Due diligence: Councilman probed finance about the budget

NORWALK, Conn. – Prior to Tuesday night’s Common Council meeting when the council set the preliminary city operating budget cap, Councilman Bruce Kimmel (D-At Large) submitted 11 questions to the city finance department. Director of Management and Budgets Bob Barron responded, and the responses were distributed to all council members.

There were also four questions sent at a later date, Kimmel said, “but some of those were generated by other members of the Republican caucus, so I will not share them.”

In all, the Republican caucus – of which Democrat Kimmel is a member – sent 15 detailed questions to the city’s finance department. Earlier, Kimmel said, he sent 17 questions to the Board of Education. All of the questions to the BOE and Barron were answered “in a comprehensive manner.”

“I believe we really did do our due diligence, despite the repeated snow cancellations,” Kimmel said, adding that he believes this council was the most prepared ever going into the meeting.

Here are the questions and responses:

Question 1:

Q. Page ii: You speak about a three-year pro forma budget projection that was developed prior to the crafting of the 2014-15 budget, and which you discussed with the mayor. Has that been standard practice? I quickly looked through some of the back sections of the budget book and didn’t see any dates past 14-15. Do you think, beginning next year, it would be possible to discuss those projections with the Council early on in the process? I think it would be helpful.

A. The preliminary 3-year budget projection is a starting point from which to solicit the Mayor’s input at the beginning of the budget process in December. This forecast evolves and changes, sometimes significantly, by the time Tom (Finance Director Hamilton) makes his recommendation in February. Tom is reluctant to have such a preliminary forecast subject to debate before it is solidified into a recommendation from him. With this said, I have attached our 3-year fund balance projection, with the assumed increases by category of expense and revenue, to this email for your review.

Question 2:

Q. Page iii and elsewhere: This has to do with the property tax increase: It states on page iii that the combined impact of the revaluation plus the increase in the mill rate caused by the budget will yield a “total tax levy increase” of 3.6 percent. From what I have read regarding this budget, that is, what was reported, the portion of that tax increase that can be attributed to the mill rate increase alone is 1.2 percent, with the rest of the increase caused by the revaluation. Correct? Also, is it fair to say that if there was no increase in the mill rate at all for the 14-15 budget, taxes would still go up 2.4 percent as a result of the revaluation?

A. Property Tax increase:

a. If there was no change to the grand list from this year to next year’s recommended budget, the recommended total current tax levy would be unchanged because we still would have to raise an additional $10,167,419 or a 3.6 percent increase to fund the $318.5 million budget request.

b. Remember that we take the budget request of $318.5 million and subtract from it the non-tax revenues of $35.8 million and add to it the $8.7 million of total adjustments for uncollected taxes and tax relief programs to fully fund the operating budget request. So $318.5 – $35.8 + $8.7 = $291.4, that must be raised by current taxes which is $10.2 million more than the current year’s approved budget.

c. The increase in the taxes that are required to be raised by current taxes (the $10.2 million in answers a and b above) is not going up due to revaluation. Taxes are increasing because of the $9.1 million more being spent year over year in the operating budget and the $1.1 million decrease in Non-Current Tax Revenue, as follows:

d. The increase in taxes that some taxpayers will pay is due to the relative change in their assessment to their neighbors’ and commercial properties and the increased funds that the City needs to raise for its upcoming year’s budget. Norwalk taxpayers’ taxes will change based on their individual property’s change in value and their relative share of the increase in taxes that must be raised to fund the upcoming year’s budget.

Question 3:

Q. Based on your answer to question 2: The press has reported that the median property tax increase for the 4th taxing district (which is the benchmark we’ve always used) will increase by $74. Correct? And is that the increase caused by the increase in the mill rate, or by the revaluation plus the mill rate?

A. The changes to the median assessed property value in any of the districts is due to the relative change in their assessment to their neighbors’ and commercial properties and the increased funds that the City needs to raise for its upcoming year’s budget. The below chart shows the impact for the median assessed valued single family home, by district, assuming the recommended 3.6 percent increase to the total tax levy in a hypothetical no-revaluation year. The recommended change in taxes for the median assessed value home in each district in the first yellow highlighted row, the amount that’s due to the increased budget is in the second yellow highlighted row, and the difference between the two which is the amount due to the revaluation in the third yellow highlighted row. To answer your question for the fourth district in a narrative form: “The recommended increase in taxes for the median valued home in the fourth district is $74 of which the recommended increase in the city’s operating budget is responsible for an increase of $232 which is offset by a decrease due to revaluation of -158.”

Question 4:

Q. Page iii: Near the bottom, it puts the total tax levy at $292,355,857; on page 23, it states that local taxes will be $286,792,452. Have I missed something?

A. I’ve pasted the revenue section of our recommended operating budget below which highlights in yellow the various revenue calculations. The ones that you questioned in your below email are in the bolded text below:

a. The first number, $291,355,857; is the Total Current Tax levy whose calculation is described in answer 2b above.

b. The second number, $286,111,452; is the Total Current Tax levy net of the reserve for uncollectible taxes based on a 98.2 percent collection rate (1.8 percent uncollectible).

c. The third number, $282,692,452; is the Total Current Tax levy net of uncollectible taxes and tax relief programs.

d. The fourth number, $286,792,452; is the Net Total Tax Revenues.

e. The fifth number, $31,687,693; is the Total Non-Tax Revenue.

f. The sixth number, $318,480,145 is the Total Revenue or the sum of Net Total Tax Revenues (item d) and Total Non-Tax Revenue (item e) and is equal to the recommended expenses in order to achieve a balanced budget.

Question 5:

Q. Page 26: The fund balance: Not quite sure which is the important standard – the ending fund balance that is 9.1 percent of total revenues, or the unassigned fund balance that is 8 percent of total revenues. I read the notes on the bottom of the page, but still not sure which percentage is the one looked at closely by the rating agencies. On page iv, it states that $1 million has been transferred from the “undesignated” fund balance. Is that the same as the “unassigned” fund balance? (I know you explained this to me once before, but sorry…)

A. The rating agencies look at both ratios; however, the unassigned fund balance carries more weight because it is the fund balance that represents “free” or uncommitted fund balance available for use in case of need. The audit for the most recently completed fiscal year 2012-13 reports the unassigned fund balance for the City as $29.8 million or 9.4 percent of GAAP revenues.

Question 6:

Q. Page 6 and elsewhere: Pensions. If I remember correctly, for the current year they increased about 33 percent, and you are projecting them to increase by 19.3 percent for the 14-15 budget. You state that after this year you expect them to be flat. Does that mean no or minimal increases for the next couple years? If so, that would be great.

A. The recommended pension contribution for FY 2014-15 represents an increase over the current year’s pension budget of $1.9 million or 19.3 percent. This increase for the upcoming year is the fifth of the 5-year smoothing of losses from 2008/09 that the pension investments experienced. As a consequence, in the most recent actuarial report the subsequent two years, FY 2015-16 and FY 2016-17, will remain relatively flat which should provide some budget relief in those years.

Question 7:

Q. You did not deem it necessary to fund the BOE insurance reserve, which reduced their request by $1.2 million. Is that due to the recent announcement that the reserve now has a surplus of over $800,000 and that projections are pretty good regarding claims?

A. The BOE’s forecast medical insurance surplus and favorable claims history this year are indeed part of the reasons for Tom’s recommendation to eliminate the BOE reserve in the upcoming FY 2014-15 budget. In addition, the BOE had favorable claims experience last year and they used part of their FY 2012-13 budget surplus to make an additional contribution to the insurance fund.

Question 8:

Q. Page viii and elsewhere: Debt service is down by $372,130. However, in the coming years, based on what you know about our capital projects, do you think we can keep debt service at a “comfortable” level?

A. The recommended debt service for FY 2014-15 represents a decrease over the current year’s debt service budget of $372,130 or -1.4 percent. Tom recommends what we believe to be a “comfortable” level of debt in the future years which is detailed in Table 3 on page 5 of his Finance Director’s Capital letter dated 1/31/2014 (included in your capital book).

Question 9:

Q. Page iv, vii and elsewhere: We are purchasing a total of 10 police vehicles for a total of $264,300. That number seems low for 10 vehicles. Is it for the vehicles themselves, or for all the stuff that the police need inside their vehicles? Also, have you thought about putting these kinds of expenses into the capital budget?

A. The recommended $390,000 purchase of police vehicles includes two used cars estimated at $15,000 each for detective use, this is what brought down the average cost per vehicle. The remaining $360,000 is for eight fully outfitted vehicles which is a purchase price of $32K plus $13K for the equipment or $45K each.

Question 10:

Q. Workmen’s Compensation is up 28.5 percent. Is that considered high. When we outsourced the solid waste pickup, I thought our workmen’s compensation expenses would go down.

A. The budgeted amount for Workers Compensation is prepared by the City’s Risk Manager and the cost allocation plan by department is attached to this email for your review. The recommended increase for the upcoming FY 2014-15 is due primarily to claims history driving increases in the Board of Education and Fire Departments. The savings for contracting out of garbage collection will take a couple of years to be realized because of the lag time associated with Workers Compensation claims.

Question 11

Q: Page 27: In 2004, DPW had 114 fulltime personnel; they are projected to have 87 (two less than they requested) in 14-15. I realize we reduced the numbers of their fulltime personnel by 12 (or 14) when we outsourced the garbage pickup. But what accounts for the remaining cuts in their personnel. I consider this an important issue because we’ve been trying to get a handle on a variety of quality of life issues, such as road repair, local flooding, sidewalk repair, enforcement, etc., but it seems that DPW just doesn’t have the personnel to meet the expectations of residents.

A: The 27 position reduction from 2004-05 to 2014-15 is due primarily to the elimination of budgeted vacancies and positions vacated due to early retirements along with the move of employees to the newly created Fleet department, as follows:

Attachments:

FUND BALANCE PROJECTIONS – 14FEB14

Workers Compensation 2015 Allocation