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Monday, November 22, 2010

FROM WALLINGFORD - Managing ability to pay

As published in the Record Journal on Sunday November 21, 2010

Jason Zandri

In last week’s From Wallingford, my counterpart, Steve Knight, reviewed recent election outcomes. He said across the nation’s “free-spending pols were shown the door,” but that here in Connecticut, the “Land of Steady Habits,” it would be more of the same with respect to spending money we don’t have.

I am willing to give the newly elected officials an opportunity to put their best effort forward before I assert that same conclusion.

As long as we’re on this subject — the “Land of Steady Habits” — I’d like to focus on Wallingford, because to claim that only Hartford and Washington are guilty is like the pot calling the kettle black.

Mayor Dickinson, true to his word, carried out his administrative decision to cut services if unions won their arbitration case. He is the Mayor and that is his prerogative.

Judgment in arbitration cases against the town comes as no surprise to most. One factor, for better or worse, when it comes to rendering a decision in these instances is a town’s ability to pay. Wallingford has solid ability to pay with (as of the end of the 2008-09 fiscal year) $20.4 million in its fund balance plus $11.8 million in undesignated funds that are not allocated to any one time capital purchases or expenditures. That doesn’t include an additional $7.2 million payment received from the Connecticut Resources Recovery Authority when Covanta took over the trash plant.

Having ability to pay is a double edged sword. It means our reserves are bountiful and we only have gotten there through conservative management which I do appreciate. One consideration of this of course is that in order to build up a reserve like that you need to be overtaxing. Municipalities can build up reserves when they have excess tax dollars remaining at the end of an annual budget cycle. Taxes and mill rates are set to correspond so that money coming in matches money going out to pay for these services. If you overspend you go into an operating deficit which generally becomes a debt that is mortgaged into future tax payments.

Not a good thing.

Building up some reserve makes sense. If there is a small gap from something unexpected it can be covered with savings. If enough money can be put aside then tax payers reap the benefit of excellent interest rates like Wallingford has when it does need to go out and borrow money.

Once you cross a certain threshold of money in the bank all that additional excess is not going to further improve your bond rating. If your largest single contingency without bonding can be covered by the difference then all monies saved past that combined point are of minimal additional positive impact.

When met with a situation of funding a critical service like EMTs I think the last choice which a town with a surplus should be taking is cutting that service back. One percent interest on $20 million dollars is $200,000.00 — twice what is needed to fund the arbitration award. With interest only and as a stop gap measure we could solve this problem; that would keep present levels of EMT service in place and leave the principal balance untouched. When the economy recovers and the grand list grows you can cut that stop gap measure.

If we don’t want to do that for whatever reason then I suggest the choice of cutting other non-critical services back before cutting EMTs.

Coming in as last choice is a resort to raising taxes. The median household tax bill would go up about three dollars to fund the arbitration award. Any of these choices are better than cutting any critical service that could put people at unnecessary risk in times of dire need.

Certain scenarios could place Wallingford at a higher risk of possible liability if it can be shown the reduction of this critical service was directly responsible for additional injury or loss of life.

Juries will find Wallingford has ability to pay out in a lawsuit just as easily.

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