Dachowitz offers ‘early warning system’ on Norwalk spending

NORWALK, Conn. — Norwalk has committed to too much borrowing to fund infrastructure improvements, according to Chief Financial Officer Henry Dachowitz. City leaders need to reexamine the authorized capital budget projects and make some tough decisions.

“Finance is like a balloon; you can only stretch in a couple of directions. And if you pull on one side, you have to accommodate on the other,” Dachowitz said Thursday to the Common Council Planning Committee in its virtual meeting.

The Committee went on to send the proposed 2020-21 capital budget to the full Council for a vote Tuesday. The decision was 4-1, with lone Council Republican Tom Keegan as the dissenter. Barbara Smyth (D-At Large) recused herself.

New Norwalk High School?

Included in this proposed budget is $50.3 million to build a new Norwalk High School, although the total price is estimated at $225 million, according to the budget document. The project hinges on 80 percent reimbursement from the State by qualifying the new school as a pilot program. State Senate Majority Leader Bob Duff (D-25) has said that the special legislation needed will pass, though this comment predates COVID-19.

You can’t file a grant application without having at least the City’s share of the project authorized for bonding, Norwalk Public Schools Chief Financial Officer Thomas Hamilton said. There are hurdles to overcome due to COVID-19, and the legislature hasn’t put the project onto a priority list.

A few weeks ago, Duff suggested that the legislature will try to pass that legislation during a special session, perhaps in June or July, Council member Tom Livingston (D-District E) said.

“Other than that, we’re all just sort of moving forward and we’ll see how it goes,” Livingston said.

‘Especially after COVID’

“I inherited a whole bunch of authorized projects that were not bonded yet. And what I learned is there’s a disconnect, a timing disconnect,” said Dachowitz, who began work as Norwalk’s finance chief just over a year ago.

Spending is authorized but the bonds aren’t issued because the Internal Revenue Service has strict rules that the funds must be spent within three to five years, so the authorizations sit unused until the projects are ready to begin construction, he explained. Norwalk has

“In essence, it’s a little bit of using up our future borrowing capacity with today’s authorizations,” he said, citing the $13.5 million expected to be authorized this year for  Norwalk Police combined dispatch as an example because it’s expected that half will be used this year and half the following year.

With Norwalk High School, the design work would be bonded this year and the construction would begin the following year and continue, so the borrowing would be done over several years, he explained.

The City’s outstanding debt is about $260 million and “in discussions with our financial advisor and analyses, we have determined approximately $400 million is the limit we can borrow and still maintain a triple A bond rating.”

The net to be bonded this year is $129 million, if the budget is approved Tuesday.

Every year, some of the debt is paid off so it’s OK to add more, making room for about $20 million more a year, Dachowitz said. But for the next five years the budget is adding about $40 million a year with the plan to reduce that to $14 million yearly in Fiscal Year 2026 and keep it at that level. So at the end of the decade, Norwalk will be where it needs to be.

“All of the authorized projects have used up five years of borrowing capacity,” he said. “Consequently, what really needs to be done is an examination of all those projects that have been authorized in the past, authorized this year, authorized in future years, and tough decisions have to be made.”

You could say certain projects won’t get done, other projects will be slimmed down and others will be slowed down, he said.

Or, you could give up your Triple A bond rating.

Livingston asked, “So you’re saying that even something like our typical $5 million annual paving budget is problematic?”

Dachowitz didn’t give a yes or a no, though he did say he was also “shocked” when he looked at the numbers. He delved into the reasons for the expensive school construction projects, that the schools were long ignored. But, while “schools are a great investment,” the “authorized but not yet bonded” figure of $118 million needs “to be reexamined, especially after COVID.”

If the grand list grows after the recession, some of the benefit can go into capital projects in a “very dynamic complex interrelationship,” he said.

“I’m here to be the early warning system,” Dachowitz said. “Think about it.”