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Berlin officials debate use of surplus funds

Berlin officials debate use of surplus funds

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While deliberating an appropriation of surplus funds to pay off short-term debt, Mayor Mark Kaczynski said he’d like to use a portion of the remaining money to issue a tax rebate for residents.

The Town Council unanimously voted to use $444,000 of the estimated $1.9 million of unallocated money leftover from the 2019 fiscal year to pay off the last of the town’s short-term bond anticipation notes. By town charter, residents can vote to approve or deny the council’s appropriation during a town meeting before the Oct. 15 council meeting.

Kaczynski argued that some portion of the remaining $1.4 million should be returned to taxpayers, saying that the council didn’t know that the town would have any leftover money as it crafted the budget approved this May — information he said that could have prevented a mill rate increase.

He called the revelation frustrating given the contentious and drawn-out process that have characterized the drafting of recent budgets.

"It was disturbing to me, because we tried very, very hard on the council to keep our mill rate low and obviously have a budget that is acceptable to everybody in town and doesn't raise their taxes too much ... to see that we had a $2.8 million surplus was really disturbing because we wouldn't have had a tax increase here if we had that money in our hands, quite frankly,” he said.

Kaczynski said the town’s overall fiscal health is strong enough that some of the approximately $1.4 million of surplus money left can safety be diverted back to taxpayers.

"We have a pretty good fund balance — we can do better, we can put a little bit more into savings. We do have some unfunded pension liability, unfortunately, as well. But sometimes you've got to give back to the people that are opening their pockets," he said.

The total increase from the fiscal year 2019 budget to the current 2020 budget amounted to just under $2.3 million. No action was taken on Kaczynski’s suggestion, though he directed Finance Director Kevin Delaney to further investigate the possibility, including how much taxpayers could expect to receive from a rebate.

No clear answers on how — or if — money could be dispersed

Delaney said there’s little precedent for towns taking such action. Consultation with corporation counsel suggests that municipalities lack the authority to return money to taxpayers outright. However, it could offer various sorts of credits on the next tax bill. How the money could be divided — should everyone receive a flat amount or should it scale with what they owe — is still an open question.

“It’s an odd issue because most (municipalities) don’t have the issue of what do you do with a surplus,” he said.

Board of Finance Chairperson Sam Lomaglio said any tax rebate would require the approval of the board, a proposition he said he would not entertain.

“As chairman of the Board of Finance I won’t even put it on the agenda,” he said, citing the town’s debt load and the number of unfunded projects on the town’s capital improvement plan. “It’s totally irresponsible for the mayor to even talk about a refund.”

Lomaglio instead partially supports a proposal Delaney made at the Aug. 6 BOF meeting to earmark the remaining funds for the town’s pension fund. Where Delaney would prefer to have the money directly allocated to the fund’s line item, Lomaglio prefers that it be left in the town’s unassigned fund balance — essentially the town’s savings account — where any transfers out would require Board of Finance approval.

“If we put that money in the pension fund in the budget process the mayor can touch that money and use it for something else,” Lomaglio said. “Quite honestly, we don’t trust the mayor by putting it in the (pension fund).”

The current balance dedicated to pensions is $190,565, enough to cover the expected annuities this year, but a paltry sum relative to the expected buyouts that are anticipated this year.

Delaney’s concern with not having the money dedicated in the line item is that he has as little as six weeks to disperse a check for a retiring employee who requests a lump sum payment. If that requires him to transfer money from the unassigned fund balance he would have just a month and a half to gain the approval of the Town Council and finance board.

Majority of surplus derived from state education grant

The bulk of the surplus is made up of the $1.8 million state education cost sharing grant, a sum that was expected to arrive, but not placed into the budget because the state’s budget had not been finalized by the time the town passed its own spending plan in May. In his initial budget proposal, Gov. Ned Lamont called for a reduction in the grant money wealthier towns like Berlin would receive — a move that was rejected by the General Assembly.

The back-and-forth in Hartford left members of the local Town Council and Board of Finance hesitant to incorporate the money into the town’s budget when it could be cut down the road, leaving the town with a deficit instead of a surplus.

State Department of Education spokesperson Peter Yazbak confirmed that as long as the town has met the minimum budgetary requirement outlined by the state — which stipulates that a town cannot reduce school funding over the past year — the ECS money can be spent from the general fund for any purpose. 

“They can hold onto it and spend it like it’s from the general fund as long as they met their MBR,” he said. Since this year’s budget increased school spending by $1.4 million without the use of ECS funding, Berlin has already met that requirement.

Town staff also continued efforts to collect on back taxes, collecting a third of the outstanding $3 million in back taxes owed to the town at the start of the 2019 fiscal year, driving the town’s tax collection rate to 99.7 percent, up from the 99.1 percent that was budgeted for.

An additional $700,000 in increased revenue was achieved by Treasurer Nancy Lockwood moving town funds to bank accounts with higher interest rates or pressuring the town’s banks to increase their rates to match higher yielding accounts. At the start of the fiscal year, most of the town’s accounts were paying between 0.4 and 0.6 percent, which rose to over 2.4 percent by the year’s end, Delaney said.

Debt payments to save town thousands

The council and finance board have also already approved a $500,000 transfer to finish paying off a negative balance left in an account stemming from the purchase of 889, 903 and 913 Farmington Avenue with the intent of construction a new police headquarters, a plan that ultimately failed at referendum.

The remaining approximately $400,000 of surplus money already spent was used to purchase two vans for youth services and the facilities department, a lightning detection system for Timberlin Golf Course and use some funds to hedge against the possibility of an unfavorable tax sale.

Delaney estimates that paying off the $444,000 of notes will save the town around $26,000 this year between the cost of issuing a bond sale and interest, which does not include interest payments in future years. Smaller bond issuances also tend to have higher interest rates than the 1.5 percent the town is currently paying on long-term debt.

“Since we have the money it makes sense to pay it off now,” he said.
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