NORWALK, Conn. — Norwalk’s Chief Financial Officer has recommended that $38.7 million in capital budget expenses be authorized this year. Requests total $55.2 million.
Henry Dachowitz issued stern warnings regarding the “formidable financial challenge” Norwalk faces in financing its previously approved expenditures in addition to the requested 25-year $450 million school building program and the yearly capital budget items, estimated at $35 million a year. He quotes Bill Lindsay of Munistat Services, the City’s financial advisor, as predicting Norwalk will lose its Triple A bond rating within three years.
The Norwalk Fire Department fares well in Dachowitz’ recommended budget but the Police Department wouldn’t get all of the cars and vans it is requesting. The Finance Department would see its entire $753,770 request funded while community services would receive only $128,100 of the $520,916 it requested, with the $350,000 SoNo Branch Library repurposing being omitted from the equation.
The biggest hit is to Operations and Public Works, which requested $31,710,441 but is recommended for $20,834,000; the Broad River Baseball Complex would not get its $2.5 million in funding, under the CFO’s recommendation. And of the nearly $3.5 million requested by Norwalk Public Schools, Dachowitz would fund $1.2 million.
The Planning and Zoning Commission is holding its capital budget public hearing at 6 p.m. tonight, Feb. 3, on Zoom.
Lindsay’s prediction is tempered somewhat in a PowerPoint presentation included with Dachowitz’ recommendation, prepared by Lindsay.
Moody’s uses a scorecard tool in calculating a City’s bond rating, Lindsay states. “Since the scorecard produces a composite score based on a number of underlying credit factors, it is important to keep in mind that an issuer does not need to achieve a Aaa score on all factors to arrive at a Aaa final rating…. In fact, the City has not historically achieved a Aaa score for all credit factors, including debt.”
Lindsay reports that, “if the City’s other credit factors were to improve, then theoretically the amount of additional debt required to trigger a rating downgrade could increase. But the opposite is also true, if the City’s other credit factors were to weaken, then theoretically the amount the additional debt required to trigger a rating downgrade would decrease.”
Still, Lindsay warns, “the proposed capital borrowing requests would trigger a downgrade in the City’s Moody’s rating to Aal from Aaa within the next 2-3 fiscal years. As the City’s debt metrics will remain elevated throughout the 15 year analysis period, we would not anticipate a return to the Aaa rating over that time frame.”
If Norwalk’s “Rainy Day Fund,” or, “General Fund reserve levels,” drops to 15% of revenues, “this would lead to a downgrade in the City’s rating to Aa2,” Lindsay states.
Norwalk’s Rainy Day Fund has swelled to $72 million, an increase of $13.6 million from last year.
A review of Comprehensive Annual Financial Reports (CAFRs) available online shows this history:
- 2021 CAFR: $72 million, 17.3% of total revenues
- 2020 CAFR: $58.4 million, 14.8% of total revenues
- 2019 CAFR: $69.7 million, 18.3% of total revenues
- 2018 CAFR: $57.7 million, 14.7% of total revenues
- 2017 CAFR: $51.1 nillion, 13.6% of total revenues
- 2016 CAFR: $47.4 million, 13.3% of total revenues
- 2015 CAFR: $42.3 million (no percentage given)
- 2014 CAFR: $34.6 million (no percentage given)
- 2013 CAFR: $29.7 million (no percentage given)
- 2012 CAFR: $28.5 million (no percentage given)
- 2011 CAFR: $28.6 million (no percentage given)
Dachowitz offers other warnings. Interest rates are going up and “will be significantly higher than those of the recent past,” he states.
The Wall Street Journal reports that investors are souring on municipal bonds, a reversal from last year’s trend.
There are hidden costs in school construction projects and the State’s reimbursement is 17-18% rather than the advertised 20% because some expenses are routinely denied, Dachowitz states.
“The City’s construction managers have confirmed to me that historically for each one-year delay in a project, costs for projects in Norwalk increase by about 4%,” Dachowitz wrote. “This was true even before the recent 2022-2023 increases in inflation and price hikes in many segments of the economy.”