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Opinion: Trumpeting AAA rating just a lot of noise

By Peter I. Berman

NORWALK, Conn. — Come election times, the mayor, Board of Estimate and Taxation chairman and Common Council members trot out Norwalk’s AAA bond rating as evidence of “sound financial management.” But they remain silent on property taxes, municipal salaries, stagnant residential properties and grand lists and the abysmal decades-long record of failed redevelopment.

For starters, both Norwalk and it’s surrounding towns have had AAA ratings for decades and decades — in good times and bad. Those ratings really reflect the availability of well-paying jobs in Stamford and New York, not superior financial management. Indeed, if the jobs disappeared, so too the ratings. The really good jobs in Norwalk are from its largest employer — city government — paying the highest municipal salaries of any city in the state.

Anyone with a good course in Finance 101 can easily see that credit agency ratings should be used very carefully. Remember Enron, World Com, Bear Stearns, Lehmann Brothers, Eastman Kodak? Like public firms, municipalities pay the rating agencies for their ratings — hardly an objective arrangement.

But ratings for municipalities are basically designed for major institutional investors who hold municipal debt until maturity. And since few municipalities ever default, the agency analyses are fairly pedestrian. Not so for public companies where the size of the corporate debt offerings are huge (second only to the U.S. Treasury), the risks substantial, ratings used for equity assessment and the corporate debts (bonds) are owned by millions of investors large and small here and abroad.

Courtesy of their many failures of judgment, the agencies came under severe criticism as a result of the Great Financial Recession in 2008. Despite many calls for reform, the agencies remain exempt from litigation. A frequent criticism is that the agencies can hardly be objective when their clients are paying for their ratings. In sum, investors and others who take credit ratings at face value can soon have an “education moment.”

Both Norwalk and it’s surrounding towns are primarily residential communities with comparatively small business areas. So if AAA ratings are really all that matter when judging municipal financial management, then city officials are always to be blessed. They receive high marks during times of low taxes, low municipal salaries, vigorous property appreciation and active business development. And they receive high marks during current times of punitive taxes, high municipal salaries, stagnant residential properties, Grand List and negligible business development. If AAA ratings were all that mattered, then residents shouldn’t’ be concerned that Norwalk municipal workers are the highest paid of any city in Connecticut. Nor stagnant property values for three years. Nor by decades of stagnant redevelopment and large areas of vacant/underutilized land.

And if AAA ratings were all that mattered, Norwalk residents shouldn’t be concerned that the arbitration report took special notice of the much greater decline in Norwalk’s residential properties during the Great Recession compared to our surrounding towns. Nor should residents be concerned that we’ve had three years of stagnant property values amidst a national housing boom where prices have risen double digits in most every major housing market. Nor should residents be concerned that housing values in Norwalk are likely to decline when the next recession hits along with higher interest rates.

And why do many residents move to the surrounding towns if the city enjoys superb financial management ?

Nor should anyone be concerned that the BET — headed by a longtime chairman — not only sets the tax hikes but also is a party to all municipal labor union contracts. Here we have the BET chairman trumpeting the AAA rating while not taking responsibility for negotiating the highest municipal salaries anywhere and property taxes sufficiently high to encourage stagnant property values some three years into the national economic expansion. This is local government at its finest! Not my problem.

Anyone who believes that the credit agencies’ decades-old practice of giving Norwalk a AAA rating signifies that its financial affairs are properly managed must enjoy high property taxes and stagnant property values that cost the city’s residents collectively billions of dollars. And they must believe the BET and the city’s Finance Department were always on top of looking into the BOE’s financial affairs. Never mind the $4 million “missing monies” discovered a few years ago. And they must believe that NEON is well managed, too. And that battalions of $150,000 administrators are worth every penny.

For those who really have faith in the credit agencies, please explain how our lovely state — a national poster child for fiscal mismanagement, with bottom-ranking job growth but a top ranking for unfunded liabilities and debt — enjoys a high credit rating, AA I believe. A recent article in a national business publication frontally addressed the issue of why our state is failing.

When it come to finance, Norwalk’s motto is “I’m all right, Jack.” If the BET chair says we have a AAA rating, then by golly it must be true. But for those concerned about punitive property taxes financing top municipal salaries, stagnant property values and stagnant Grand List, there’s no luster here. The relevant question is the following:

“Who would buy a house in a city with high property taxes, stagnant property values, stagnant Grand List and where city municipal salaries are the highest of any city in Connecticut ?”

It’s a good question. So far the political leaders of both parties are hoping nobody will notice. Maybe they’re right. People get the government they deserve.

Comments

16 responses to “Opinion: Trumpeting AAA rating just a lot of noise”

  1. M Allen

    I lot of repetition here, some warranted I suppose considering they are issues that need to be addressed.
    .
    You’re advocating we should break the unions, yeah? Just wanted to be clear on that. Unions negotiations are a two-way street. Perhaps we do have some of the highest paid municipal employees in the state. Perhaps something does need to be done about that to bring it more in line. But that will require dropping the hammer on the unions. I’m pretty skeptical you’ll see that from a former municipal employee.
    .
    We are all well aware, or should be by now, of the deficiencies in credit rating agencies. But they are the entity we have and (sadly) nothing better has been created to replace them. Credit ratings are important, especially to the entity issuing debt. In fact, they are more important to issuers and their investment bankers than they are to even institutional investors who, by the way, aren’t just buy and hold investors from the 1950s anymore.
    .
    Make no mistake – the credit rating is extremely important for all Norwalk taxpayers. A lower credit rating will result in higher interest being paid on the debt. Higher interest will result in higher taxes or in city dollars from another area being used to cover the debt. It’s pretty simple math. Let’s not fall into the trap of making it seem like the credit rating doesn’t matter while we discuss other issues.
    .
    Taxes are indeed feeling high. If it were up to me, which it isn’t, I’d drop a moratorium on tax increases and freeze the budget and we’d all learn to make due on what we have. From schools to every other last department and program. But perhaps we can be a bit more creative in which issue we want to tackle. Berating the rating isn’t the problem.

  2. dlauricella

    Interesting discussion…needed to separate BET “happy talk” from important governance matters.
    One additional discussion item here: What are we taxpayers getting in return for those high salaries and generous employee benefits? Are senior officials offering quality work? Time for major overhaul and reorg.
    Thannkyou Peter and NON for posting.

  3. Oldtimer

    Professor Berman has something when he tells us a triple A credit rating is nothing to base a re-election campaign on.
    His persistent refrain that Norwalk pays municipal employees too much is not backed up by facts. He doesn’t look at private sector compensation for jobs with the same education requirements.(teachers) I am pretty sure he has no experience with police or fire dept jobs, but remains convinced we pay too much. It is hard to understand the mentality that wants the lowest bidder to respond to his emergencies, teach his grandchildren, etc. There is no doubt he is opposed to unions and believes employees should rely on the good will of the employer. He apparently is not a student of the history that brought on unions.

  4. M Allen

    Well, one can certanly be a student of the history that brought us unions and begin to disagree about their relvance today. But that is beside the point and a complete tangent.
    .
    It is right to ensure we are not paying more than we have to for our municipal employees. Like any business, paying more than is necessary is wrong. Unfortunately, municipal employee unions aren’t like private employee unions. They get to negotiate against an employer they can help to put in office or remove. So its a bit of an odd relationship in that sense.
    .
    There are a lot of issues realted to the pay of our city workers and our government administartors should ensure we are getting value for our taxpayer dollars. Its isn’t simply about the lowest bidder, but then again, it need not be the highest bidder either. It should be the bidder that provides the best value for the money we are willing to spend. Oh, and good luck with that.

  5. Oldtimer

    Matt Allen
    “Well, one can certanly be a student of the history that brought us unions and begin to disagree about their relvance today.” That is not beside the point. There are people, like Professor Berman, who mistakenly believe their good fortune did not benefit from the hard work of teacher’s unions and is soley the result of their own brilliance and hard work. How his ego brings him to that conclusion is hard to understand. How he, and others, believe the need for unions has disappeared because the terrible abuses in the employer/employee relationship have been dealt with is shortsighted. Do they really believe good hearted employers, and human nature, have changed so much that employees will always be well treated without the benefit of union participation ? Hard to believe some well educated people can be so naïve.

  6. M Allen

    Oh noes, you’ve outed me. lol Now go ahead Oldtimer, enlighten us as to your identity so we can look beyond your veil and judge your comments accordingly.
    .
    Fine, let’s derail the issue. The disagreement over unions in the modern era has to do with the fact that the unions won. They won so big they basically created no further need for their existence. The biggest victory came by way of the government taking on most of the concerns regarding the early unions, which has to do with worker safety and other protections. Today, most unions are focused exclusively on pay and benefits since the government takes care of the rest.
    .
    Obviously, I understand why those tied to the unions of today would like to keep what they have. What better position to be in than negotiating for higher pay and benefits with an entity that has the power to tax its citizens? Far better than negotiating with a business that must earn its money. Most of the unions of today are nothing compared to their forebears. Mainly office workers acting like each day is another trip into the coal mine or the steel furnace.

  7. dawn

    I still want to know where the water company got off raising my rates an astronomical amount in order to protect their AAA rating for future borrowing.
    They claimed that water usage was down and they were no longer getting the revenue they used to. Some of that was probably because of all the business closures and maybe shall I dare say it CONSERVATION.
    I am so conservative with water usage and my bill almost doubled.
    AAA rating my eye. they just want the revenue.

  8. M Allen

    btw – I don’ think anyone should take piberman’s commments regarding municipal employee pay as having anything to do with the unions, per se. I think it is more of a income vs. expense argument in light of his other issues surrounding property taxes, home values, the grand list, etc.

  9. Fred Wilms

    Mr. Berman consistently styles himself as a financial expert. So it is surprising that he gets so many of his facts wrong in the above letter.

    A few examples:

    “The BET…also is party to all municipal labor union contracts.” That is wrong. The BET is party to only two: the teachers union and the school administrators union. Last year I served with the BOE to produce the first time ever teachers wage/step freeze plus get the NFT President off the tax roles. So we actually accomplished what Mr. Berman has wanted to happen. Yet the BET is criticized..I am not sure why.

    “The BET Chairman …not taking responsibility for negotiating the highest municipal salaries anywhere.” That is wrong. Since the BET does not negotiate labor contracts (other than the above) I am not sure what responsibility Mr. Berman is looking for.

    “Never mind the $4 milliom missing monies discovered a few years ago.” That is wrong. The $4 million budget deficit occured last year, not a few years ago. Also the deficit was completely repaid by the BOE two years ahead of schedule and the recommendations of Blum Shapiro completely implemented. This problem will not happen again.

    “And they must believe that NEON is well managed too”. That is wrong. Actually the BET thinks NEON is NOT well managed. That is why the BET stripped $1.3 million annually from NEON to protect the taxpayers.

    “But they (the Mayor, BET, Council,etc.) remain silent on property taxes.” That is wrong. Perhaps Mr. Berman missed my Hour Op-Ed last week. I specifically highlighted that the average annual tax increases for the past three years was 2.53% and for the past five years 2.26%. I also discussed the revenue and spending pressures we had to contend with during the Great Recession.

    “The AAA ratings do not.. reflect superior financial management.” That is wrong. In fact Moody’s, S&P and Fitch all specifically praise Norwalk’s superior financial management in their reports. The reports are publically available for anyone to read.

    “stagnant property values” that are somehow the BET’s fault. That is wrong. The BET has nothing to do with redevelopment. We only oversee the the city budgets and finances.

    “And that battalions of $150,000 administrators are worth every penny”. That is wrong. The fastest growing cost employee cost component is not wages but benefits – pension, health care and post retirement costs. In fact, in the last year the City has made significant progress negotiating with the unions to rein in these benefit costs. I laid out the details in my recent Hour Op-Ed which apparently Mr. Berman has not had a chance to read. Also I wish Mr. Berman would tell us which $150,000 administrators he has a problem with. Most do not make that much money.

    In conclusion, I get that Mr. Berman thinks taxes are too high, property values have been stagnant and that city employees are paid too much. These are legitimate topics that both Mayoral candidates need to discuss. However I wish Mr. Berman could suggest positive, specific solutions to these problems. Since he is a self-styled financial expert, I look forward to hearing what his solutions might be.

    1. Mark Chapman

      @ Fred Wilms

      My guess is many people, like Mr. Berman, may have missed your Op-Ed in The Hour because many people in Norwalk don’t read The Hour. That is not a cheap shot. The circulation figures vs. population bear that out and it is the same in any city or town. We also are aware many people who no longer read The Hour read NancyOnNorwalk — or so they tell us. You might try broadening your reach by moving past the old reliable outlet and including all of Norwalk’s interested readers.

  10. Fred Wilms

    Mark – is that an invitation?

    1. Mark Chapman

      Indeed, sir. You have an open invitation. We will run the one that was in The Hour and any and all future pieces that you or anyone else in city administration sends us.

  11. Fred Wilms

    Thanks Mark. I just emailed the Op-Ed to Nancy. Thank you for your interest.

    1. Mark Chapman

      We will put it in the mix for posting late tonight. Thank you.

  12. C.ut P.aste A.ttach

    This editorial is specious at best.
    .
    The ratings agencies have 1000s of employees that cover hundreds of thousands of debt instruments if not millions for tens of thousands of publicly held companies and municipalities.
    .
    Fraud, like what happened at Enron, is extremely difficult to detect and ratings agencies rely heavily on the work of independent auditors. When legal documents purport the financial health of the company, there is more than one party to blame than the ratings agencies and you can read their disclaimers for yourself.
    .
    Net asset positions like those reported by Enron were the basis of those triple A ratings. Had Enron properly disclosed its off balance sheet liabilities or had Anderson detected them, then that information would form the basis of a much lower rating I can assure you.
    .
    Unlike Enron, the city of Norwalk would have a hard time pretending it had buildings or properties unencumbered by debt. Our net asset positions would be extremely difficult to manipulate, so the ratings agencies should be taken at face value here.
    .
    Again these ratings agencies are huge covering myriad sectors each with their varying debt instruments. To use an analogy here, the professor is complaining about a faulty lawn mower from Sears in Milford and extending that into an idea that you can’t trust the electronics department in Danbury Sears.

  13. piberman

    Its a great honor to have Mr. Wilms commenting on Nancy’s. Just a few questions for Mr. Wilms, long term Chair of the BET.

    1. Does Mr. Wilms think property taxes are too high relative to our median household incomes ? He doesn’t seem to think so. Does he see any link between our property taxes and stagnant real estate values ? The Arbitration Report specifically identified Norwalk’s high real estate taxes as a major causal factor in our City properties much larger decline during the recent Recession. Does Mr. Wilms agree with that assessment ? Or does he have another explanation ?

    2. Does Mr. Wilms see any link between our high property taxes an stagnant Grand List ? We don’t know. Does he have another explanation that merits consideration.

    3. Does Mr. Wilms have any explanation why Norwalk residental properties have been stagnant for the past 3 years amidst a national housing price boom in virtually all major markets ?

    2. Does Mr. Wilms accept the finding of the Arbitration Report finding Norwalk’s public school teachers are the 5th
    highest in the state, more than any other City ? Now Mr. Wilms states that both the BOE and BET are responsible for negotiating BOE union contracts. Now no one denies the BOE was failing its responsibilities in contract responsibilities. So what was the BET doing ? Just sitting at the table ? Can Mr. Wilms explain why the BET especially in the years under his Chairmanship wasn’t more forceful in keeping NFT salaries affordable ? Was the BET just an “observer” in these hearings ? Was the BET aware during these past years that Norwalk’s public school teachers were the 5th highest paid in the state and more than in any other city ? Or was that new news courtesy of the Arbitration Panel Report ? Does Mr. Wilms accept any responsibility for the rise in NFT salaries during his long reign as BET Chair ?

    4. It is a matter of record that it was the BOE, not the BET that originated and spearheaded the Arbitration hearings against the NFT. It was the BOE under the leadership of Lyons, Chiaramonte and Haynie who hired top gun attorney Tom Mooney. To the best of my knowledge in the public documents, viz. the Arbitration Report, NFT attorney brief, BOE attorney brief and Tom Hamilton’s brief is there any contribution from BET on these procedings. I’m not aware of any evidence that contributions from the BET were instrumental in the successful Arbitration hearings. It was a BOE show first and foremost. We can suppose that the BET “approved” the fine work by our valiant BOE members. Mr. Wilms says he had an “assist” in those Arbitration proceedings. Could he explain his “contribution” ? After all the general impression of the body public is that the Arbitration success was the product of the BOE. Not the BET. Are we misinformed that without the BET the results would have been different ?

    5. Mr. Wilms says the BET only has “responsibility” for the NFT and school administrator contracts. Could he then explain who has responsibility for the other City union contracts? And does the BET offer any opinions or advise on their suitability ? And could he explain the role of the Council in accepting these union contracts ? The public would really like to know how Norwalk came to have such high costs of municipal services. Just who is really responsible ? Mr. Wilms as BET Chair presumably would be in a fine position to identify the worthy officials involved in obtaining these results.

    6. Could Mr. Wilms identify the contributions of the other BET members ? We don’t hear much about the BET, just from Mr. Wilms. Could Mr. Wilms tell us if the BET studies salary costs of similar cities and has knowledge of
    such when making recommendations on taxes and budget ?

    7. Does Mr. Wilms see any links between our property taxes, stagnant property values and difficulty in attracting development over these many years ? Or does he believe there are other factors quite beyond Norwalk’s control that explains why we are characterized as a poster child for failed redevelopment efforts, especially along I-95 ?

    8. Does Mr. Wilms feel the Council is properly engaged in the City’s budget affairs and recommending tax increases ? Or is there room for improvement ? Does Mr. Wilms have an opinion on whether an elected Board of Finance would improve Norwalk’s tax and budget position ?

    9. Could Mr. Wilms explain why he feels it was appropriate for Norwalk to raise taxes and spending during the recent Recession when many of our residents were hard hit ? And when nationally a major contraction in municipal and state spending occurred.

    10. Does Mr. Wilms feel that municipal employee salaries are in line with similar cities adjusted for incomes and suitable for Norwalk’s median household incomes of about $72,000 ? Can Mr. Wilms identify major improvements in City services over the past several decades ? Many, if not most long term residents just see dramatically higher taxes without significant service improvements. What are they missing ?

    11. Does Mr. Wilms consider Norwalk to be one of the best managed cities in CT ? And on what basis does he make his assessment ? What recommendations would Mr. Wilms make for reducing residential property taxes to levels deemed affordable to most City property owners ? Or does Mr. Wilms maintain that taxes are appropriate for City incomes and services received ?

    12. Does Mr. Wilms have any explanation why Norwalk is traditionally considered the “transition” City for Fairfield County ? And what could be done to change that widely held perception ?

    13. Can Mr. Wilms explain why he was an advocate of BJ’s at the Route 7 location near where he reportedly lives ? Does he think the substantial numbers of residents who opposed the BJ’s site were misguided and not well informed about the BJ project ?

    14. Does Mr. Wilms believe the BET is sufficiently isolated from partisan politics so that it functions as a true and independent non-partisan City Board free of politics ? And that its members are chosen based on professional rather than on political considerations ? Does he believe there should not be term limit on BET membeship, especially for its Chair ?

    Peter I Berman

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