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Ahead of the Game–For Now
Local governments: Nearly all in the black, with (surprise) major cities leading the way
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Business New Haven
5/1/2000
By: Michele Beck
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A majority of towns and cities in south-central Connecticut report modest improvements in their fiscal fitness stemming directly or indirectly from a booming economy. Yet the range of the responses to the question “How are you doing?” ranges from grim to great.
Oddly, the two region's two largest cities report the most impressive improvements in their financial fortunes. This is perhaps due to the fact that the size and complexity of their operations creates more latitude for innovative management initiatives - and, to the cities' credit, to the fact that their governments have in many cases taken advantage of that opportunity for smarter management.
Among the towns and smaller cities, increases in school budgets loom as among the biggest challenges facing their financial directors. “Every town is being driven by the Board of Education,” says John Leahy, currently serving as interim financial director for the town of Stratford.
Leahy previously held the post of financial director in Fairfield for 35 years. He has since been called out of retirement to serve as interim financial director for the towns of Monroe, West Haven and Stratford. As such, he has broad first-hand experience.
The problem, as Leahy sees it, is two-fold: 1) the school-age population in most of the region's towns is on the rise, and 2) in what is perhaps the more pressing of the two, schools are feeling the burden of providing up-to-date technology for students.
In Stratford, the proposed Board of Education budget is up 6.7 percent from last year's. The increase is due to the fact that the town is adding on significantly to a number of schools, and has spent between $2.5 million and $3 million on new technology for the schools. The rest of the town budget has increased only 3.9 percent.
Although Stratford's grand list increased last year more than it had in any of the previous ten years, it still remains reasonably steady, Leahy reports. And since 77.2 percent of the town's income derives from property taxes, this does not provide a large increase in revenue. In April budget hearings, the town manager proposed an increase in the tax rate.
Leahy notes that Stratford will receive an additional $500,000 to $600,000 from the state, however, and says that overall the town is “in pretty good financial shape.” He also expresses some optimism about the future, noting that Stratford anticipates new businesses coming in - particularly at the long-fallow former Raytech site - which will help increase tax revenue.
Branford is in similar straits, having had to increase its tax rate over the last several years. This is largely because, despite some positive effects of the good economy, the town's grand list has remained relatively stable, growing at a rate of just 1.7 percent a year, while expenditures have risen at a rate higher than the rate of inflation.
Finance Director Jim Finch notes that the economy has had a positive impact on the rate of tax collection. It is currently 97.7 percent, up from 95.4 percent at the time of the 1992-93 recession.
The increase in disposable income has also resulted in an increase in personal property and motor vehicle taxes. Revenues from building permits and real estate-conveyance fees have also exceeded the budget for the last two years - another result of economic good times.
These modest increases have been more than offset, however, by the fact that state and federal grants have remained relatively flat, and that expenditures in many areas have risen significantly. The schools, of course, have been a major variable here. Branford has renovated two elementary schools and its high school, and has stepped up its spending on special education programs.
But Finch reports a number of other areas of rising costs as well. These include the growing cost of medical benefits and workers compensation for town employees, as well as the cost of waste disposal - a major expense for many communities that many residents are little aware of.
Branford has had to invest $30 million in a pump station and new sewage treatment plant. While this $30 million project was partly funded by the state, the town had to foot much of the bill.
Finch also notes that improvements in the economy have a downside: When people have more disposable income they replace things more often, driving up the cost of solid-waste disposal. In Branford, the number of appliances disposed of is up 59 percent.
Over the past 15 years Branford has also conducted what Finch describes as a “fairly aggressive capital program.” Renovations to the town's schools are only a part of it. The library, the police station, and the town hall have also been refurbished.
Like Leahy, Finch maintains a cautious optimism about the future. If tax-collection rates continue to improve, he hopes to be able to lower the town's mill rate.
North Haven's director of finance and administration, in the face of a static grand list and rising education costs, is less sanguine than his counterparts in Stratford and Branford.
“We've never really recovered from the recession of the late '80s,” says Vincent Palmieri. he cites a number of factors for North Haven's difficulties. Chief among these has been citizens' fundamental resistance to higher taxes, while expecting the same or better services (which keep increasing in cost).
Palmieri says North Haven has had 20 budget referenda over the last ten years. “The history of how the public approaches tax increases is clear,” he notes.
Other factors include the decline of “smokestack” industries, resulting in empty buildings whose owners now do not want or are unable to pay taxes on them; an increase in the number of older couples who can no longer afford the taxes on their single-family homes yet need increased social services; the cost of police and firefighters, all of whom are unionized; and a growth in tax appeals, which have taken $75 million off the tax rolls since the last valuation ten years ago.
Then, of course, there has been the hike in school costs. The school budget is currently 53 percent of the total town budget.
“The cost push from education is endemic throughout the state, and it has been inexorable,” explains Palmieri. Last year the town lost $3.5 million in state funding for education, which has to be made up in tax levies.
Palmieri says he is able to keep North Haven running in the black by running the government very lean and being unforgiving on the maintenance of propriety. He worries, however, about the future, when Pratt & Whitney may well leave town and reduce the town's tax revenues by $1.5 million. “The key issue,” he says,” is how to convince the public that an increase in taxes is in their best interest, and affects their quality of life.”
The city of West Haven, of all the communities surveyed, reports the greatest economic improvement attributable to the general economic upswing. “Tax income has increased beyond our initial expectations,” says comptroller Richard Legg. “This is economically related.”
First, there has been real growth in the tax rolls, because of investments on the part of Bayer. While the rest of the grand list has remained relatively stable, Legg says the ability of individuals to pay is better, resulting in higher collections and a diminution in the city's delinquency list. There are also fewer foreclosures.
The good economy has also resulted, as in other towns, in an increase in building permits and zoning fees. Over the last three years, says planning and zoning head Jim Hill, building permits have gone up from $14 million to $131 million. Legg also reports a modest increase in personal property tax and supplemental motor vehicle tax receipts - also economically related.
As with nearly every municipality, education comprises the lion's share of West Haven's budget. Currently, says Legg, 56 percent of expenditures are related to the Board of Education. In addition to infrastructure repairs, the city has been spending “quite a bit” to bring its schools technologically up to speed.
To West Haven officials, however, the future looks pretty bright. The city has been operating in the black since 1994, and Jim Hill sees new development generating significantly greater tax revenue over the next few years. Bayer, he says, is planning an additional $150 million to $170 million in improvements and additions over the next three years.
The Saw Mill River Project, which will add 200,000 square feet of retail and commercial space, is slated to begin construction this summer. West River Crossing, a development project targeting the harbor area along Kimberly Avenue, is due to be completed in three to four years. Both projects will result in significant increases in tax revenue.
This optimistic outlook has resulted in an ambitious list of capital-improvement projects for the West Haven. These include the Savin Rock Conference Center, renovations at City Hall, neighborhood centers, continuing beach restorations, infrastructure improvements to bridges and sidewalks, and possibly a new police station.
The region's two largest cities are feeling even more bullish than West Haven - although New Haven's confidence in the future is tempered by uncertainty regarding the fate of the Long Wharf mall project.
Frank Altieri, a financial consultant to the Elm City, reports that in the five years the current administration has been in office, the city has gone from a $10 million deficit to a surplus of $18 million. This has been accomplished in the face of a grand list that has remained relatively static and rising expenses, such as annual increases of 13 to 14 percent in health insurance costs.
Some of the improvement can be attributed to the economy. With employment up, more people pay their taxes, resulting in an increase in New Haven's collection rate from 85 percent in 1994 to 92 percent at the close of last year.
Much of the improvement in the city's financial situation, however, Altieri attributes to improvements in the city's basic operations and increased productivity. New Haven has privatized management of some assets, privatized some non-education functions of the education budget, refinanced bonds issued in the 1980s in order to reduce the interest rate, increased the value of the city's assets and pensions, and switched from indemnity-type health insurance to a less costly HMO plan.
Altieri is currently looking at other ways to reduce the cost of medical benefits and pensions, and at improving productivity by training the city's workforce so that employees can make better use of technology. As a result of all these managerial decisions, the city has not only been able to eliminate its deficit - it has been able to lower its tax rate as well.
The mall project will have a significant impact on the city's financial situation - whatever the final outcome. If approved, the new mall could result in $6 million to $8 million in new revenues annually, which Altieri says would be the most significant change in the city's budget in two decades.
Meanwhile, however, New Haven has lost significant projected income from projected permitting fees that have not come to pass - some $3 million to date. The city has had to reduce spending by $3 million in order to compensate. It has cut back on hiring and on non-essential services. The $18 million “rainy day” fund still remains untouched, however.
Bridgeport has an even better rags-to-riches story to tell than New Haven. Ten years ago the city filed for bankruptcy, and with no credit rating or a C rating, had to pull out of the bond market.
The city has now been operating in the black for seven years and has a surplus salted away for a rainy day. Finch Investment Services recently elevated Bridgeport from a BBB- to an A- rating.
“We are very proud of that accomplishment,” says Jerome I. Baron, the city's chief financial officer. Such a jump is unprecedented in any other city or county in the state, Baron proclaims.
As with New Haven, some of the improvement can be attributed to the larger economy. There has been some growth in the tax base, Baron reports, including a major new taxpayer (Duke Energy) a number of new retail businesses (Home Depot, a new movie theater, Bob's Discount Furniture and CVS, among others), and some manufacturing expansions.
Baron points out, however, that while “the upturn in the economy has been helpful,” he “doesn't think you can call it a driving force. A lot of the success depends on management initiatives, more economical ways of doing things.”
Baron adds that “The economy helps stimulate new private investment, but the city still has to be an appropriate place for someone to invest.”
Bridgeport took aggressive steps in this regard by working actively to reduce its tax rate, a very attractive point with potential investors. The city conducted its first significant tax lien sale ever. After bundling the liens together (excluding environmentally contaminated properties) and conducting a marketing campaign, it auctioned them off.
The first year this was done the city received 99.5 percent of the value of the liens, and in subsequent years received all back taxes plus a premium. Bridgeport also turned over all its delinquent motor vehicle taxes to an agency for collection, and got a favorable rate, 20 percent. This contract now brings the city $80,000 a month of additional revenue.
Finally, the city instituted a practice of auditing personal property accounts, which Baron says has generated millions of dollars in revenue. These significant increases in tax revenue have enabled Bridgeport to reduce its tax rate.
The city has also undertaken a major beautification program, put in new street signage and gateway signs, created small parks and green areas where abandoned buildings once loomed, and addressed problems with its sewer system that had resulted in overflows into Long Island Sound.
As a result, the city is physically a more attractive place for new investors: flowers now bloom along many city streets, street signs are welcoming and informative, and Bridgeport's beaches were almost the only ones in the area that did not have to close down last summer.
With its new baseball stadium, a hockey rink in the offing, and something bound to happen with the Steel Point Development, Bridgeport's outlook for the future is stronger than ever. BNH
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