budget. Two revenue lines sparked their interest: back taxes and interest on property taxes. While other tax revenues are easier to predict because they depend on formulas, those items depend on who decides in a given fiscal year to pay taxes that are overdue.

When Tax Collector Kathleen Flynn submitted her budget, her department had collected only $1,625,432 is back taxes, while the 2018 – 2019 budget anticipated $1.9 million. So she submitted a request of $1.7 million for that line item, which she said was the average of the previous three years. (Deputy Finance Director Rick Galarza then bumped it up to $2 million because of the addition of a line item that used to be in the assessor’s budget that is now folded into the back taxes line.) By the time the council was examining Flynn’s budget at the end of March, her department had collected around $1.82 million in back taxes. She said that the department would definitely meet and probably exceed the $1.9 million originally budgeted by the end of the current fiscal year.

Mayor Leng budgeted $2.75 million in back taxes. He said that by the time he had to finalize his budget, the tax department had collected the $1.82 million, making him more confident in choosing a higher number for the next budget than Flynn has submitted. 

Yet when Flynn went before the council to answer questions about her budget, she did not appear confident that the department would reach the mayor’s full $2.75 million. When O’Brien asked whether she thought the mayor’s projection was achievable, she replied ​“I would say that would be very challenging.”

She said something similar of the revenues from property tax interest, which accrue at a rate of 18 percent per year when property owners are late on their tax payments. She submitted a request for $950,000 (in the mayor’s final proposal that line says $900,000, which she said might be a typo), based on the previous three years’ average. The actual revenue from the 2017 – 2018 fiscal year was around $1.05 million, and the mayor budgeted $1.1 million. When District 5 Rep. Justin Farmer asked how likely the $1.1 million was, she replied ​“it would probably be challenging to hit that number.”

Quinnipiac’s Contribution

One of the revenue lines that many council members have said is particularly unrealistic is a voluntary donation from Quinnipiac. According to Leng, the Quinnipiac gift has varied in previous years from $0 to $1.2 million. 

In the 2017 – 2018 fiscal year, the university paid Hamden only $346,068. The 2018 – 2019 budget predicted $1.35 million from Quinnipiac. Vice President for Public Affairs Lynn Bushnell told the Independent that last year the university’s total contribution to the town was $1.5 million.

In his proposed budget, Leng set that line item at $2.1 million. He said that his estimate resulted from several factors.

The Quinnipiac revenue does not include only a voluntary donation. It includes tax and fee payments as well. A bill before the state legislature at the moment would allow towns to charge tax-exempt universities a fee for safety services such as fire. Leng said that if the bill passes, Quinnipiac would pay the town $3.5 million.

He said that a preliminary motor vehicle permitting process in the works would assess a fee on the vehicles of off-campus students. He called it a ​“PILOT like alternative” that might work better than just taxing the cars. (Whether the town will be able to get an out-of-state motor vehicle tax up and running in the next fiscal year has been another topic of debate.) Though he was anticipating that fee in the Quinnipiac revenue line, it would likely be paid by individuals and not the university.

Leng said that those possibilities along with Quinnipiac’s ​“commitment to working with the town more to assist with our symbiotic relationship” led him to put $2.1 million from the university in the budget. With ​“the best information that we have at this moment,” he said, ​“that’s actually a pretty conservative number if you take into account all of the factors.”

Certain council members, however, disagree. O’Brien said that he hopes the General Assembly will pass the legislation allowing towns to assess a fee for safety services, but that ​“until the state actually passes that, you’re banking on unrealized revenue. It’s a little irresponsible.”

Quinnipiac, meanwhile, has made no indication of how much it plans to give the town. ​“Since the university is currently working on its operating budget for the 2019 – 2020 fiscal year, it’s premature to comment on voluntary contributions for this year,” said Bushnell.

Union Concessions, Attrition Savings

The mayor’s critics on the council also point to his union concessions and attrition savings line as another they believe is too high.

Leng proposed $2.5 million dollars in savings from union concessions and attrition in the next fiscal year. Attrition savings are when an employee retires and the department waits to hire someone new in order to save money on that salary.

For the current fiscal year, the budget includes a line for $1.5 million in union concessions. Both the fire union and the supervisors union have passed concessions packages through the Legislative Council, and the police union is close to coming forward with one. The mayor recently asked for furlough days from department heads and other non-union employees, and he told the Independent that two more unions would be coming to the table with packages soon, though he could not divulge which ones. He said he thinks that by the end of the fiscal year, the town will be able to achieve around $1.2 million in concession savings.

Leng said that he had increased the concessions and attrition line to $2.5 million partly because this time it includes attrition and incentive savings, which the concessions line in the current budget did not. Previous budgets spread out attrition savings in the individual department sections.

This past year the town saved around $1 million through attrition.

Some of the concessions savings anticipated in the $2.5 million will already be secured before the next fiscal year begins. The concessions packages that the council has passed and will pass during the current fiscal year include savings both in present and future fiscal years. The fire department concessions package, for example, saved almost $600,000 in the 2018 – 2019 fiscal year, and will save around $96,000 next year. The supervisors’ union package will save the town a little over $43,000 this year and around $8,000 next year. The police and other concessions coming soon will also likely secure multi-year savings.

Leng said that the fire union concessions were not reflected in the concessions and attrition line, but rather had been put into the salary lines of the Fire Department. He said his budget counts the other concessions secured so far in the concessions line.

Still, some members of the council remain unconvinced that the town will actually be able to achieve those savings.

“We don’t have union concessions to make up $2.5 million,” said Gagliardi.

Garrett also said she thought the $2.5 million was overly optimistic, even with the inclusion of attrition savings. She said she thinks adding attrition to the concessions line will actually decrease the amount of attrition savings the town will achieve because it will take pressure off of the departments to save. When the attrition lines are in department budgets, she explained, it puts pressure on the department to put off hiring new employees when others retire in order to meet its savings goal. If all of the attrition savings are lumped together in one line, it takes away that incentive from departments. She also said she is not a fan of attrition savings to begin with, because it is sometimes ​“to the detriment of the department” to put off hiring someone new.

With the ball out of the mayor’s court and bouncing about the Legislative Council Chamber, the council must now determine which revenue and savings projections to decrease. Each revenue reduction will require either a corresponding expenditure decrease or an increase in taxes, something Hamden politicians are loath to do. The council has until May 15 to decide on the budget that will keep Hamden funded for another year.