New London Mayor Daryl Justin Finizio should veto the $86.35 million budget presented to him by the City Council and make his case for a budget that can meet the council goal of holding down spending without endangering efforts to rebuild the fund balance.

It is not the bottom line the council came up with for the fiscal year that begins July 1 that is problematic; it is how it got there. As proposed, the $43.9 million in municipal spending would be a $95,600 cut from current expenditures. Education spending is set at $42.45 million, an increase of $1.2 million.

Add it all up and spending increases about 1.3 percent, requiring a nearly 4 percent hike in the property tax rate. That is far better than the 6 percent spending increase, requiring a 12.5 percent jump in taxes, which the mayor included in his budget proposal when the process began seven weeks ago. Back then, we called the proposed tax hike unreasonable, particularly given the big tax increase that hit New London property owners last year.

However, the council did not come by this more palatable tax increase forthrightly. Finance Director Jeff Smith, who has no dog in the fight except his obligation to make sure the books balance, warned the council its budget underfunded mandated costs by nearly $658,000, shortchanging obligations such as paying health insurance premiums, covering workers compensation costs and providing police uniforms.

The council should have either come up with other reductions to offset paying those mandates or made the case why they considered them inaccurate. Instead, the warning went ignored and the budget obtained 7-0 approval unchanged, leaving the mayor to figure out how to make do.

Fund balance

Most alarming was the suggestion the mayor could dip into the city’s fund balance.

“I believe that we should be able to go forward with this budget even if we have to take money from the fund balance to be able to pay those bills; there is money there to pay those bills,” said Council President Wade A. Hyslop.

How soon politicians forget.

It was only a year ago that New London, its fund balance exhausted by deficit spending in prior years, was having trouble meeting payroll. The fund balance has two roles in municipal government. It gives the Finance Department the liquidity necessary to pay the bills when expenses get ahead of revenues. Secondarily, it provides a rainy day cushion if the city confronts unexpected expenses or a cut in state aid.

This newspaper backed the steps taken by Mayor Finizio and the council to begin rebuilding the fund balance, including the unusual step of borrowing $1.1 million to replenish money taken from the fund balance to cover cost overruns in past projects. In addition, the current budget sets aside $500,000 for the reserve fund, while a fund-balance replacement plan approved by the council requires budgeting at least $250,000 annually to rebuild the account, and directs proceeds from the sale of city property into the fund.

Passing a budget with a built-in deficit, and urging the mayor to use the fund balance to fix it, undermines all those efforts. Councilor Michael Passero, who is competing with the incumbent mayor for the Democratic nomination, and who led the charge to trim the budget, should recognize this. After all, he will have to manage this budget in the second half of the fiscal year if elected mayor.

School project looms

Mr. Smith estimates the fund balance will stand at about $3.5 million at the end of the fiscal year, June 30, a big improvement but far short of the roughly $7 million called for by city ordinance and no where near the $10 million rating agencies would like to see. In March, those agencies held the city’s credit rating steady, but cautioned that elected officials needed to remain committed to rebuilding the fund balance.

Avoiding a drop in the city’s credit rating is critical. Over the next few years, New London will undertake the plan to convert to an all-magnet-schools district. The renovation and new construction necessary will cost upwards of $200 million, with the state responsible for 80 percent and New London the difference. Improving the school system is critical to attracting families to New London and reviving home values. A diminished credit rating would raise borrowing costs and potentially endanger the project.

If he does issue a veto, Mayor Finizio should include the cuts he considers necessary to reach the council’s goal while meeting mandated expenses and preserving the fund balance. He would need two of the seven council votes to sustain a veto and force budget adjustments. The fact that the mayor — a Democrat in a city where Democrats hold six council seats — could have trouble finding two votes shows how diminished is his political standing.

Mayor Finizio’s mistakes have been many. He introduced a proposed budget with an excessive tax increase and tossed it in the council’s lap. Rather than working with council members to find compromise and support, he lectured them. Problems in Public Works, the disastrous handling of the police chief controversy and myriad other missteps eroded the mayor’s credibility with the council.

None of that, however, justifies enactment of a budget with a baked-in deficit. Mayor Finizio is left with vetoing the budget and trying to find two votes to sustain it, then forging the budgetary bridge with the council that he has been unable to construct so far. It’s hard to be optimistic.