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‘Tough decisions’ on tap as Norwalk wrestles with debt decisions

Norwalk Chief Financial Officer Henry Dachowitz speaks to Common Council members recently.

NORWALK, Conn. — Norwalk is on track to lose its Triple A bond rating within two years, according to Chief Financial Officer Henry Dachowitz.

Dachowitz issued this warning as various City bodies begin considering the 2022-23 capital budget in light of the expensive efforts to upgrade Norwalk’s public-school buildings. Those needs are long overdue, two Common Council members said, questioning the wisdom of avoiding the decline to a Double A rating, given the tradeoffs involved. Others say they want to maintain the Triple A rating. 

It’s challenging, given the many school construction expenses. Council President Thomas Livingston (D-District E) reviewed this last week, as the Council approved a rejiggering of existing capital budget projects to enable the building of a new South Norwalk neighborhood school, cancelling the failed plan to build a new school behind the Nathaniel Ely preschool center.

“In just the last approximately four years, the city has approved a number of projects, including the new Lower School at Ponus at $43 million, the Jefferson renovate-as-new project at $33 million, the new Cranbury school, estimated $45 million, and the Naramake kitchen project, which is about three and a half million dollars,” Livingston said. “So that adds up to a total of $124.5 million, just for those four projects. If you add in this project, we’re about $200 million, just for these new school projects in the last four years. And that doesn’t even include the proposed Norwalk High School. So I think it really shows a commitment on the city towards the school buildings.”

Again, the South Norwalk school is not a new expense. The Ely project’s the funding was approved in 2017 and the funds have been redirected to a new plan, which hinges on buying property. Council members also gave the legal department a greenlight to negotiate for an unnamed parcel.

And the estimate for a South Norwalk neighborhood school has decreased, from the $76 million mentioned in November to the $72 million number Council members approved last week. This may fluctuate, given the property acquisition issue and a potential need to improve sidewalks in the area, Building and Facilities Manager Alan Lo said. The school construction is eligible for 22% state reimbursement.

The Council Finance Committee is reviewing existing capital budget projects, an update on “each line item and how much has been spent, how much is still available,” Finance Committee Chairman Greg Burnett said at the Jan. 13 Council Finance Committee meeting.

“We’ve had dialogue, consistent dialogue, as it relates to concerns with the capital budget, current capital budget, and in particular future spending because of … (a desire to) not create a situation where we’re spending more than we can borrow.”

Burnett said the City wants to “create a stable financial posture that will be looked favorable by the rating agencies and also maintaining our Triple A bond rating that we have, which is which is really a great thing to have. So we have to make some tough decisions in terms of what projects we definitely prioritize and need to take forward and what projects we might have to put on hold, as well as what projects we might have to say.”

“When I walked in almost three years ago, I discovered that we had many capital projects that were approved, for which we had not yet borrowed funds,” Dachowitz said, explaining that this is due to IRS rules.

“You’re not allowed to borrow more than you need for a project. And you’re not allowed to borrow for a longer period of time, and is reasonably necessary to use the funds to, let’s say, construct a structure,” Dachowitz said.

The Finance Department has been asking department heads every quarter for an update on expected cash flow due to capital projects, Dachowitz said, providing a spreadsheet to Council members. It included expected reimbursements; while Norwalk expects to spend about $50 million on the Norwalk High School project, it’s listed as $189 million, he said.

All told, the City needs to bond $220 million for work that has already been approved, including projects for the Water Pollution Control Authority (WPCA) and the Parking Authority, which will repay the money through user fees, Dachowitz said.

“This is a very big obligation. Everyone has already gone through the process of proposing, recommending and getting approval for all of these projects,” he said.

He asked City departments and the Board of Education if projects could be deferred or eliminated but the results were “really it’s too little, it doesn’t make a difference.” So he’s “resigned” to bonding about $30 million a year for seven years to cover what’s already been approved.

“This is really hard and challenging. There are many projects, there are many things that are very worthy. The problem is we don’t have enough resources for everything,” he said.

Dachowitz said he’d hoped that ARPA (American Rescue Plan Act) funds could cover some of the expected and approved expenses but City leaders realized that flooding mitigation was a critical need across the city.

“That’s the wise investment, you’re always trying to invest the money to get the biggest return on investment,” Dachowitz said. “The problem is, how do you calculate that?… I think, if we have fewer flooding zones, and the value of the properties go up, and then that helps us with our grand list.”

In collaboration with a financial advisor, Dachowitz has determined that Triple A rated Connecticut cities have a debt service is about 10% of the operating budget and Norwalk is at 9.5%, he said.

It’s expected that inflation will continue “and if we lose that Triple A bond rating, we’re going to have to pay a premium,” Dachowich said. “What will that do to our debt service? I guarantee you, we will go from nine-and-a-half to 13-and-a-half or 15 in the next five to 10 years.”

He said, “Based on everything I know, if we don’t make any changes, we will lose that Triple A bond rating in two years or less. I guarantee it.”

Council member Nora Niedzielski-Eichner (D-At Large) asked if Norwalk could do “balloon bonding,” attempting to capitalize on today’s low interest rates.

“We get into a capacity issue. We can’t build three schools at the same time, we can’t do everything at once, there’s a limit to what we can handle,” Dachowitz said.

Niedzielski-Eichner suggested that at the current interest rates, Norwalk would spend up to $200,000 a year more on its bonds if it were Double A.
That would be over a 30-year bond, Dachowitz replied.

“In the scheme of $50 million, that’s not a lot of money,” she said, advocating for “frank conversation” about risks versus benefits.

Some of the flooding issues date to the 1970s and, “our infrastructure has seriously deteriorated,” Niedzielski-Eichner said. “So at a certain point, the things have to be done. And if the question is, getting them done sooner actually saves us more money in the long run. Is that a valid choice?”

Having a Triple A rating while pushing expenses down the road as they become more expensive carries the risk of the infrastructure problems developing into an emergency, like a bridge collapsing, she said.

“I understand from everybody telling me that there was underinvestment in the past. Past is past, we can’t change it. I’m just saying financially, I look at the numbers,” Dachowitz said.

Adding the new projects to the already approved ones may mean an additional $75 million in debt per year, Dachowitz said.

“That’s why I predict within two years, we’ll lose that Triple A rating.”

“The fact that we’re having discussion, and we’re aware of it, is trying to resolve the situation, or at least get a better handle on it, as opposed to letter letting it spiral out of control,” Burnett said. “… the bottom line is some difficult, thoughtful decisions need to be made in order to improve our situation.”

Dachowitz is issuing a recommended capital budget today. He said, “I expect the debt service to go up.”

Comments

15 responses to “‘Tough decisions’ on tap as Norwalk wrestles with debt decisions”

  1. Sue Haynie

    Norwalk’s Triple A rating needs to come first. Make choices. Spend what you can afford.

    And maybe Norwalk’s all-Democratic city leadership can get the State to reimburse Norwalk’s school construction projects at the same rate as they reimburse other large city school projects.

  2. Jo Bennett

    Ah, post-election season, and adult conversations are welcome back to the table!
    This is absolutely no surprise. Can’t wait to see our next rounds of tax bills.

  3. David Osler

    I don’t understand is the city has a rainy day fund. And many of the proof projects have been on hold for 2 years so why would the city not be putting aside that cash and either paying for these projects outright or letting that money sit in some type of external account collecting interest waiting for approval lowering our borrowing needs as far as I can tell they would have had about 50 or 60 extra million had they done that

  4. DryAsABone

    But what about that rainy day fund?
    When the Federal money dries up, and it will, this state will be in far worse shape than it was five years ago.
    Check out the latest “package” that I had never heard of…The Restaurant Revitalization Fund. It seems as though everyone and every special interest got a handout from Trump and Biden…for what?
    A robust recovery?
    Politicians have used COVID inspired debt to buy votes. Nothing new there but the scale is historic and will go down as the biggest scam in American history.
    PPP.BBB. ARP.RRP.
    To coin Mike Tyson’s line, everyone has a plan until they get hit with debt service.

  5. Piberman

    Our kids and our community far more need public schools that meet CT Edu Dept standards of student achievement than they need more new schools. Why isn’t the BOE concerned about the persistent failures of our high paid school administrators to secure student mastery of CT Edu guidelines ? Our surrounding towns have no problem getting virtually all their students to meet these achievement standards. What’s the problem here ? Some 45% of City adults have 4 yr college degrees but most of our kids never secure 4 yr college degrees (CT Edu Dept). Why are we paying reportedly the highest Supt salary in CT when our kids are neither meeting CT Edu guidelines nor securing college degrees. Just what does our BOE do ?

    Before asking homeowners who provide almost all the City’s tax revenues to provide yet higher taxes to our high paid school system lets demand the BOE secure adequate student achievement. Aren’t our school administrators jobs to secure required student achievement ? Our surrounding towns are justly proud of their school systems, teachers and administrators. Why not Norwalk ?

    Our Common Council needs send a strong message to our BOE to roll up their sleeves and demand school administrators secure the student achievement we expect. Paying higher taxes to fund public schools that aren’t getting the job done that we expect is just awful. We ought be proud of our student achievement. Our BOE needs get to work demonstrating responsible oversight of our $200 million school budget. That means demanding our high paid administrators get the job done. Paying CT’s reported highly Supt salary at $300k for a public school system that doesn’t meet CT Edu Dept standards for most students is a stain on our City, harms our kids and speaks poorly of our BOE.

  6. Piberman

    Lets have some straight talk about Bond ratings. Norwalk like Fairfield County generally enjoys AAA ratings because of the high per capita incomes earned in Fairfield County and commuting to NYC. Not because our City financial management is held to unusually high standards. With a few obvious exceptions all of the County’s towns and cities have AAA ratings. Comes with the territory.

    Best I’m aware of Norwalk has never been in jeopardy of loosing our AAA ratings. Nor is it likely to do for the foreseeable future. The argument about funding yet more new schools ought reflect City homeowners comfort with tax burdens and the sad reality that our schools don’t meet CT Edu Dept guidelines for most of our students.
    Even though we match the high salaries provided by our surrounding towns. Paying the highest CT Supt salary for overseeing a school system that doesn’t meet CT Edu Dept standards for most standards hurts our City’s reputation just as it hurts our kids – our real concerns.

    No amount of new homeowner taxes funding new schools is going to improve our student performance. That requires a BOE far more focused on demanding our administrators work to much higher standards. Sadly our BOE has not to the best of my knowledge publicly focused on securing higher student achievements with benchmarks. Such as securing most of our grads meeting CT Edu standards. We need our Common Council and City leaders to demand our BOE to secure much higher performance from our high paid school administrators. That’s the BOE’s responsibility.

    Our City’s fiscal management outside its public schools some decades ago has generally been competent. Our City Hall has a good reputation. Mayor Rilling hired a well qualified City fiscal manager. Best I’ve seen in decades. But our public schools sadly have a different reputation. Even though we match per student funding levels with some of the wealthiest towns in America – our surrounding towns. No amount of additional school spending will secure better student achievement unless our elected BOE’s demand that result from our high paid administrators. Our Common Council needs demand much higher oversight from our BOE on student performance.

    Sadly the ones who really suffer are our kids. Graduating from a public school system where most students don’t meet CT Edu standards hurts them securing acceptances from high rated colleges. And that hurts launching subsequent post college careers.

    Before allocating major new monies for new school construction we need secure public targeted increases in student performance goal posts by our BOE and school administrators. And promises they’ll use Professional Search securing replacements. Not the “old school friendly approach”. We still have many old timers who remember when Norwalk had a fine reputation for its public school system. One that attracted new homeowners. Our City’s demographics haven’t dramatically changed. If anything we have a higher educated population with higher achievements than decades ago when our public schools had a strong reputation for excellence..

    Our surrounding town BOEs demand strong student achievement from their school administrators. Getting elected to their BOE’s is highly coveted. So we know what needs be done. Lets encourage our BOE to publicly specify its goals for much improved student performance. We have well regarded public school teachers. We taxpayers provide the funding. We have a well governed fiscally responsible City Hall.
    By all rights we ought have much better student outcomes. Just because its the right thing to do. Long past time for the BOE to roll up its sleeves.

    PIBerman is a 4 decade long City resident and long serving Board member of the CT Chapter of FEI – the nation’s organization of Chief Financial Officers for large public firms. He’s made many financial presentations before our Legislature in Hartford, State and Federal agencies including the US Congress and as an expert financial witness in various courts.

  7. John O’Neill

    I commend Harry Rilling for bringing in Henry Dachowitz. Probably this best hire he’s made as Mayor.
    Some thoughts:
    IF anyone reading this believes Norwalk High Project will come in anywhere close to $190 Million you’re smoking that legalized cannabis just legalized
    Try closer to $230 Million sans Pool. Has anyone looked at prices of construction material lately? That means at a MINIMUM Norwalk will need $80 Million which last I checked in greater than current $50 Million allocated. For a school that’s not needed.
    I won’t even discuss “savings” for South Norwalk School. In my opinion, that’s a total fabrication when you consider they money spent to expand Ponus.
    Niedziclski-Eichner — Why borrow later what you can borrow now philosophy? My daughter shops with that philosophy. She’s broke and Norwalk will be too.
    IT’s time the adults in the room (Besides Mr. Dachowitz)take control of free spenders and make those hard decisions that maintain Triple A rating. For those that believe the slippery slope stops at AA, see cannabis note above.
    For residential taxpayers — REVALUATION is coming and your pocketbook WILL
    be lighter, much lighter. There is no doubt about that. THIS is about YOUR money, NOT Their Money..

  8. Fred Wilms

    Our prestigious Triple A ratings are a firewall that keep us from tumbling down to the distressed levels of other Connecticut cities. Norwalk has always had more capital projects than we could afford. Previous Mayors however, from both parties, were able reconcile these competing objectives.

    Has the Rilling administration forgotten how to make choices?

  9. Seriously?

    Losting the AAA rating will cost taxpayers a lot of money. Cancel the demolition and fix the current NHS building. The architects cautioned everyone that there isn’t a perfect plan possible for that site, but they were understating the problem. What they propose is unacceptable, and the debt the city would incur is also unacceptable.

    With regard to both the South Norwalk school and the NHS project, remember that there are no final plans, hence we haven’t seen a single construction bid, and so all we have are the guesstimates of the architects and of the city’s building department. Wait until the shock when bids are opened. And then wait until change orders start because those add huge amounts to the costs.

    There is a story in the news about the number of Connecticut schools that need help because of the emotional needs of the students because of Covid. Well, a school construction project on that campus will add considerable stress to all who learn there and who work there — and who live near there. Think dynamite, whether to remove ledge or demolish the current concrete fortress. Think dust and dirt. Think heavy equipment and noise. Think horrendous traffic issues in an area that is already sorely challenged in that regard. Think the loss of outdoor athletic facilties for the duration. Think four years of all this. Cancel the construction and hire architects who can do something creative with the current building. It’s a solid structure that can last many years, and it is possible to fix it.

  10. Mr. Taxpayer

    “He asked City departments and the Board of Education if projects could be deferred or eliminated but the results were “really it’s too little, it doesn’t make a difference ”

    ______________________________________________________________

    Sounds like as If someone was going to the casino to gamble with $500 and suddenly the roof starts to leak at the homestead but, well, it’s too late to deal with the roof as I already made plans to go gambling.

    If you add Norwalk High School into the equation and at the rate of inflation than I estimate the total of this wasted spending will be above 400 million and that’s not factoring where the economy will be in the next 5 years.

  11. CT

    Honestly borrowing long term right is the best financial decision he city can make, If they’re going to borrow. A decrease even to AA right now has much less of an effect on rates than waiting for he fed to significantly increase borrowing rates over the next 5 years. Lock in your rates!

  12. Piberman

    John O’Neill’s comment on revaluation and sharp rise in construction costs ought be expanded. Sharply rising residential values encouraged by the flight of residents from mismanaged NYC means homeowners who now comprise almost 90% of our City’s Grand List will see higher property taxes as their share of the City’s budget significantly increases. And that’s independent of major new school construction.

    And its a good bet the City’s contracts for new school(s) will not be fixed priced. Likely the builders will have ample opportunities to pass along higher construction material and labor costs to the City, e.g. homeowners. And its a good bet our BOE which seems far more focused on building newer schools than securing acceptable student achievements will find various ways to further “enhance” the school building projects. That also suggests higher City outlays picked up by City homeowners.

    As apples fall from trees we surely know building new schools will not improve our student performance in meeting CT Edu guidelines. That takes hard work from a BOE willing to demand major improvement from our high salaries administrators. So far the BOE has made no “public commitment” to securing a major improvement in student performance or even announcing a date when they fully expect a majority of City students meet the CT Edu Dept graduation requirements.

    Now is the time to press Mayor Rilling, the Common Council and City leaders to pay careful attention to our City budget. And especially the BOE dreams of new schools. Public school buildings are typically built to high standards. Can stand for many many decades if reasonably well maintained.

    At days’ end Norwalk doesn’t have a public school shortage problem. Our major problem as a City is the failure of our current and past BOE’s to demand from our high paid administrators that they secure student achievement meeting CT Edu Dept requirements so they’re met by a majority of our graduating students. Absent a public commitment to secure that target with a date there’s no reason to expect much will change in Norwalk.

    Our BOE was elected to supervise the education of our children. It’s failed to secure our students meeting CT Edu Dept minimum requirements for graduation. But is focused on building new schools. Even if every one of our public schools were replaced overnight our students will still fail to meet CT Edu Dept standards. That’s the real discussion our City needs to have. Not further penalizing City residents financing new schools to meet BOE desires. New schools don’t improve student outcomes. Much better supervision of school administrators does. And its long past time for our BOE to do the job they were elected to do – educate our kids. Not build new schools.

    Our future is on the line. Is Norwalk to be known for its new schools ? Or a affordable community that successfully educates its children meeting CT Edu guidelines ? Unless Mayor Rilling, our Common Council and City leaders take a strong stand here we know the answer. Continued student failure to meet CT Edu requirements and further exit of long time homeowners unable to afford ever higher property taxes.
    We desperately need a BOE that does what it was elected to do. Educate our kids. Not spend their energies and attention on building new schools. Critical time for our City.

  13. s

    Our schools standards need to be raised.. Internal renovation of all schools is more than enough. There are many who can beautify / update a school on a lesser budget, why aren’t we looking at those instead of breaking down everything and starting from scratch. Most middle schools are in a bad condition, bathrooms pathetic, no fans or ac, add ceiling fans atleast. Improve the education offered by the schools. We’re way behind and the Norwalkers who can afford to move out of Norwalk due to education.

  14. Joe

    The last five mayors from both parties protected our AAA rating.

    Plus we’ve been denied any real public hearings for over two years.

    Please postpone the excessive building for a year.

    After all, it’s not the building that matters anyway.
    it’s the education inside the building that matters.

  15. John C. Miller, Jr.

    This BOE is out of control and the Common Council needs to have the courage to listen to Henry Dachowitz and stop the destruction of Norwalk’s Tripe A rating by continuing to propose annual budgets that spend more than the City and its taxpayers can afford. What ever happened to the “efficiency study” that was supposed to be done. Where do they think all this money is going to come from?

    Please note the following from a recent Yankee Institute newsletter which it’s not going to come from the State:

    “The day before Connecticut officials announced consensus revenue estimates of a $2.2 billion surplus in the state’s finances, the Office of Policy and Management sent a letter to municipal leaders across the state informing them that there would be no money in the Municipal Revenue Sharing Account for municipal grants.

    It was a stark contrast from OPM’s estimates in their July 2021 municipal aid document that indicated there would be $22.6 million in the account for municipal grants in 2022 and $54.7 million in 2023, but it was par for the course when it came to MRSA since lawmakers revamped it in 2015.”

    Below is a link to the entire article:

    https://yankeeinstitute.org/2022/01/27/connecticut-flush-with-cash-not-so-fast-says-municipal-organizations/

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