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Norwalk CFO again warns against capital borrowing

Norwalk CFO Henry Dachowitz is shown in a screencapture.
Thursday’s Common Council Finance Committee meeting on Zoom.

NORWALK, Conn. — Norwalk isn’t out of the woods yet, even if its financial advisor recently said it could incur more than $400 million in capital bond debts without jeopardizing its Triple A bond rating, Norwalk Chief Financial Officer Henry Dachowitz said.

Dachowitz told Common Council Finance Committee members that every approved capital project should be reviewed and reconsidered. It’s an action he’s urged before.

Last year, Dachowitz quoted Bill Lindsay of Munistat Services, the City’s financial advisor, as predicting Norwalk will lose its Triple A bond rating within three years. Norwalk has about $360 million in outstanding bonds and Lindsay has warned that if the total gets to $400 million, it might slip to a lower rating.

But Lindsay has changed his tune and raised the threshold to $500 million, because Moody’s Investors Service has changed its analytical framework, Dachowitz said this month.

“One of the statistics that are observed by the rating agencies, is what’s the ratio of that debt service to our total operating expenses,” Dachowitz said Thursday. “And when it’s 10% or more, that’s also a hallmark of a Double A, and we are getting dangerously close to that. So while the good news is, it looks like we can go above the 400 million given our economic statistics, and our Grand List and all the other factors regarding our economy and finances, it’s still dangerous. We have to watch the capital borrowing as much as we can, especially with inflation, where two years ago, we borrowed at 1.75% annual rate for 30 years. One year ago, we borrowed at 2% for 30 years, the rates are much higher now.”

Because IRS rules state that borrowed funds must be spent within a certain time period, Norwalk has $175 million in approved capital projects that haven’t been bonded yet, the CFO explained. Last year it was $225 million but the City borrowed for more than the budget that had been approved in that budget season.

Although the Committee unanimously advanced the proposed issuance of $48,440,692 general obligation bonds, Dachowitz said the City would be borrowing $55 million, when this year’s capital budget is for $40 million. That will bring the total debt to $415 million.

That will hopefully bring the unfunded approved projects to $160 million but “that’s a tremendous overhang. And unless our Grand List keeps expanding at a very large rate, which we don’t see right now, that’s going to be the constraint,” he said.

Some of the approved projects will come in with higher costs and, “I worry about being able to afford all of this without extraordinary increases in our mill rates and taxes. So I don’t think we’re out of the woods. I think we’re okay for this summer.”

Council member Diana Révolus (D-District B) voiced support for the thoughts.

“We really do need to pay attention to the things that we are okaying and the requests that are coming to the City towards our budgets that will affect our mill rates, because it’s coming to a space and place where we will, again, either have to do some things or cause our constituents a little strangulation in their abilities to fund a lifestyle that they would like to see in Norwalk,” she said.

The problem is that all capital projects “are worthy,” will help grow the city and increase the quality of life, Dachowitz said. “…When you move back, like a zoom camera lens, and you get the big picture. The question is the affordability and the tradeoffs. That’s what it’s all about.”

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3 responses to “Norwalk CFO again warns against capital borrowing”

  1. Bryan Meek

    Once the commercial real estate revaluation comes to light it will probably be too late to change directions and we will enter this debt ratings spiral the way we continue to spend.

    $40 million in interest expense this year alone and we haven’t even seen the compounding effects of new debt being issued at over 5%. And these numbers will go up as inflation is only beginning with the ARPA money use it or lose it schemes coming on like a fire hose.

    The new “free” NHS is going to end up costing this city $150 million once we are done paying the interest (which is not reimbursed by the state). It is going to cannibalize things the city actually needs to build and fix.

    It’s anecdotal, but most people aren’t even aware about the NHS scheme. I asked a lot of play goers (Newsies) what they thought about taking a wrecking ball to NHS and most thought I was joking. Then ask me why we aren’t fixing our other schools that are actually falling apart.

    We could have nice things here everywhere you look, but no….we need to satisfy the Governor’s plans for a regional high school and Duff gladly sacrificed us and sadly no one else in the city can see the forest through the trees.

  2. justin matley

    I too am beginning to waver on our ability to afford the new NHS. Do I think we need it? Yes. But I do see the interest rates putting a real damper on our ability to harness other much needed capital investments.

  3. Bryan Meek

    @Justin. You don’t even need Finance 101 to realize the cliff we are marching over to our peril. With 20 schools using an average 50 year life span we should be replacing these one every 2.5 years. We’re catching up. Jefferson and Cranbury were smart. We Had a good plan in place scuttled to do 2 more to make way for the vanity Regional HS project we don’t need. We can stop it now and fix what we need or we can go down the rabbit hole of debt while ignoring the rest of our system. My guess is the latter, sadly. The NHMS and WRMS kids who’s entire middle school experience was disrupted by Covid will now get to endure their entire 4 years of NHS without a real campus just so Lamont and Duff can get pictures with a shovel. Makes me want to puke.

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