‘Fully funded’ target moves in Norwalk/BoE budgetary game

Updated, 2 p.m., commentary about auditor’s comments expanded to clarify what was said.

NORWALK, Conn. — Norwalk’s city-side pushback on the Board of Education’s money demand continued Thursday, along with a pledge to make sure all school programs are “fully funded.”

Common Council Finance Committee Chairman Bruce Kimmel (D-At Large) announced, at the beginning of his meeting, a “good news, bad news” scenario: Mayor Harry Rilling, city and BoE leaders have found a way to make up $300,000 of the $600,000 “gap” between the two sides – but the “gap” has grown to $900,000 due to higher-than-expected school enrollments for next year.

Comments in the budget discussion that followed included the idea that the BoE is actually a much higher percentage of the city’s budget than is thought (it’s up to $25 million more than the Board’s operating budget alone), along with an explanation of just how much $300,000 would cost the individual taxpayer. Barron expressed skepticism that the additional $1.2 million requested by the Board, outside of the operating budget request, would stop in three years as the Board asserts.

And while Board of Education Chairman Mike Lyons has said that the Board is being appropriately prudent in trying to hold onto its insurance fund surplus, Barron said the city is going as far as it can go with its “fund balance,” and agreed with Kimmel that outside auditors “directly recommended” that the insurance fund surplus should be dropped.

“It is not in the budget book but they did tell us verbally that our insurance fund has grown to a level where we need to start drawing down on it,” Barron said. “…At an $18 million surplus it is over funded and they did directly recommend that we drop it.”

The idea that the money belongs to the taxpayers and should be returned came from the auditors, Kimmel said.

Barron said the appropriate level in their insurance fund is $2.7 million, 10 percent of their $27 million that is spent each year, clarifying that’s what has been spent for each of the last three years.

“They have four times more than an appropriate reserve in there,” Barron said.

This all stems from Finance Director Bob Barron’s recommended 2016-17 operating budget, which cut the BoE’s request $600,000 more than had been agreed to in meetings between the two parties, according to Lyons. Another factor being discussed is Norwalk Superintendent of Schools Steven Adamowski’s request for a “Transitional Special Education Development Fund” of $1.2 million a year for three years to allow the schools to create in-house special education programs and transition out of the expensive out-of-district programs. Adamowski requested the money from the city’s fund balance, or “rainy day fund,” on the premise that it wouldn’t be considered an operating budget expense for the city.

The city is obligated by state law to fund the BoE with at least as much money it had gotten in the previous year. If it were considered an operating budget expense, Norwalk would be spending $1.2 million more for the Board in perpetuity.

The disputed $600,000

First thought from Kimmel: This is all part of a normal budgetary process. It’s only just begun and the recommended budget will be tweaked, he said.

There’s been “more than some discussion” about the $600,000 “gap” over the last few days, Kimmel said, calling the topics of conversation between Rilling, Adamowski, Barron, Lyons, Norwalk Public Schools Chief Financial Officer Thomas Hamilton and BoE Finance Committee Chairman Bryan Meek “fairly broad.”

“We have come up with kind of a program where we can bridge the gap, where we can finally set this to rest and walk away from the budget process at the end, really everyone, confident that all the programs of the Board of Ed, everything they have requested, has been fully funded,” Kimmel said.

So, $300,000 of the disputed $600,000 will be put back in the budget, and Rilling and Adamowski will schedule “however many meetings that are required” between Lyons, Meek, Hamilton, Barron and Kimmel to work it out, Kimmel said.

“We will work this out. It’s not difficult in a budget of $320 to $325 million to find that kind of money,” Kimmel said, emphasizing that Rilling has committed to this.

But – the “additional wrinkle.”

There used to be a line in the Board’s budget for “reserve teachers,” to cover the possible need to hire teachers if there is an unexpected enrollment spike, Kimmel said.

The Board wasn’t sure how many students it would have next year when it formulated its budget, Kimmel said. Thursday, according to Kimmel, Adamowski came in with an announcement – the enrollment is higher than anticipated.

The Board now needs an additional $300,000 for more teachers, according to Adamowski, he said.

“What used to be a $600,000 gap is now a $900,000 gap. But Mayor Rilling has indicated that we will sit down and we will figure out, one way or the other, how to provide $300,000 of the $600,000 (gap) that we have now,” Kimmel said.

“We will figure out a way to fund a reserve teacher fund so the board doesn’t have to wait until the last minute to begin looking for new teachers to hire,” Kimmel said. “That’s extremely important that the Board have a lead time, knowing that the money is going to be there.”

All of this is a little ironic, given that the Council isn’t really responsible for funding the BoE, as it doesn’t get into the “nitty gritty” of the budget – the Board of Estimate and Taxation does, Kimmel said.

The Council sets a spending cap. That’s a maximum level of expenditures; the BET works out where the money goes.

The “key here” is to minimize the impact on the taxpayers, he said.

Barron’s budget, worked out with Rilling, calls for a .5 percent increase in the average mill rate, which he called the lowest increase in at least 10 years.

That would mean that, in the First Taxing District, the tax bill on a $218,970 house would go up $28.61, Barron said. In the Fourth District, the bill on a $256,715 house would go up $36.22 and in the Sixth District the bill on a $677,170 house would go up $201.46, Barron said, using median house prices as the home values.

If the Council were to add $295,747 to the recommended budget, for any purpose, the mill rate would go up another .1 percent, Barron said. In the first district that’s $5.73, in the fourth that’s $6.72 and in the sixth it’s $17.89.

Kimmel correlated that $295,747 to the much talked about $300,000.

“We have to be careful when we just say we’re going to increase the cap. We have got to look for very efficient ways to do that so we minimize any burden on property taxes,” Kimmel said.

Transitional Special Education Development Fund?

Councilman Thomas Livingston (D-District E) asked Barron where the money to fix the Board’s special education program would come from.

Barron explained Adamowski’s request to use $1.2 million a year for three years in a special appropriation.

“I have never seen anybody add $1.2 million to their budget and then in the fourth year have that $1.2 million go away,” Barron said.

There are people asking why the city doesn’t just spend its $40 million fund balance, Barron said, with, “I think there’s just a lot of misinformation out there.”

The city’s plan to use $2 million of its fund balance to keep the tax rate increase relatively low is in line with policy, Barron said: By charter, the city must have a certain amount set aside in what many people call the “rainy day fund.” The current percentage required, which allows the city to keep its Aaa bond rating and borrow money at the lowest rate possible, is 10 percent, Barron said. Taking out more than $2 million would drop it too far, he said.

The Board has about $14 million in its fund balance, Barron said. The opinion expressed by some that the city has more money than the Board is “silly,” Barron said, as the city also has far more expenses.

“I believe, and I recommended – the mayor and Bruce also agreed – that if this is truly onetime expense – $1.2 million, $1.2 million, $1.2 million – let’s use this one-time surplus to fund it,” Barron said.

“There are safeguards from keeping it from being funded in perpetuity by just creating a big bank account that they can draw down on. Let’s use the bank account that they have already established,” Barron said.

Kimmel said people are confusing this issue with the 2012 $4 million deficit in the Board’s insurance fund. This is a totally different thing, he said.

The Board had gotten into the habit of using its insurance fund to pay for special education costs, but wasn’t checking its balance, Barron said. Then – Ooops – they were in the red.

“We are fully aware of the total value,” Barron said. “That was one of the benefits of the audit. We separated all the insurances, the three categories between the two entities, so with six columns of data we know the expenses, we know the disbursements. … We know the value of the net assets at the end of last year were $18.5 million and we know the target of the assets is $13 million. That’s a $5.5 million spread that we are going to draw down over time.”

Much more than 52 percent of the budget

Kimmel said that while the Board is recommended to get $175.5 million of the city’s recommended $337.1 million budget, or 52 percent, there are $24 to $25 million of expenses on the city’s budget that actually stem from the BoE.

That’s 59 percent.

“We pay the debt service every year, we issue debt to cover their technology and their building renovations and everything. So it’s their debt service cost but also all of their worker’s compensation claims and all of their general liability, auto and property,” Barron said.

Then there’s “the thing that makes me cringe,” Barron said.

The other day he got a letter telling him that the city needed to pay a “six-figure settlement for a case that had lingered at the Board of Ed for years and years,” Barron said.

“They said, ‘Here, pay this,’” Barron said.

“It got booked to the Board of Ed general liability account but guess who paid for it? They didn’t pay for it, we paid it for it because we provide the budget for their worker’s comp and their … insurances,” Barron said.

The Board used to pay for their worker’s compensation claims, medical claims and liability insurance but “years ago” Hamilton, then finance director, pulled those over to the city side because the Board was saying it didn’t have the money to contribute to the insurance fund, Barron said.

“That’s irksome. I think that if they have no budgetary incentive – I think they have a moral incentive and a good business incentive to reduce their worker’s compensation claims and their general liability auto and property claims, but they have no budget incentive because if they go through the roof the city is paying for it,” Barron said. “That’s a consequence of bringing them back to the city.”

Back then the Board did not have a strong finance department, but now it has the “sharp” Hamilton, Barron said.

“I was thinking of giving it back to them,” Barron said.

The Board would then be inspired to train its workers to avoid injuries, he said.

“If they make efforts to control their costs then they benefit from those efforts,” Barron said. “That’s why I think it’s appropriate for them to have their worker’s compensation and their general liability, auto and property.”