MINUTES
SPECIAL MEETING
BOARD OF FINANCE
MAY 15, 2007
A SPECIAL MEETING of the Board of Finance was held on Tuesday, May 15, 2007 in the Council Chambers to set the mill rate.
Those in attendance included Mayor Ryan J. Bingham, members of the Board of Finance Daniel Farley, Bruce Cornish, Mark Bushka, Thomas Scoville, and James Zeller, Corp. Counsel Ernestine Yuille Weaver, Comptroller Alice Proulx, Superintendent of Schools Dr. Susan O’Brien, Assistant Superintendent of Schools Dr. Barbara Campbell, Director of Business Services Nancy Haynes, and members of the Board of Education Elinor Carbone, and Douglas O’Connell. Board of Finance member James Nichol was absent.
Mayor Bingham called the meeting to order at 5:20 p.m., immediately following a regular meeting of the Board of Finance.
DISCUSS BUDGETS #620
On a motion by Mr. Cornish, seconded by Mr. Farley, the board voted unanimously to discuss budgets.
Mr. Cornish asked where the Undesignated Fund Balance will be, should they implement the budget as proposed, with the revenue estimates as they exist. It was his understanding that they were using current year surpluses, and financing one-time projects from the fund balance. He asked if there were additional fund balance requirements over and above those two items?
Comptroller Alice Proulx indicated that we were using the surplus of $1.5 million because it wasn’t used in the current year’s budget.
Mr. Cornish said the effect of the Board of Finance’s motion in the previous meeting (to fund the masonry work at the police department building) will be that they will have to come up with additional fund balance, which is the transfer of the Anthem into the fund balance and the allocation as part of the budget process to revenues.
Ms. Proulx said that was correct.
Mr. Cornish said it may not change the number in the budget, but will look different in the distribution.
Ms. Proulx said it depended on whether they wanted to use more of the fund balance, because the surpluses and the expenditures that they’re using for the police department had not been incorporated within the $1.5 million, because she found those funds today. She found more surplus totaling $420,000.00 from debt interest for bonds that was refunded and interest
that we didn’t have to pay this year. So, if expenses were to be reallocated, that additional Anthem money you want to transfer will add to the surplus.
Mayor Bingham noted that the $1.5 million was without the Anthem money.
Ms. Proulx indicated that the goal for the preferred fund balance is 5% in relation to the total budget.
Mr. Cornish said 5% was the minimum fund balance that he was willing to expose the city to. He said “That’s just my opinion, based on what discussions we’ve had over the years in the presentations to the bonding authorities, and as well to judge our risk that we’re not going to get $3.4 million additional dollars in state revenue, with that picture still being gray, that number is a number on a piece of paper at this point.” From this perspective, he has asked Ms. Proulx what the impact would be, and she has laid it out nicely. With our 6/30/06 fund balance, we are looking in this budget to take $596,000.00 to fund that list of one-time projects, leaving $5.6 million undesignated, which is $136,000.00 in excess of that 5%. That does not include the current
year’s surplus in excess of $1.5 million, now that they asked to reallocate expense lines to fund the Police Department project. It will go up if we deposit the Anthem money.
Mr. Scoville agreed with Mr. Cornish that he didn’t want to see the undesignated fund balance go below 5%. He thought the undesignated fund balance should be explored with our bonding company and perhaps CCM over the next year to see how much is too much, and when it becomes irresponsible to have too much.
Ms. Proulx said she discussed this issue with the bonding agency and the only thing they would commit to is that they like to see a trend in a positive direction.
Mr. Cornish pointed out that we were fortunate to have a tax collection structure that guarantees 100%, so our risk is a little less than other communities. However, it doesn’t minimize our need to have savings in the event some fiscal crisis or emergency requires a great deal of money. Prudent financing demands that we maintain a good balance.
In regard to the issue about gauging risk with the $3.4 million, Mr. Cornish asked Ms. Proulx if the growth rate was a bit higher on the state side than it normally is. In other words, if we were to look at normal growth, would it be a million dollar exposure to revenues, or less?
Ms. Proulx said if we went with 3%, it would be an approximate $700,000.00 addition to the ECS Grant, which is where we would take a primary hit. So what’s actually being budgeted is $2.5 million more than what we would see in a normal growth.
Mayor Bingham indicated that we were trying to set the mill rate by May 15, according to the Charter. He didn’t think the city had ever waited until the state had adopted its budget to set its mill rate.
Mr. Bushka asked if any of the proposed state budgets would allocate substantially less to Torrington.
Mayor Bingham said the Republican budget would allocated less to Torrington, but it was unlikely their budget would be adopted. He was going by the Democrat’s budget.
Mr. Scoville indicated that both of those budget proposals were crafted at a time when we were projected to have a very low surplus, however, the surplus just came in between $800,000.00 and $900,000.00.
Mr. Cornish said they talked about what would happen if they missed this by a mile, and Corp. Counsel was going to look at precedents in terms of other communities who may have experienced similar situations, or taken steps after a mill rate was set.
Corp. Counsel Weaver said statutorily, we would be able to go back to amend the budget. The only standard is to act with good conscience.
Mr. Zeller asked for discussion on the $250,000.00 contingency that’s built into the school budget for unanticipated out-of-district costs.
Mr. Cornish said he believed the recommended amount requested by the Superintendent was flat, based on current year expenses, so the year 2007 had no growth, and 2007 was about $1 million in excess of the 2006 budget. Putting that small amount of money in the budget as a growth factor for 2008, is minimal, but very good budget strategy to minimize exposure. He said someone suggested to him that they should perhaps consider taking that money out of the budget and deal with the deficiencies as they arise. There are a couple of difficulties with that.
Mr. Cornish explained we were able to deal with that type of deficiency this year because of the additional expenses. The Board of Education had a revenue stream and they projected additional revenues directly related to those expenses. In addition, Ms. Proulx was able to identify a better than predicted performance on the Blue Cross payments, so we could reduce their payment obligation and thus free up existing budgeted money to cover some portion of the out-of-district deficit without having to totally decimate the end- of-year programs at the school districts.
He said the district budget is built primarily with salaries. The other expenses are fixed costs for utilities, busses, gas, etc. There aren’t many items programmed for spending at the end of a school year. Books, supplies and materials are all bought up front so those line items are exhausted. There is very little flexibility, should the revenues not be there to offset new expenses to make any decision other than things that are really distasteful to us as a community, and certainly distasteful to the Board who has to implement them and the Administration who has to carry them out. From the perspective of good budget strategy, this is great.
Mr. Cornish said he heard the Chairman of the Budget Committee, Doug O’Connell, say the Board of Finance had no control over what line items the Board of Education would cut should the Board of Finance reduce their budget. Mr. O’Connell also said he would not recommend going after that $250,000.00, even if the Board of Finance tagged the $250,000.00 to that account, and Mr. O’Connell carries the weight of the Budget Committee.
Mr. Cornish said it was his belief that $250,000.00 was really a minimal amount of money to put in the budget to protect from growth.
Mayor Bingham said historically, the Board of Finance has been apt enough to know that this is an unforseen exposure. To tax people for something you’re not certain will occur would be an unnecessary tax. He thought we should budget for what we know. He thought the city was soluble enough to handle an unforseen hit with unforseen revenues coming from that direct hit, which is what happened this year.
Mr. Cornish said the other side is the more harmful side that occurs when we stop buying paper, supplies, and materials for kids to write their homework on and stop the progress and growth in the district.
Mayor Bingham noted that the Board of Education said they would not use the $250,000.00 for anything other than what it was put aside for.
Mr. Cornish said if the Board of Finance cuts the Board of Education budget, they’ll cut materials rather than cutting anything from the $250,000.00 so they can protect themselves from the growth in that line item. Mr. O’Connell strongly felt the need for that buffer because of the uncontrolled growth they experienced this year, even if they’re not certain that it will occur again next year.
Mayor Bingham said he didn’t want the city to separate itself from the Board of Education. The Board of Finance passes one mill rate, and the city as a whole, has an undesignated fund balance. Board of Education problems are the city’s problems as well. He asked why we needed a separate contingency when we already have an undesignated fund balance.
Mr. Cornish said because the Board of Education can’t come to the Board of Finance to get an immediate allocation from the fund balance unless it’s under $100,000.00. They can’t adjust their budget without following the Charter. He wasn’t certain if there was precedence to allocate contingency. In either event, they don’t have a fall back unless there’s a direct revenue offset. We can’t take $250,000.00 from the fund balance and provide it to the school district to make them whole. The system is not set up to simply take the money when we have a problem.
Mr. Farley suggested earmarking the newly found $420,000.00 in surplus specifically for that reason so we don’t end up taxing the taxpayers for the $250,000.00 contingency.
Mr. Cornish said Mr. Farley’s suggestion was the same process as the one they used when they financed a portion of the budget with surpluses from the current year from the fund balance, or from the $500,000.00 proposed from the undesignated fund balance. Overall, we’re still putting almost $2 million of current city money into the budget to make it what it is right now. Either way, we’re still working within the boundaries of the 5%.
Mr. Cornish said he thought the Board of Education had some risk built into their budget as well, with the reductions they took along the way, most notably the incremental $200,000.00 cut in salaries as the summer pay component. The reality is that we pay a portion of salary from the prior contract year for teachers who take the option of being paid all twelve months. We pay that out of next year’s budget. They took $200,000.00 out as an estimate, the impact on current budget from that summer pay. He thought that estimate was a bit high. It was his belief that the district budget was done responsibly as the city side budget, and he supported it.
Mr. Zeller asked Mr. Cornish if it was his opinion that the Board of Education would cut items that would directly impact students, such as textbooks and paper, if the Board of Finance was to cut the $250,000.00 from their budget.
Mr. Cornish said he asked the same question and Mr. O’Connell stated that he would not recommend going into that particular line item to make that adjustment. Of course, Mr. O’Connell is only one voice from a board of ten. Historically, we’ve been impacted by out-of-district placements for several operating years in a row. District plans have been modified to the detriment of the children because out-of-district placement is expanding well beyond the budget ability to pay for it. We have to protect ourselves in some way. The district has worked very diligently over the last couple of years to build a budget that meets the needs of the kids, not just those who are unpredicted, but also those where we have predictions and expectations and we tax people on those
expectations.
Mr. Zeller asked if the $250,000.00 was based on a reasonable belief on how many out-of district placements the Board of Education will have next year.
It was his belief that, once it’s in the budget, it’s there to stay.
Mr. Cornish indicated that the Superintendent’s budget is the “as is condition,” 96 placements and $4.4 million dollars. They thought “as is” was $3.3 million and they were wrong.
Mr. Zeller asked if there was any way to look at it from the city’s perspective as they get later during the year when they actually have more direct numbers to go back and plug those funds rather than doing it in an up front manner?
Mr. Cornish said the Charter clearly says any item over $100,000.00 needs a referendum. There may be a strategy that says the city can increase the contingency to allow the Board of Education to come back and look for contingency as a city department, just like every other city department, but we’ve never dealt with such a transfer and he didn’t know if it was possible, or if it would affect their reporting, their ECS funds, or any of their grants, etc. because a budget exists somewhere else. In his mind, the Board of Education doesn’t have a contingency and this is a reasonable budget approach to protect themselves.
Mr. Zeller thought it would be worth looking at the $250,000.00 incremental charge that the board’s budget would have to bear, if there were additional out-of-district placements at some point in time. It’s not just the gross number of 5 students at $50,000.00 each, it’s probably substantially more than that.
Mr. Scoville said it was a very troubling issue and asked if it was possible that Torrington might be carrying an unfair burden as compared to other towns and cities. He didn’t want the Board of Education to interpret his favorable vote as setting a precedent, and thought this should be looked at each and every year. When he was appointed to the Board of Finance, he fully expected to cut the Board of Education budget, and it was remarkable that, for two year’s in a row, they may be approving a budget as presented. That’s almost unprecedented. The fact that they are looking at a no tax increase will help him make that decision.
Mr. Cornish said he was certain the Board of Education would be happy to talk to Mr. Scoville about the condition, the problem and the solutions of this out-of-district placement issue.
Mr. Scoville said perhaps Mayor Bingham and other Chief Elected Officials from other cities and towns that are bearing this unfair burden could put some pressure on the legislature to start funding some of the unfunded mandates.
Mayor Bingham said he belongs to CCM, LHCEO, and the Ct. Consortium of Municipal Responsibility and their mission is to get funding for these unfunded mandates.
Mr. Farley said he was not in favor of the $250,000.00 contingency. However, he sympathized with the Board of Education and was in favor of putting those funds aside for the Board of Education, even though it sounds as though they won’t be able to do that. It was his belief that Mr. O’Connell said he was willing to give the $250,000.00 from contingency back to the city if they didn’t need it. His dilemma was how the city could keep the money and get it to the Board of Education when they need it so the kids won’t suffer.
Mayor Bingham said the spirit of the Charter wasn’t meant to create a wall between the city and the Board of Education in times of fiscal problems, especially on issues they don’t have control over. It’s the Board of Education “and” the City, we have one budget and residents receive one tax bill. He was not in favor of a $250,000.00 Contingency for the Board of Education because the city already has a built in contingency and that city includes the Board of Education.
Mr. Cornish made his position clear. He was against any activity that would set a precedent to allow them to make decisions that are not transparent and go to the undesignated fund balance to fund a project that’s important to someone. Every precedent he was aware of, every activity they have undertaken to add money to the budget during the year without going to the public in the form of a referendum, has been as a result of an offsetting revenue to make that happen.
Mr. Cornish said everyone can understand the need for masonry work at the Police Department, everyone can understand the issues which the Board of Education is confronted with in terms of providing services to all students. Regardless of those real needs, it’s bad policy to create a precedent whereby the Board of Finance can pick from the undesignated fund balance.
Mr. Scoville said he would be worried about where the $250,000.00 would come from. He noted that the city has seen a return on its investment to the school system during the last year. Results can been seen at the high school and the middle school. Guidance counselors are included in the budget to start the school year a few days prior to the opening of school in order to help children with their class schedules. Children now go to school all day because the city has funded the teachers to back up their scheduling. Seeing the improvements doesn’t mean the Board of Finance won’t continue to watch the Board of Education very prudently.
Mr. Zeller said Mr. Cornish made it pretty clear that it was most appropriate from both the city as well as the Board of Education side, to budget the $250,000.00.
Mr. Zeller said, to the extent that there’s $250,000.00 above and beyond what’s actually needed next year for that incremental charge above the educational cost sharing, it was Mr. Farley’s opinion after listening to the presentation, that the money was essentially earmarked for those out-of-district placements, and not to absorb any other excess amounts they may need. He stated that he was very hesitant to throw anything out there as a contingency item. He thought Mr. Cornish made some really good points as to why they should look at it from that perspective, and agreed with Mr. Scoville that it’s something that both boards can get a handle on in the future. It would certainly create a comfort zone for anyone trying to budget these items and pass a mill rate. It was his
belief that the taxpayers should only be taxed as much as they need to carry the budget. To the extent that a reasonable amount has been built into their budget, then he has a bit of confidence in the discussion presented, and that’s all they’re trying to do at this point and not trying to go above and beyond that amount, which is always a concern of his.
Mr. Bushka said he opposed any contingency in the education budget. Unfortunately, the budget committee called it a contingency, where it may really be an estimated cost increase, just like you estimate your utility increases. He opposed a contingency but favored solid budgeting where you anticipate cost increases.
Ms. Proulx asked the board if they might prefer to establish a contingency line within the contingency portion of the city budget, and to place the $250,000.00 in that line item, where it could be transferred into the Board of Education’s budget should they need it at some point in time.
Mr. Farley indicated that the taxpayers would still be paying for it.
Ms. Proulx said they wouldn’t if they were to use a portion of the fund balance.
Mayor Bingham asked Ms. Proulx if they could use the Blue Cross funds.
Ms. Proulx said they could take more out of the Blue Cross surplus as well.
Mayor Bingham indicated that the litigation for Blue Cross is over so they could put $250,000.00 into a contingency line item and the rest could go into the undesignated fund balance.
Ms. Proulx said they could do the transfer in and it will become a greater surplus available this year. They could then apply that portion of the fund balance to that contingency.
Mr. Cornish said the revenue side of the equation is something they’ll have to discuss in terms of where they are, based on what they did earlier and how they modify that with the Blue Cross money.
Mr. Cornish said he understood the concern about leaving it in the Board of Education’s budget. It is an honest approach to a budget and it should be reflected there as part of the spending of the budget of the board, the district and it’s well placed there. Functionally, if they have access to the contingency, if it’s in the city budget, fine, but again, it’s not really a city budget line item. We’re merely a keeper for it. As far as transparent publication on what we were doing, it belongs with the board. Just my impression of telling people what we’re doing, what we’ve just done and keeping it simple. He agreed with Mayor Bingham that they were creating one budget, one tax bill, one way to finance it based on all revenue estimates, projections,
and our use of funds in the city’s accounts to make this thing whole. Whether you put it on the city side or the Board of Education side, it’s flip a coin. It makes more presentation sense to leave it where it is and monitor the way they set it up, and continue to participate as a board in the budget reviews, budget discussions, and pay attention to the activities that are going on.
Mr. Cornish referred to the last four Board of Education budgets, two of which weren’t so good, but the Board of Finance thought they were good at the time. He said his first two budgets were certainly much more contentious and he thought the Board of Finance made cuts as a board that were not informed cuts. By participating in the Board of Education’s budget, he hoped he has been successful in passing on helpful information to his peers and that the decisions they make are a bit more informed than just an eleventh hour decision. His position is that the funds should stay where they are and be published and monitored that way.
Mr. Scoville asked if it would be appropriate to get reports from the Board of Education.
Mr. Cornish stated that they receive the monthly financials as the board approves them, and they’re broken down into detail level that will bring that line item to the forefront.
Mr. Bushka asked Ms. Proulx if she was suggesting creating a line item in the city budget.
Ms. Proulx said yes, it would be Contingency, Board of Education. If they had an issue, they could come forward and request a transfer into their budget.
Mr. Bushka said we would be taxing the residents of Torrington because we would be increasing the city budget.
Ms. Proulx said, unless the Board appropriated the fund balance, which they discussed as surplus.
Mr. Scoville noted that doing so would be a cut in the Board of Education budget and an increase in the city budget.
Mayor Bingham explained that the board could vote to adopt the 2007-2008 City Budget. Whoever makes the motion could amend it to increase the city budget by $250,000.00 to be designated to the Board of Education Contingency, or, they could add by 2/3rds vote, an increase of $250,000.00 to the city side for the next fiscal year to Contingency, Board of Education.
Ms. Proulx stated that the current city budget was $50,571,578.00. The Board of Education’s Capital Budget is $791,530.00 and its Operational Budget is $58,912,610.00. If they were to add $250,000.00 to the city budget, that number would be $50,821,578.00, and a decrease of $250,000.00 to the Board of Education’s budget would bring their total to $58,662,610.00.
Mr. Zeller asked Mr. Cornish if he saw any issues whereby the Board of Education could access those funds to use for other purposes.
Mr. Cornish said he didn’t see any issues or problems based on whatever motion they adopt and appropriate.
Mr. Zeller said the Board of Education would be required to come before the Board of Finance to obtain any of those funds should they experience shortfalls in that particular item. (out-of-district placements.)
Mr. Zeller asked Corp. Counsel if there were any issues in doing it this way with regard to the Board of Finance’s jurisdiction in this area and their inability to look at line items in the Board of Education budget.
Corp. Counsel Weaver said none that she was aware of.
Mr. Zeller said he didn’t want to give the perception that the Board of Finance was holding the purse strings in a particular line item just for the sake of holding them, or to create additional hurdles for the Board of Education. He thought both boards could operate on good faith to the extent that the Board of Education will need these funds for what they were meant to be budgeted for.
Mayor Bingham said he hoped the members of the Board of Finance weren’t thinking of resigning from the board in the near future. Mr. Cornish said that did raise an interesting question about their ability to tinker with any particular line item in the budget and a concern for the future that this decision may be challenged by future administrations because the intent of their actions, while on record, may not be interpreted that way in a future administration. He noted that the Board of Finance does not have any control over the Board of Education’s budget. All they control is the bottom line and they’re doing so with a $250,000.00 cut. Where the Board Of Education chooses to allocate that cut remains in their power. However, we’re comforting the Board of Education by
inserting a contingency line item specifically available for allocation when needed. With that constraint, with that conversation and intent on the record, there certainly is no problem today.
Mr. Zeller thought leaving the money on the city side was more of a formality, requiring the Board of Education to come before the Board of Finance and present the fact that the deficit has occurred and funds are needed to satisfy the deficit.
Mr. Cornish concurred.
Mr. Scoville asked what would happen if the Board of Education should exceed the $250,000.00.
Mr. Cornish said the district would then be forced to reexamine more cuts to programs, student services, etc.
MOTION #3135
Mr. Cornish made a motion to adopt the city budget for 2007-2008 of $50,571,578.00. Mr. Bushka seconded the motion.
WITHDREW MOTION
Mr. Cornish withdrew his motion. Mr. Bushka withdrew his second.
MOTION #3210
Mr. Farley made a motion to adopt the city budget for 2007-2008 of $50,571,578.00. Mr. Cornish seconded the motion.
AMENDED MOTION #3280
Mr. Farley amended his motion to adopt the city budget for 2007-2008 of $50,821,578.00. Mr. Cornish amended his second.
Mr. Scoville stated that the amended motion makes it clear that the city budget was increased by $250,000.00 for a Board of Education Contingency.
VOTE #3315
On a roll call vote, Mr. Bushka, Mr. Cornish, Mr. Farley, Mr. Scoville, and Mr. Zeller voted in favor of the motion. On a 5-0 vote, the motion carried.
BOARD OF EDUCATION BUDGET #3335
CAPITAL BUDGET
On a motion by Mr. Farley, seconded by Mr. Cornish, the board voted unanimously, by roll call vote, to adopt the Board of Education’s 2007-2008 Capital Budget of $791,530.00. Motion carried.
OPERATIONAL BUDGET
On a motion by Mr. Farley, seconded by Mr. Bushka, the board voted unanimously, by roll call vote, to adopt the Board of Education’s 2007-2008 Operational Budget of $58,662,610.00. Motion carried.
Mayor Bingham stated that this amount reflected a reduction of $250,000.00.
MILL RATE #3430
Ms. Proulx indicated that the current mill rate would stand at 33.96, (a zero % mill increase) with the budgets approved as they stand, with the current surplus at $1.5 million, the one-time projects set at $596,000.00 and the transfer of $1.2 million from the internal service fund (the health insurance fund).
Ms. Proulx stated that the estimated income was $42,665,646.00. The internal service fund was $1.2 million.
By reducing the budget by $250,000.00, the mill rate would be 33.83.
SET MILL RATE #3570
Mr. Farley made a motion to set the mill rate at 33.83. Mr. Cornish seconded the motion.
Mr. Bushka asked Ms. Proulx if the $596,000.00 for one time projects had already been taken out.
Ms. Proulx said the Undesignated Fund Balance would be $2,346,000.00, which would include the $596,000.00 for one time projects plus the $1,750,000.00.
Ms. Proulx asked the Board of Finance if they wanted to transfer $250,000.00 from the Anthem funds. Doing so would increase the surplus in the current year because we’re going to transfer the funds and that will be miscellaneous income.
Mr. Cornish said there will be a positive change to the $136,000.00 as a result of the Anthem money. That account will now be dissolved and the funds from that account will be part of the fund balance.
Ms. Proulx asked if they wanted to transfer the full $360,000.00 in Anthem funds and close out the account.
Mayor Bingham said yes, that it could be done during next month’s regular meeting.
Mr. Bushka said the city was projecting to receive $3.6 million from state revenue. If we only received $2.6 million, would the undesignated fund balance be less than 5%.
Ms. Proulx said yes.
Mr. Scoville asked if the $250,000.00 for the Police Department was coming from estimated surplus for this year.
Ms. Proulx said yes, surplus in expenditure line items.
Mr. Scoville indicated that the surplus had now been increased by $400,000.00.
Ms. Proulx said surplus was originally $1.5 million and it increased by approximately $500,000.00, to $2 million.
ROLL CALL VOTE #3810
On a roll call vote, Mr. Bushka, Mr. Cornish, Mr. Farley, Mr. Scoville, and Mr. Zeller voted in favor of the motion to set the mill rate at 33.83. Motion carried.
ADJOURNMENT #3810
On a motion by Mr. Cornish, seconded by Mr. Bushka, the board voted unanimously to adjourn at 6:30 p.m. Mayor Bingham stated that he appreciated the hard work performed by everyone involved.
ATTEST: JOLINE LeBLANC
ASST. CITY CLERK
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