Hamden's Debt

On May 12, the council deliberations included a conversation and a decision on Hamden’s debt. The explanation of what the mayor put in his budget proposal is very complex and complicated by an incomplete and disingenuous “plan.” Hamden pays for an outside financial advisor, Ben Bernabe. Last year during budget deliberations, the town administration, Mr. Bernabe, and our Bond Counsel, David Panico, proposed a debt restructure that altered our debt service payments to decrease the amount we must pay in the next few years in exchange for larger payments down the road. They admitted that our fund balance would go negative this year, which it has. We would need to present a plan to the state to restore the fund balance. The plan WAS to fund additional debt service, above the required payment, that would essentially be leftover in the account at the end of the year and would drop to the fund balance. The goal for FY 22 (the budget they are deliberating) was to put $6.7 million back into the fund balance. The fund balance is critical to our financial health. Credit ratings agencies look to this fund in determining our bond rating. Bond holders then use our bond rating to determine our interest rates and how much to loan us. Because our fund balance has been around 1% of our operating budget for years, we have had to take out more debt for projects for contingencies. In the mayor’s budget proposal, he created a line in debt service called, “Deficit Mitigation Plan.” The irony of this plan is that it does the opposite of what it says it will do. The Deficit Mitigation Plan is a negative expense or a cost avoidance meaning that it does not solve the deficit or contribute to our fund balance or pay down debt. It actually reduces the amount we are able to put in the fund balance by reducing the amount we fund towards debt service. The administration claims that this Deficit Mitigation Plan is required by the state and has been presented to the state so it should remain in the budget. I watched the presentation to the state. Last week the administration participated at the Municipal Finance Advisory Commission (MFAC). The Commissioners found the plan to be incomplete and lacking details, history, and explanation. They requested that the administration provide more details at the next meeting, in writing. The administration offered a verbal explanation during the meeting and the MFAC denied them that opportunity. The Office of Policy and Management produces a report every year called the “Municipal Fiscal Indicators.” This report came out last week for FY19 and Hamden is once again number 1 in total debt per capita in the entire state. The amount of debt we have is out of control and kicking the can down the road is not working for us. The Debt Restructure that was done last year will increase our debt payments to $30 million in FY 24. That’s 2 years from now. If the town allocates less towards our debt this year (as the mayor proposed) to save on the mill rate, we will see a steep cliff in 2 years. Last night the council had to decide if they would allocate $22 million or $24 million toward debt service. After many votes and confusion brought on by incomplete and evasive answers, the council narrowly passed debt service at $23.9 million. The votes against funding our debt were the biggest advocates of the debt restructure last year. The mayor’s proposed budget includes a mill rate of 51.47, a ½ mill reduction. The council’s budget will increase 1 mill and change, though it is not clear how much. The finance team has not been very clear or accurate about the cost of the council’s changes. If we fund debt service at $24 million, we still need to make up $6 million in the next 2 budgets. That equates to an increase of 1.5 mills just to pay debt.