Grim budget outlook has selectmen looking to cut and tap ‘rainy day fund’
Juggling fiscal scenarios, eyeing unemployment figures, wondering how much tax collections may fall, and hearing citizen after citizen urge continued support for the schools, town officials are trying to settle on budget plans for the coming 2020-21 fiscal year.
“To deliver a zero percent increase in the tax rate,” First Selectman Rudy Marconi said, should be the goal. And none of the other four selectmen raised a voice in disagreement.
With town and school budgets in the vicinity of $152 million, it’s a goal that would require either sizable cuts from previously approved spending levels, or the use of a substantial portion of the town’s roughly $15 million surplus fund balance — the “rainy day fund” built up from past year-end surpluses.
“Use our rainy day fund?” Marconi said. “It’s raining now.”
Quite possibly, town officials will combine spending cuts with a sizable dip into the rainy day fund.
To that end they’re reviewing at least 16 different fiscal scenarios that range from spending increases of 2 percent for the schools and 1.5 percent for town departments to “zero percent” increases for both school and town spending.
The scenarios also vary the tax collection rate and projections of revenue from user fees collected at the golf course, the town clerk’s office and the recreation center.
To balance the varying budget scenarios without increasing taxes — or, even slightly reducing them — the amount to be drawn out of fund balance or rainy day fund for use as non-tax revenue ranged from $1,600,000 to $4,415,000.
The Board of Selectmen rescinded its previous budget votes in a Zoom meeting Wednesday night, April 29, and began looking again at the $39 million town and $102 million school spending proposals that predated the coronavirus lockdown.
The selectmen then met and discussed town finances again Thursday night, April 30, when they also voted to recommend an unchanged $7.2 million budget for capital spending — larger projects and purchases that are paid for with borrowing and don’t show up in the tax rate until future years.
But the selectmen did not finalize their decisions on a revised 2020-21 town and school operating budgets.
Final decision-making on the budgets was put off until a Board of Selectmen’s meeting scheduled for Wednesday night, May 6 — and then they didn’t get it reach adecision then so they scheduled another zoom meeting for more budget work on Tuesday, May 12,starting at 6:30.
Whatever the selectmen decide would then be handed off to the Board of Finance.
The finance board has scheduled a public hearing — again, a virtual gathering with citizens participating by Zoom — for Monday night, May 18.
The finance board then plans meetings Tuesday, Wednesday and Thursday of that week to finish up the budget work.
With budget procedures revised under executive orders that Gov. Ned Lamont issued as part of the effort to lock down the state because of the coronavirus, final decisions on the 2020-21 budget will not be made by voters at the Annual Town Meeting and the budget referendum, as is customary and spelled out in the town charter.
The selectmen, acting under guidance of Lamont’s executive orders, have transferred that authority to the Board of Finance — the body that usually puts together the final budget and tax rate recommendations that are put before voters at the annual meeting and budget referendum.
At both the April 29 and 30 selectmen’s meetings, a long list of citizens offered thoughts on the budget, participating via Zoom. (See related story.) Twenty-seven comments were heard over the two nights with 22 speakers concerned about the effect of reductions to school spending, and four telling the board cuts would have to be made. One speaker was a finance board member saying he would listen.
“The schools will need more resources, not less, to meet this tremendous challenge,” Sandra Mahoney told the selectmen.
“Needs will be immense, from mental health to installing hand-washing stations,” she said. “We need to have the resources to adapt.”
Joseph Maurer urged cuts.
“It’s important to take a hard look at the school budget,” he said, “to take a hard look at the infrastructure of the schools and do some of the hard things we should have done for a long time.”
The rescinded plans
The operating budgets town officials were working on before the coronavirus shutdown overturned everyone’s thinking had included:
The Board of Education’s request for a $102 million school budget that would represent just under a 4 percent spending increase — 3.96 percent, to be exact — from this year’s $98 million school budget;
And a budget for town departments — police, fire, highway, parks and recreation, town hall administration and road repairs — that the Board of Selectmen had originally requested as a 2.49 percent increase.
The Board of Education has declined to reconsider its requested 3.96 percent increase.
A motion to rescind the school board’s previous $102 million budget request was voted down 2-to-7 April 27. During that meeting communications from 25 residents were read into the record, with all but one of them asking for restraint in budget cutting.
With the selectmen’s earlier votes rescinded, their meeting May 6 was expected to revise their own request for $39 million in spending by town departments, and also to make a new “non-binding recommendation” to the finance board on the school board’s $102 million budget proposal.
Spending, fund balance
At their Zoom meetings last Wednesday and Thursday evenings the selectmen discussed numerous scenarios — and there was some talk that spending increases in both budgets should be held to zero.
The varying scenarios drawn up by Controller Kevin Redmond looked at four levels of school spending: increases of 2 percent, 1.5 percent, 1 percent and zero percent.
And also four different levels of town spending: 1.5 percent, 1.2 percent, 1 percent and zero percent.
The scenarios that seemed to get the most attention in the discussions had the school spending kept to a 1.5 percent increase, and the town departments held slightly below that, at a 1.2 percent spending increase.
Among the questions discussed were how much of the town’s $15 million surplus fund balance would have to be used to take a budget with those spending increases — 1.5 percent for schools and 1.2 percent for town departments — and achieve the zero percent tax increase that the selectmen appear to have made their goal.
The answer, it turns out, varies considerably depending on what the rate of tax collections is assumed to be.
First, what is the surplus fund balance?
The town is legally not allowed to run in a deficit, and to avoid that town and school officials steer tax and spending decisions toward the goal of ending each year with a small surplus. The “surplus fund balance” is money accumulated from the buildup of past year-end balances, which is carried from year to year. The “fund balance” is sometimes referred to as the town’s “rainy day fund” — and that’s a function it occasionally performs when something unexpected comes up. The fund balance is a pool of money the town has saved up, that it can dip into to handle unexpected situations.
The Board of Finance has a policy guideline that calls for the fund balance to be maintained at roughly 8 to 9 percent of the total budget.
Although money flows into the fund balance at the end of each fiscal year, the finance board generally keeps it at that 8 to 9 percent level through a line in the revenue side of the budget each year called “use of fund balance.” With this line, the finance board pulls some money out of the rainy day fund and uses it in the budget as non-tax revenue. This works to lower the needed tax increase, and also helps keep the fund balance from growing too far beyond the 8 to 9 percent guideline.
The current $15.1 million fund balance represents about 10 percent of the current budget — with combined town and school spending, along with debt service, totaling roughly $152 million.
Tax collection rates
With unemployment increasing (see related story) and local businesses in jeopardy due to the economic lockdown in response to the coronavirus, town officials have more concern than usual about whether people will be able to pay their taxes.
Two weeks ago the selectmen adopted two tax relief programs designed to make it easier for taxpayers to postpone paying town property taxes.
But the worry that people will simply not be able to pay remains.
To inform their discussions, the fiscal scenarios that Controller Redmond prepared for the selectmen not only varied the proposed spending increases — but they used changing assumptions concerning tax collection rates.
For years, town officials have been assuming a 98.7 percent rate of tax collections, with 1.3 percent going into the “uncollectable” category that becomes fodder for future “prior years” collection — often when a property eventually changes hands.
The tax collector’s office often does a little a better than the assumptions, but officials have found the 98.7 percent collections works well as a number to build budgets around.
With the economy in lockdown due to the coronavirus, town officials are worried that 98.7 percent collection rate may not be realistic.
“Our norm is 98.7,” First Selectman Marconi said. “We usually collect higher than that, but we usually feel comfortable with that as a budget number.”
The collection rate did dip below the 98.7 level in the recession following the 2008 market and housing crash.
“Back in ’09, ’10, ’11 we ran 98.5, 98.6,” Marconi said, “and that’s a big hit. When you’re collecting $140 million, and you have two-tenths you don’t collect, it’s a lot of money.”
A decline is also expected in a variety of other non-tax revenues — user fees collected by various departments, income from the golf course and parks and recreation operations, from fines, and from the town’s small slice of the state tax on the real estate transfers that the town clerk’s office collects.
So, Redmond’s scenarios look at the budget not only with varying spending increases — from 2 percent down to zero percent for schools and from 1.5 percent down to zero percent for the town — but with different levels of tax collection, and also different levels of non-tax revenues.
Remaining fund balance
The scenarios then project how much fund balance would have to be used to get to a zero tax increase for the coming 2020-21 fiscal year. And they look at what the remaining fund balance would be as a percentage of total spending — so town officials can see how the scenario looks against the finance board’s 8-to-9 percent guideline for the fund balance.
The biggest bite out of fund balance came with school spending increasing 2 percent, town spending increasing 1.5 percent, the tax collection rate at 97.5 percent — 2.5 percent “uncollectable” — and non-tax revenues down by $500,000.
That combination would require $4,415,000 from fund balance to get to a zero tax increase, and would reduce the remaining fund balance to 7.3 percent of the budget.
At the other end of the scale is a scenario that would keep both school and town spending at zero percent increases, while assuming a 98 percent tax collection rate — two percent “uncollectable” — and only a $250,000 drop in non-tax revenue.
That scenario would use $1,600,000 from fund balance and result in a 0.5 percent decline in the tax rate. It would leave the fund balance at 9.33 percent of spending — just above the finance board’s guideline.
Before the board opted to delay decision-making Selectwoman Barbara Manners appeared to be prepared to make a motion that that board recommend the 1.5 percent school and 1.2 percent town spending increases to the finance board.
Manners said the next day she had been prepared “to recommend the 1.2 increase to town and 1.5 to school” spending.
“In order for that to result in zero percent increase in mill rate, we would have to use close to $2 million in fund balance,” Manners said — and that’s if the collection rate is assumed to stay the same as previous years’ 98.7 percent.
“But if collection rate drops to 98%, which we don’t know yet,” she said, then the town “would need to use around three million of fund balance, leaving us with only 8.36 percent in fund balance” to get to a zero increase.
“If the collection rate drops below that,” she said, “we would have to dip into fund balance even further.” In that case she expects the majority of the board will “insist on further cuts,” Manners said.
The selectmen backed off, and decided to wait to take action on the budget in hopes of getting a firmer grip on the likely tax collection rate. The thought was that Tax Collector Jane Berendsen-Hill may have a better sense of the future after seeing how the end of the third quarter goes.
Board of Finance Chairman Dave Ulmer was listening in by Zoom on the selectmen’s meetings.
What did he think of the motion Manners was close to making, calling for 1.5 percent school and 1.2 percent town spending increases?
“I think those are probably reasonable and doable,” Ulmer said.
The selectmen “can come close to that with things they have identified, plus maybe some from the roads,” he said.
And, despite it’s vote not to lower it’s request, the Board of Education “is working on what it would take” to get it’s budget down if the school spending request is lowered by the finance board, Ulmer said.
“They identified one percentage point — 3.96 down to 2.96 by not adding new positions (director of security, math coaches, psychologist) and keeping some other items flat,” Ulmer said. “They would need to find another another $1.5 million in savings to reduce 2.96 percent down to a 1.5 percent increase.”
The selectmen did vote unanimously Thursday night to reapprove their previously rescinded capital budget at the same level as before — a little over $7 million.
The capital budget consists mostly of more expensive equipment purchases and construction of projects that are paid for with borrowing in the bond market — so they don’t affect the next year’s tax rate, although repaying the debt does affect taxes in the years after that.
The selectmen usually seek about $4 million a year in capital budget expenditures — building and sidewalk repairs, new trucks and lawn mowers, computer upgrades — but earlier this year they’d approved about $7 million.
Part of their decision on Thursday not to cut the capital budget was the knowledge that borrowing rates are now very low.
“Given where these rates are, this might be the time,” said Selectman Sean Connelly. “We could push things out to the next year, but it’s not like these are things that would go away.
“It’s not going to impact our current budget, and we have a good rate environment,” Connelly said, “I don’t see any reason to change.”
The different selectmen shared a variety worries in their budget discussions
“There’s a lot of unknowns and a lot of uncertainty,” said Selectman Bob Hebert. “I heard all the comments over the last several weeks. I still come back to a very fundamental question. As much as we don’t know what the needs are, or what’s going to happen to the kids when they return to school, we don’t know what’s going to happen to the businesses.”
Hebert said he’d seen a study looking at potential small business closures affecting towns.
“We could lose close to 300 businesses over this period of time. That’s half our businesses. What’s the impact on our revenue stream for that?”
“I think we should look at a mill rate decrease,” Selectwoman Maureen Kozlak said at one point. “Looking at the numbers, what’s happening throughout the country, the predictions. We’re in for tough times, folks
“We’ve been analogizing to the 2008 recession — it’s not ever close,” Kozlark said.
She also felt that the roughly $1.4 million the town gets from the state under various programs — such as reimbursement for a portion of special education spending — was likely to dry up as the state struggles with its own fiscal problems.
“I think that we should be careful about dollars that we put in our budget that we expect to receive from the state,” she said.
“The numbers of people out of work,” said Marconi. “If this new drug — whatever it is, the vaccine —works, and everyone gets well over the next six months, is the economy going to go back to full speed? I don’t think so. I think there’s a ramping up. We’ll have to see how many of our businesses are open...
“If we end up with a bunch of empty stores and landlords have to lower the rent per square foot to attract people, that rent per square foot is what the assessor uses to evaluate the value of the building…
“If the value goes down and our grand list goes down, our revenue disappears.”
But he also had concerns about cutting too much.
“Many say it should be zero,” Marconi said of the spending increase. “If the town were to go in at a zero, we would be laying off people. Do you want to lay off people?”
Marconi also worried about using too much from the fund balance, and leaving it below 8-to-9 percent guideline.
“When we get below 8 percent, the bond rating bureaus begin asking questions — that’s a word of caution. We need to be careful,” Marconi said.
But he added a little good news about the town’s bond rating.
“We just went through a review from Moody’s. They kept our Triple-A,” he said. “They felt comfortable with Ridgefield. And we laid out pretty much what we’re talking about tonight in terms of moving forward.”
Manners spoke of school spending.
“The Board of Education should have restructured and looked at the declining enrollment quite some time ago, and perhaps closed a school, or redistricted,” she said. “But nobody wanted to deal with it. I think that now they have to deal with it.”
Kozlark was dubious of seeking any increases.
“I’m leaning towards zero,” she said.
“Our economy has been shut off for a month and a half. It’s not going to be turned on until the end of May… We don’t know what’s going to happen with our real estate, with the businesses. Are people going to be out shopping, buying houses?” she said.
“It is different than ’09, but the onerous implications of all these economic things look like it’s going to be worse.”