Norwalk borrowing against future for projects

NORWALK, Conn. – Norwalk’s debt is slated to increase “modestly” with the next fiscal budget, according to Finance Director Thomas Hamilton.

The proposed borrowing will increase Norwalk’s debt by about $6.4 million, to $218,785,835, in 2013-2014 as the city funds projects including City Hall repairs, road paving and a new Sammis Street pump station. Hamilton reports in his Recommended Capital Plan that he is calculating the amount of money Norwalk is borrowing against the fair market value of all taxable property, gambling that the ratio will not threaten the AAA bond rating Norwalk is using to get a favorable rate on the loans.

Here are excerpts from Hamilton’s Recommended Capital Plan, explaining the reasoning:
• Under the recommended capital plan, the city’s total outstanding tax-supported debt is projected to increase, from $215.9 million in 2012-13 to $222.3 million in 2017-18, an increase of $6.4 million or 3 percent. These figures exclude general obligation debt and state-backed Clean Water Fund obligations which will be repaid from sources outside of the general fund.

• The recommended capital plan provides for new debt to be repaid from the general fund of $15.6 million in 2013-14; $17.7 million in 2014-15; $16.6 million in 2015-16; $21.6 million in 2016-17; and $20.2 million in 2017-18.

• The recommended capital budget also includes a $2.1 appropriation for the Board of Education for implementation of the Common Core State Curriculum Standards. These items will be bonded over a five-year period, rather than 15 or 20 years. The recommended five-year plan includes $23 million for Board of Education projects, including funds to make improvements to Jefferson, Cranbury and Columbus elementary schools.

• “Debt as a percentage of the fair market value of all taxable property is an important measure of debt capacity. A ratio of less than 2 percent is considered favorably by the rating agencies.” Hamilton says Norwalk maintains a very favorable ratio, which is projected to remain favorable into the foreseeable future. The city’s per capita debt is “moderate” at $2,523; per capita debt will increase to $2,539 in 2017-18 under the plan, “comfortably below” the $3,500 benchmark.

• For 2012-13, debt service is 8.64 percent of total expenditures. Hamilton says, “The rating agencies consider ratios below 5 percent to be low, from 5 percent to 15 percent to be moderate, and above 15 percent to be high. Our objective is to maintain 4 debt service at or below 10 percent of expenditures. Under the recommended capital plan, debt service is expected to remain at or below 9 percent of city expenditures.”

• “In approving the capital budget, it is important to recognize that capital spending has a direct impact on the city’s future operating budgets and tax rates.” Borrowed money is typically repaid over a 20-year period, with interest. The city’s annual debt service paid from property taxes is projected to increase from $25.7 million in 2012-13 to $29.2 million in 2017-18, an increase of $3.5 million or 13.8 percent over the next five years. With a current tax levy of approximately $271.3 million, the increase in debt service will cause a 1.3 percent tax increase over the next five years.

• “Given the increasing unwillingness of some members of the public to shoulder a greater tax burden, the members of the Board of Estimate and Taxation and the Common Council should carefully consider the operating budget impact of the capital plan prior to approving a final capital budget.”

• “There is nothing on the horizon to suggest that other expenses will be going down to offset increases in debt service; indeed, all indications are that costs such as charter-mandated pension contributions, health insurance costs, and various other expense drivers will compound future expenditure growth. Debt service is one of the few items in the operating budget over which we have considerable control, based on the size of the capital budget that is approved each year.”

• “The recommended capital budget for 2013-14 totals $19,649,000. With offsetting revenues and other repayment sources, the total amount that will be bonded and repaid from property taxes is $15,618,000. With the city’s existing debt profile and with the economy still relatively weak, this is the maximum amount of additional debt that the city can safely afford, while still maintaining favorable debt ratio benchmarks and limiting the impact on future operating budgets.”