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Having improved cash-flow problems with the recent steps taken by the City Council, New London Mayor Daryl Justin Finizio will on Monday present a sensible plan for rebuilding the city's fund balance and in the process improve its standing with credit-rating agencies.
This newspaper opposed an earlier plan to rebuild the fund balance by issuing a one-time tax. Already overburdened taxpayers did not need to be hit with a special tax. His administration's new, three-part plan is the better option.
Recall how the city got here. During the last two years of the former city manager government, the council avoided tax increases by inflating revenue forecasts and low-balling projected spending. When, as should have been expected, revenues came up short and spending exceeded the budget, the city experienced deficits in fiscal years 2011 and 2012.
In the process the fund balance - the rainy day cushion a municipality needs to handle unexpected costs or revenue shortfalls - was largely depleted. If you don't want to accept the Finizio administration's math on this topic - many continue to question it - then check out last year's credit ratings reports by Standard & Poors.
"New London experienced consecutive operating deficits in fiscal year 2011 and 2012 as a result of overestimating tax collections and other local receipts, and underestimating various expenditures," concluded the S&P evaluators.
The city now lists the fund balance as $1.5 million, far short of the minimum 8 percent of budget that City Council policy calls for, about $6.5 million. And that $1.5 million is generous, including $360,000 in back taxes owed on the Light House Inn. The city took possession of the inn last year because of the unpaid taxes. It is trying to find a buyer to recover them.
Whatever the reason, the fund balance is in sorry shape, and last year's credit reports from both S&P and Fitch Ratings stated New London needed a plan to fix it or risk a credit downgrade, raising the costs of borrowing for future projects.
With a new round of credit evaluation looming, the administration has a plan.
If approved by the council, the city would borrow $1.1 million to replace money drained from the fund balance when projects went over budget the last 15-20 years. These projects were bonded to begin with and the money should have been restored all along. Given low interest rates and long-term repayment, this borrowing should have minimal if any effect on taxes, said the mayor.
A second resolution would require this and future councils to set aside at least $250,000 annually solely for the purpose of fund balance replacement, until it reaches the 8 percent target. If anything, the figure is too low, but it's a start.
Finally, the mayor seeks a resolution mandating that the proceeds from the sale of city-owned real estate must go into the fund balance, again only until it is restored to health.
Mayor Finizio surprised many recently when he said he would not seek a second term in the November 2015 election. He contended taking himself out of the running would reduce the politics surrounding his proposals to repair the fiscal health of the city. His calculations in this regard appear, at this point at least, correct.
Some in the city seemed to have arrived at the point where, if the mayor was for it, they were against it. The animosity has eased, providing the opportunity to build support for ideas like this one.
The editorial board is composed of the publisher and four journalists of varied editing and reporting backgrounds. The board's discussions and information gained from its meetings with political, civic, and business leaders drive the institutional voice of The Day, as expressed in its editorials. The editorial department operates separately from the newsroom.