Melissa Bailey File Photo
As he tackles a new $4.2 million hole in this year’s budget and seeks a long-term solution to deficits, Mayor John DeStefano declared himself an opponent of a controversial plan to sell future revenue from parking meters in return for one-time cash.
DeStefano had previously backed a plan under which Gates Capital Partners, an Ohio-based investment firm, would receive a dedicated portion of the city’s parking meter revenue for 25 years, plus interest. The city would be on the hook for over $120 million. In exchange, the company would give pay the city $50 million up front.
The mayor put forward the monetization plan more than a year ago, during last year’s budget season. It met an outpouring of opposition: Critics said the plan was a short-sighted quick-fix that would saddle the city with debt for years to come. The plan was eventually shelved. Then a group of pro-administration aldermen are trying to revive it, and DeStefano conspicuously refrained from ruling out the plan.
Until Thursday.
DeStefano said Thursday that he is no longer can support the plan. In general, he said, the city should no longer look to one-time revenues — selling buildings, borrowing millions through monetization — to plug annual budget holes that will simply reappear the following year.
“There isn’t enough one-time revenue to sustain” the city in the long term, he explained.
Instead, DeStefano said it’s time to focus on longer-lasting changes to pension and health care plans, rather than quick-fix one-time revenues, in order to put the city on a more solid financial footing.
DeStefano made the remarks after a press conference Thursday in City Hall, where he announced new shortfalls to this year and next year’s budgets. His revised budgets for FY2011 and FY2012 eliminate the revenue that he had been counting on from monetization.
DeStefano was asked what has changed between now and the time when he endorsed the plan. He said tax revenue went up, the grand list showed remarkable growth, and the state didn’t cut education funding as he had expected.
DeStefano is currently negotiating with 11 of the city’s 13 municipal unions. He said instead of looking to one-time revenues, he’ll focus on the major cost driver behind the rising budget costs: pensions and health care.
Deficits
Melissa Bailey Photo
At his press conference Thursday, DeStefano (pictured) announced the city will have to raid its rainy day fund to fill a $4.2 million dollar budget hole in current fiscal year.
Click here to view a PowerPoint presentation the mayor made.
This year’s deficit comes as the city failed to extract concessions from unions and failed to get a good price on the parking garage it wanted to sell, among other factors, DeStefano (pictured) said.
He ran down some unexpected shortfalls in the current budget year ending June 30:
The mayor originally budgeted for $1 million in anticipated savings from union negotiations. The savings haven’t materialized, he said, because of the “excessive length of time” it’s taking to reach agreements on new contracts.
The city is in binding arbitration with three municipal unions — the custodians, managers and clerical unions. The proceedings have stretched out for over two years, with no end in sight.
Parking meter revenue took a hit this winter, losing the city $103,000 in January and February, when snow banks piled high above most of the meters, not to mention the parking spots. Other expected revenue was lost because of a delay in installing new meters due to a lengthy approval process, the Mayor said. Together, that put parking meter revenue $1.3 million below target.
State education funding fell $2.1 million below projections: $1.1 million due to lower-than-expected reimbursement on school construction costs, and school transportation funding fell by $900,000.
The fire department is running $750,000 over its allotted budget for overtime pay.
The police department is running $990,000 over its overtime budget. However, the weekly overtime has fallen from $101,377 to $64,149. DeStefano said that’s enough to free up some money to hire back two laid-off cops, even though the overtime budget is still in the red. (It’s an open secret that the city runs over its budget for police overtime each year, so the expenditures could still be less than expected, even though they’re over budget.)
On the other hand, the mayor shared some good news that’s buoying those losses:
Tax revenue is up $2 million over projections due to strong tax collection rates.
A new recycling system is saving the city $925,000.
The city found $5.2 million in stimulus money to pay for health benefits.
The city doesn’t have to pay $4.7 million in expected debt service costs, because some school construction projects were postponed and the city didn’t pursue monetization this year. On the other hand, of course, the city is short $8 million it was going to borrow for the monetization plan.
The city also saved money by laying off 82 filled positions in February.
Faced with a budget hole earlier this year, DeStefano decided to try to sell a parking garage for some one-time cash. The Temple Street Garage was appraised at $9 million, but the city only got one one offer on it, for a measly $2.5 million.
“Some people may be viewing us as a distressed seller,” the mayor concluded. He instructed the parking authority to hold onto its assets instead of selling them.
Overall, the city is up $4.7 million in expenses and short $8.9 million in revenue, leaving it $4.2 million in the hole, DeStefano said.
“It’s only the second deficit in my 18 years as mayor, and obviously something I am concerned about and not pleased about,” he said.
The city will have to reach into its rainy day fund to fill the hole, according to DeStefano.
That leaves the rainy day fund at a dangerously low level. The fund was at $9.2 million; now it will fall to $5 million, the mayor said.
DeStefano said city auditors recommend the city keep the fund much higher, at $23 million, or 5 percent of the city’s operating budget.
Having the fund at $5 million puts the city’s credit rating at risk, and leaves the city in a vulnerable position if something disastrous happens — such as Malloy’s dreaded “Plan B” budget. Plan B is what will happen if Gov. Dannel Malloy fails to get an expected $2 billion in concessions from state unions. Under that scenario, the City of New Haven would lose $73 million in state funding, DeStefano said.
“This would be a devastating budget.”
Shortfalls Ahead
The mayor released new numbers showing that his proposal for next year’s budget, which he released on March 1, is already out of balance.
That’s mostly because of the failed attempt to sell the Temple Street Parking garage and other parking assets, which the mayor was counting on for $7 million in revenue next fiscal year. Another $1.9 million shortfall comes from a delay in when the city expected to realize savings from privatizing custodial services. Adding in $3 million in state PILOT reimbursements, the city will be $5.9 million short of the mayor’s $477.3 million proposed budget for next year.
DeStefano said he can balance the FY2012 budget. He needs another $1 million in state revenue from “local option” taxes; $1 million from “property tax initiatives”; a $1 million cut to capital projects expenses; and $2.9 million in union concessions and/or service reductions.
The budget assumes that the city will approve the creation of a stormwater authority, which aldermen have yet to do.
In years ahead, the city faces larger funding gaps: $15 million in FY2013, $27 million in FY2014, and $39 million in FY2015.
Benefits
The mayor used the moment to continue to apply public pressure to city unions to give back on pension and health care benefits. Medical and pension benefits are expected to comprise 22 percent of the city budget next year, up from 12 percent in FY2002.
“I don’t see a way to manage down that budget gap” without changing city health care and pension plans, DeStefano said.
He is proposing sticking with a defined benefit pension plan with new eligibility and benefit rules, and changing to a new base health care plan with higher deductibles but free preventative care. Read the details in the mayor’s PowerPoint.
In a rebuttal Tuesday evening, city union reps contended that the mayor’s “fiscal management,” not workers benefits, are to blame for the budget woes. They pointed to debt service, which stands at 13.7 percent of the city’s budget, compared to 6.5 percent spent on pensions.
AFSCME Council 4 pointed to projects like the city’s school construction program.
On Thurday, DeStefano gave a fiery rebuttal.
He mentioned the 470 kids at the Davis Street 21st Century Magnet School, who returned Monday to a new building that replaced their original 1918 schoolhouse.
“What they’re saying is that we should tell them to go back” to their school from 1918, instead of walking into a “world-class facility,” DeStefano charged. He said the unions would rather Yale take money out of New Haven Promise and use it to make tax payments, just so they can have a pension plan that lets them retire at age 48 with a $78,000 pension.
“What they’re saying is we are more important that the children of New Haven,” DeStefano said.
Larry Dorman, a spokesman for AFSCME Council 4, an umbrella union for municipal bargaining units, said the mayor is distorting the issue.
“Never did we say that our benefits are more important than the education or the service that the city is providing,” Dorman said. “We simply said the mayor’s school spending, not worker benefits, is a major reason for New Haven’s debt.” Click here to read a spreadsheet of school construction spending deemed ineligible by the state.
He said unions are willing to talk about shared sacrifice, but “slashing health care, slashing pensions, slashing jobs and the services behind those jobs is just not going to move the city forward.”