We, the members of the Norwalk Board of Education’s Finance Committee (two Democrats, two Republicans), believe city officials had long been in denial when it comes to education. They failed to appreciate the cumulative negative consequences of the state Education Cost Sharing (ECS) formula. They downplayed the devastating Cambridge Report of 2008; they ignored a series of CREC reports on Special Education. For years, the Board did not even have sufficient funds to keep up with enrollment growth.
Two years ago, the BOE adopted a three-year strategic operating plan that addresses long ignored problems. Last year, the city funded year one of the plan. We are already seeing positive results, as Norwalk can now claim to be the number one urban district in the state; not to mention number one in our state reference group. Plus, the achievement gap was narrowed by one-third in a single year.
Unfortunately, at this point in the budget cycle, it appears the city may not adequately fund the BOE’s 2018-19 request, which would require a 5.4 percent increase in spending. Several concerns have been raised that deserve comment:
The Minimum Budget Requirement: State law prevents Norwalk from reducing the education budget from what it was the previous year. This mathematical obstacle can be circumvented by an agreement between the Board and the city on a multi-year spending plan. For instance, a 15 percent increase in school funding over five years does not mandate five years of 3 percent increases; all that is required is a total cumulative increase to 15 percent. If 5 percent is spent the first year, the next four years could not exceed 10 percent.
Use of the Fund Balance: A number of residents have urged the use of the Rainy Day Fund to help fund the BOE request. Using the Rainy Day Fund is an attractive option because it allows the city to fund programs without having a direct impact on taxpayers. However, some would call it fiscal heresy to use the Rainy Day Fund for recurring operating costs. In principle, we agree; but sometimes it’s necessary and even OK to bend.
The rating agencies use multiple factors to evaluate both the level and actual usage of a fund balance. A well-defined series of drawdowns that fit into a medium-term fiscal plan is deemed an appropriate use, as long as the level of reserve funds remains within accepted parameters.
Last year, according to the city’s finance department, the Rainy Day Fund stood at 12.2 percent of revenues after a projected $2 million drawdown; an additional $1 million drawdown would have left it at 11.9 percent of revenues. The city would still have been close to its goal of being at the median of other AAA rated towns in the state, which at the time was 12.2 percent.
The city’s budget recommendation for 2018-19, after allowing for a $2 million drawdown, would leave the fund balance at 12.7% percent of revenues, which is well within the parameters of the policy goal. It would not be irresponsible to draw it down further as a way to fund the Board’s budget request and as a way to minimize the property tax burden, especially if the drawdown was part of a multi-year plan to transform our schools.
Preserving Our AAA Credit Rating: The importance of Norwalk’s AAA credit rating should not be underestimated. It enables the city to do capital projects at the lowest interest rates available, thereby minimizing the burden on taxpayers. However, Norwalk officials seem to believe the fund balance level is the lynchpin of the AAA rating. We respectfully disagree.
The rating agencies examine five categories when assessing a city’s credit-worthiness: its economy, debt structure, overall financial condition, demographic factors, and management practices. Also deemed important are median income, economic diversity and population growth. Norwalk has scored well in all these areas. A half percentage point difference in the fund balance ratio will not have an adverse impact on the rating.
The current budget cycle ends in May, when the Board of Estimate and Taxation crafts the final budget. That leaves two months for officials to figure out the best way to keep the reforms moving forward. Students have suffered long enough; they deserve a high-quality education now, not later.