Republican Mayor Erin Stewart proposed budget appears to cover a possible $11 million long-term deficit with non-recurring budget items that may leave a sizable shortfall in future years’ city budgets.
Stewart’s budget proposal has already been criticized for increasing property taxes, despite her claim of “no tax increase”, as well as for freezing the city’s annual education allocation and continuing to rely on increased city debt to balance the annual budget.
The potential for future deficits comes from three areas which appear to represent sizable a non-recurring expenditure reduction or revenue increases.
On the expenditure side of the budget, Stewart proposed reducing the allocation to cover the costs in the city’s Medical Self-Insurance Fund by $4,873,821 under the departmental cost estimate.
The actual amount spent in the 2017 budget year was $10,802,991 and the current budget year’s allocation is $10,742,069. Yet Stewart’s proposed allocation of $6,238,794 to the Fund would be $4,503,275 less than the amount budgeted for the current budget.
The city maintains its budgeting in different accounts, called “Funds”, and different funds may pay or owe money to each other. The city General Fund is what most people think about as the city budget, but the city’s finances also include other funds, such as the Medical Self-Insurance Fund, from which the city pays the costs of city employee health benefits.
In addition to a reduction in the allocation from the General Fund to the Medical Self Insurance Fund, Stewart is also proposing to undo a change made early in her administration to separate the city employees and Board of Education employees into two different Medical Self Insurance Funds. Stewart now proposes to mix the revenues and expenditures of the two funds.
It appears that Stewart’s proposed $6,238,794 General Fund allocation to cover the costs in the city’s Medical Self-Insurance Fund was based on estimate she made in the Medical Self Insurance Fund for how much city employees health benefits will cost in he upcoming budget year.
Within the Medical Self Insurance Fund, currently for “city side” and not Board of Education employees, Stewart has estimated that the medical benefits paid on behalf of city employees will be $6,126,179 during the upcoming budget year. That budget estimate, however, is $3,892,252 less than the average amount of medical benefits paid during the three last closed city budgets.
The amount of “city side” employee health benefits paid averaged $10,018,431 per year between the 2015 and 2017 budget years. That means that Stewart’s proposal to allocate $6,238,794 to cover those costs falls $3,779,637 less than that past experience of the actual cost. In fact, Stewart’s proposed allocation is $5,431,966 less than the highest annual amount of benefits paid among those three years.
Another area contributing to possible future deficits is a line in the revenue side of Stewart’s budget proposal for income from a “Ban/Bond Premium.”
Stewart proposes that the city would receive $3,165,000 in this revenue line, which would be $858,789 over the $2,306,211 in the current year’s budget. But, while current year’s budget has $2,306,211 in this revenue line, and the 2017 budget year even shows $6,952,137 in “Ban/Bond Premium” revenue, that was not true in the years before that. There was only $501,361 in “Ban/Bond Premium” revenue in the 2016 budget year and $0 in the two years prior to that.
If future city budgets did not have the “Ban/Bond Premium” revenue that is in Stewart’s proposed budget, then the $3,165,000 in her budget may turn into a deficit in the city’s future.
While Stewart, in her April 11, 2018 press release, said that her budget proposal, “retains an $18 million fund balance,” her press release did not say that her budget apparently proposes to remove $4,000,000 from the city’s Fund Balance.
The “Fund Balance” is sometimes thought about as if it were a saving account, but it is actually the difference between the assets and liabilities. It is a typical way of measuring how much of a cushion a government has in its finances.
Stewart’s proposal appears to withdraw nearly one fifth of that the savings “cushion” in order to cover the operating expenses of the upcoming year’s budget.
Since the “savings” would be gone, once spent, using it in the upcoming year’s budget would add to the non-recurring amount temporarily covered in Stewart’s proposed budget.
Even if considering Stewart’s allocation to cover the costs in the city’s Medical Self-Insurance Fund as $3,779,637, rather than $5,431,966 short of past experienced costs, adding this $3,779,637 to Stewart’s plan to count on revenue from the apparent non-recurring $3,165,000 in “Ban/Bond Premium” and apparently drawing $4,000,000 from the city’s Fund Balance would add up to $10,944,637, approximately $11 million, that might translate into a deficit in future year’s city budgets.
That approximately $11 million in possible long-term deficit apparently in Stewart’s budget plan for the upcoming year comes against a history, as the New Britain Progressive reported in 2017, of Stewart’s proposal for what became the current year budget covering a possible $15 million in long-term deficit with non-recurring budget moves, and against the backdrop of Stewart’s new budget proposal increasing current year taxes $4,326,208 over the current budget year.
Editor’s note (5/2/2018): The New Britain Progressive temporarily withdrew this article, when it was decided, after it was briefly published, to revise the article’s budget analysis. While the $12 million possible long-term deficit cited in the briefly published edit is based on sound estimates, the New Britain Progressive’s revised edit is based on a more conservative analysis.