Citizen fiscal scrutineer John Marshall Lee raises a number of questions about city finances in a commentary that he also shared with city finance officials. Finance Director Ken Flatto responded to Lee with a defense of financial practices citing comments from rating agencies.
Commentary from Lee, followed by Flatto:
Holiday time coming? Invitations to parties? Cards wishing you well in a New Year? Gifts to buy? Any of those things on your mind today?
If you have things to buy for current use, 2017-18, which of the following do you do?
A. Consider the cost and your bank balance, and if possible, pay CASH?
B. See that you have some near-term cash flow challenges; use a CREDIT CARD?
C. Know that your annual operating budget is sorely inadequate, and apply for a MORTGAGE to pay a current expense? (Absurd, you say?)(I write about City fiscal issues regularly. Many people are not interested in the subject in general. Others are bothered by the detail I raise. But I remind any and all that the “devil may be found in the detail,” a great reason for monitors, audits and watchdogs that bark and when necessary clamp down and don’t let go.)
Over the years I have written about city budgets and finances, no one has characterized the taxes we pay as a fair burden. No one has written an editorial or article supporting our city financial practices. No administration of the past decade has done anything to restore faith and respect for local municipal financial practice or acumen. All comment has been negative. Do we need a change? Especially when, as I fear, we opt for a 25-year mortgage, in effect, to buy “groceries” today and pay a higher interest cost?
At its September 5, 2017 regular meeting, the City Council unanimously approved these five matters from the consent calendar:
— Approval of a $99.26 Million bond–the first (*116-16) is for General Obligation Bonds to Fund an Unfunded Accrued Liability due to CT Municipal Employees’ Retirement System (MERS) the bulk of which is the cost of funding retirement overtime benefits (excluding interest) for public safety officers.
— Approval of an additional $93.6 Million bonding–the second, third and fifth matters are for General Obligation Bonds to fund certain Capital needs of the City and to Refund Certain (existing) General Obligation Bonds (to create interest expense savings).
— Approval of more than $3.2 Million in bonding–the fourth (*118-16) is for Tax Anticipation Notes (TANS) to pay Current Expenses and Obligations of the City in our current Fiscal Year 2018.The first, second, third and fifth are approvals for long term, 20 year or more bonds. It is comparable to mortgaging your home residence. But the fourth one (*118-16) is bonding to assist our inadequate “City fund balance (wallet) because it has inadequate cash flow to pay routine expenses and payroll at critical times of the year. Instead the City borrows enough to get through a two to six month window until property tax payments or other planned receivables may come in. Interest expense is low for TANs.
Thus you can see that the City mirrors somewhat our own personal finances … hoping to keep those things in balance … while growing some wealth in addition (instead of seeing more than $1 Billion of value wiped away from the City taxable Grand List last year including a portion of value on our own homes).
A document for the $99,255,000 bond offering (#116-16) has been available for review. On page 7, the purpose is stated: “The proceeds of the Bonds will be used to: (1) Fully prepay the twenty-six years of all the remaining past service liability obligations of the City to the CMERF as discussed herein; (2) retire a short term taxable bond anticipation note in the amount of $3,228,696.60; and (3) pay costs of issuance of the Bonds.
Page A-13 tells us: “The most recent City TANs issued in the amount of $10 Million in June, 2017 were repaid on July 31, 2017. The City plans to issue approximately $20 Million of TANs in early December 2017 and a second installment of $20 Million of TANs in later December 2017. All such TANs are expected to be repaid by February 1, 2018. The City has authorization of up to $75 Million for TANs issuance.”
Q. What do these two paragraphs indicate to taxpayers as part of City plans?
A. An intention to borrow short term funds at a lower interest rate (about 2%) and pay them off with bonded and higher long term rates (~3-4%) on over $3.2 Million of debt. Thus current expenses of this FY2017-18 OPERATING BUDGET will be funded by long term debt (and the public may never learn the difference.)
Q. Is this plan of the Ganim administration, essentially paying for $3.2 Million of current necessary “groceries” and salaries through a 20-25 year mortgage, shown in the APPROVED Minutes of any Budget and Appropriations meeting or City Council meeting?
A. No. Council approval is absent from the record, apparently never having been sought.
Q. When the dust settles and it is agreed that permission for “retiring a short term anticipation note” was neither sought by the administration or Bond Counsel or the City Council, what will the City say regarding this “windfall” of $3.2 Million?
A. Likely they will tell us it is necessary to make up for lost State revenues. And it is equally likely that they will ignore the lack of notice to elected representatives. Will they be held harmless of consequences?
Q. Did State revenue cuts affect the Bridgeport BOE as well as City anticipated sums?
A. Yes. Perhaps the Council might demand that 50% of these funds be directed to the Board of Education as a cash windfall rather than any City in-kind funding?
Q. Do you now know more than previously about how fiscal governance works in Bridgeport? Are you better at fiscal choices than certain folks in power? Time will tell.
Flatto response:
Just for the record, Mr. Marshall Lee, actually people have written articles about our good financial management … and EVERY rating agency has rated the current City financial management team as ‘strong,’ ‘experienced’ and ‘capable’ and several have lauded the financial borrowing plan and budget management prowess of the City managers during these turbulent times.
In fact, in my position, I have documented the cutting costs and savings the City literally millions of dollars in less interest payments and lower billings on long term debt and hundreds of thousands less in costs on TAN borrowings by restructuring the way the CITY issues such TANS through a variety of methods.
Mr. Flatto,
You could save the people of the city of Bridgeport a whole bunch of money by pruning the municipal payroll. Every time the budget comes to a short fall past administrations have raised taxes yet the city remains fully staffed, except for the police department. Personally I’d like the money spent on hiring and training public safety personnel.
Kid,
Pruning is not the Finance Director duty, is it? Ask the Mayor who is responsible? Get an answer? How about any of the politicians working on projects like Dan Roach on the Airport? If he must sell it to a government buyer, and the State has no money for such, can he control expenses like 10 years ago when revenues and expenses were in relative balance? If he can’t perhaps he should resign and save his salary?
Take a look at the Police personnel costs, overtime costs, fringe benefit expenses in recent years. Bloated? All about union contracts, isn’t it? And management that checks with the Machine for answers? And what does Dan Roach as long time Chair of Police Commission have to say about changes in civilian handling of Police Department matters changing in the past three years?
Busy man, Dan. Time will tell.
My research prompts me to believe the airport is best suited as a launching pad for VTOLs (vertical take off and Landing vehicles) That’s when you eliminate governments and discover a mass of would-be buyers, all of whom have money and interest.
For example, try Jeff at amazon dot com . Other contenders include zee.aero , kitty hawk and terrafugia. Think Flying cars not airport.
HOLY SHIT! Am I dreaming? Is my medication having and adverse affect on me? OUCH!!! I just pinched myself. This has to be real. Ten years on this blog and I can’t remember an instance in which a high level city official has joined us on OIB to respond to questions and concerns from an OIB poster or commentator. I commend you Ken Flatto in fact I commend you nine times. For years JML has been asking me to answer the thousands of questions he asks. I’d like for you to let JML know that just because I support you and the administration it doesn’t mean that I have access to your financial data base. Please do this ASAP and by all means, don’t let this be the last or only time you provide such financial transparency. Be careful what you wish for JML. JML, you sure do understand pretty much about how the city’s finances work. How about coming up with potential solutions to these problems? I’ll start with one example based on something I learned months back.
Last year, I went to People’s Bank. I decided to pay my taxes at the bank for the first time. After the teller did the transaction, I asked the teller how long it takes for the city to receive my $3,500 tax payment. The teller told me it will take about a month for the city to receive my payment. I’m aware of the TAN vehicle used by the city to pay their bills. For those who don’t know what Tax Anticipation Note (TAN) means, it’s a loan with interest that municipalities can take out to pay the bills. When the city receives the tax payments, they pay the loan. Had I known that the city has to wait for about a month to receive my tax payment from the bank, I would have payed it at the tax collectors office instead. So, it is obvious that People’s Bank held and used my tax dollars for a month. If 10,000 tax payers pay a banking institution that holds the money for a month, approximately how much tax money is held back by the bank? Keep in mind that taxes are paid in two 6 months installments. I paid the city $144 for late payment recently. Why is my bank allowed to keep my payment for a month without a penalty? Would TAN really be necessary if the city got their money no more than four days from the banks? People’s Bank does not invest in our City and the last time I checked, they reported having $90 million in their nest egg. What are you and Joe Ganim going to do about this?
Ken Flatto does not deny the fact this info was missing from the approval process with the City Council. It leads me to ask who gives the City necessary approval in a legal document (bond indenture) going to US financial markets that authorizes funding both short and long term instruments and then replace $3.2 Million of the short term funds by refunding from the long-term? Is this wise, smart, prudent or deserving of congratulations from commentators in the municipal credit field? Do I misunderstand the situation?
The City gets media attention certainly and has a PR bull dozer to push its words and a public that is neither aware nor particularly concerned, unfortunately. This administration has taken so much credit upon their shoulders for “avoiding” 8% interest expense from MERS by borrowing over $90 Million to pay part of the price of Police Overtime based retirement income which neither the Finch nor Ganim administrations admitted to the taxpaying public. OK. So the legislature settled for a lump sum bond payment of $90 Million borrowed plus a long term interest rate of ~4%? And you run around yelling about saving Bridgeport millions in interest cost. And now you only whisper when you are accused of doing the opposite? And how does this work out with MERS in the long run? I have no crystal ball and neither do you, but your necessary actions in the past two years with Plan A, though a different pension bonding scheme, shows the same problem that calls for additional public funds to be contributed that I have maintained throughout.
It is one thing to assume an interest rate to be earned by assets, whether like Plan A $350 Million was placed for investments in 2000, or $90 Million is raised and sent to MERS in full payment of the past service liability for overtime retirement benefits. If the funds earn less than the 7 or 8% interest rate assumed, as has happened in Plan A in too many years, as well as in MERS (for the past ten years the average earned is 4.74% not 8%) then EXTRA FUNDING beyond the INITIAL AMOUNT is required of taxpayers.
In Bridgeport the $350 Million has fallen to around $60 Million despite current markets with good returns but $32 Million per year of retirement benefits cannot be funded from a sum of $60 Million of principal over the next 12 years until 2029 when the Pension A Bond becomes retired and the Bridgeport taxpayer completes $30 Million funding each year. Payments from current taxes of over $30 Million are part of Police and Fire budgets. In addition the public is contributing another $17 Million this year to keep the GANIM1 Plan afloat. That’s $47 million from our current budget strictly for RETIRED POLICE AND FIRE PERSONNEL who were all hired more than 30 years ago and are all retired today!!
What will happen when MERS administrators decide that the 7-8% they assume is unrealistic over time and cause additional cash flow from Bridgeport (and other communities)? What will happen to the GANIM2 message that he has wholly taken care of the obligation? Can we get an honest dialogue going to increase public understanding? Thank you as always for your responsiveness. Time will tell.
Response from Ken Flatto:
Dear John,
These financing always have complexities. During the approval process at City Council, the City Admin presented and fully disclosed all facts of materiality to the Council including:
1. All financial goals and the plan of financing terms in big picture with all key ramifications disclosed and laid out at the Council meetings prior to approvals;
2. When I make the final report to the new Council, it will be a pleasure to describe how the City exceeded all the goals and terms laid out at those meetings for this year (just as the City exceeded the goals for each year that I have been involved in financings);
3. Just for new members to understand, the City has no way of knowing several months in advance during any approval process how things might ultimately shake out in terms of year by year bond rates, year by year exact sizing of the bonds which is up to underwriters, and we have to evaluate each financing continually during the months leading up to the bonds closing.
Finally John, while it is great to have your commentary and concerns expressed, I do have to take exception with your repeated ‘analysis and statements about the MERS financing’ which has been inaccurate and misleading from the beginning (including an outlandish claim way back at the initial meetings that the state comptroller indicated opposing the plan, when in fact the Comptroller and his offices worked with the City closely in full cooperation on the entire proposal and process Further your claims that some eventual additional cost to the City could result from this MERS financing is not the case at all….in fact the City is saving over $45 million real dollars in budgetary cash between FY18 and FY45 from the reduced pension payments versus the new debt service, with no future risk of any kind.
See you at the next meeting. Thanks. Peace.
“I do have to take exception with your repeated ‘analysis and statements about the MERS financing’ which has been inaccurate and misleading from the beginning…”
Ouch! I’d say that was a long way coming JML. Did you expect this to happen–Ken Flatto confronting you on your turf? I have an idea, suggestion, and a request to Ken Flatto. Remember “Keep Our Libraries Open”, that group of people you supported in their effort to raise our taxes?
Have you talked to your neighbors or checked up on what the Library Board have been up to? Instead of trolling the Ganim administration, take some time to look at what your friends and neighbors are doing. On the October 18, 2017 minutes and meeting agenda of the Bridgeport Public Library Board, you shall see that on that day, a motion was made and discussion followed to appropriate $14,422 in 3 installments of library funds to pay for the Referendum question cost. The motion passed 6-0 with 2 abstentions. What say you? Using tax payers money to fund a campaign based on as Ken Flatto puts it “inaccurate and misleading” information, in order to get more library funding and creatng a potential tax increase. Ken Flatto, I must say that it is people like JML; both State Senator Moore and her cousin Ed Gomes; as well as many others out there, who are out to discredit and Sabotage the City of Bridgeport by creating a difficult financial condition with the hope that the Ganim administration fails. The ones they are hurting the most are the little people in Bridgeport and the most weight of their actions falls on you and your department in finance. Please keep setting the record straight here. Good luck and thank you.
Ken Flatto,
Lennie, Thank you for helping extend the discussion. Here is the last message I sent to Ken today:
“Sorry to cause you huffiness, and happy to know that my reading of Council minutes is accurate and that no local approval was ever provided on this occasion.
However, the document says that $3.2 Million of tax anticipation funding was replaced by long term debt, doesn’t it? And from that, you derive $3.2 Million for your current budget year groceries, don’t you? And the public will be paying how much annually for principal and interest for the next 25-28 years for the 2018 FY groceries of some amount? If I have that wrong, we can cover it in a face to face.
It is a curious world where bond council can from a distance understand what B&A members would do. Would he say that in another town like Fairfield where the Finance group seems to jealously guard their expertise and decision making? But we are not in Fairfield, Dorothy, are we? Peace. JOHN”
Ken Flatto is conscientious and the City Council is left clueless? Are any readers concerned with the possibility that these bonding and note transactions moving long term and short term funding around in US financial markets and obligating our City to about $130-140 Million more net debt in some small part provide more than $3 Million for Ganim to spend without acknowledgement? And debt for some 2018 expense that we will forget about within one month, but pay for for more than 25 years? And a Bond Council who acts as a mind reader of City Council minds? (Have fun with those questions, OIB readers.) Hopefully, time will tell.
8:39 PM Eastern Pacific Time 🙂
Are any readers concerned with the possibility that these bonding and note transactions moving long term and short term funding around in US financial markets and obligating our City to about $130-140 Million more net debt in some small part provide more than $3 Million for Ganim to spend without acknowledgement?
No, I’m not concerned because you are pointing out that it’s a “possibility.” If it’s a possibility, then it’s possible you could be wrong. As for the “$3 Million for Ganim to spend without acknowledgement.” I’m kind of confused here. How can ” net debt” provide more money to spend? How you know that Ganim is going to spend it ($3 million). Could it be possible that Ganim could or will save it instead? Can you try to at least keep your dislike of Ganim separate from the financial numbers?
Gan
Joel,
You are drowning in your fiscal ignorance. Call me for a life preserver so that you can understand “how can “net debt” provide more money to spend”. And then you ask me how I know that Ganim is going to spend it and I suggest to you that recent Mayors never spend less than what they plan at budget time. Spending shows power, maintains jobs whether they are productive or not, and very few can really see what is happening with dollars anyway, can they? Do you remember how dollars provided a driveway in Stratford for a contractor, paid for by taxpayers? Can you tell us why $800K or more was spent on certain Arena installations, but were they necessary or completed? And what about light show equipment purchased and paid for but not used with a price tag around $400,000. Where is that equipment today? Instead of being so concerned with the Library, where City administrators seem to be on the wrong side of public service, why aren’t you proudly citing all of the priority accomplishments of Mayor Ganim, for whom you accuse me as too critical. Are there other examples of funds that get spent in the City on items that would rank below educational needs of the youth in the community if everyone voted? Time will tell.
Ken Flatto and other City officers have the full resources of City data and personnel available to them to keep them current.
***I have data and info in formats that are less informing than they could be for current comprehension.
***I sometimes am able to receive FOI requests in a timely and usable format, but not always.
***When I do appear at a meeting to make a comment or ask a question, I am usually denied such opportunity or the comment does not get included in the minutes of said meeting.
***I have accused the Finch and Ganim regimes of keeping from the taxpaying public the FULL EXPENSE of moving Fire and Police to MERS that allows earned career overtime to get credit for retirement benefits. If we were earning 7-8% on MERS funds the City might tell us that the cost is this contained $90 Million but we have to pay interest on that as well that will add at least $50 Million more over time, and there is an ADDED expense if and when the payors into MERS face a reduced assumed interest rate and must contribute more. Shame that no one catches on to this or asks better questions of City officials.
Joe Ganim is Mayor. What has he delivered to us? No priorities. Education expense as something to grapple with is not on his radar. Too bad for the kids. He runs on “Don’t raise taxes.” and then proves himself a liar. The State has cut back funds to the City for 2017-18 and he has found a way to move $3.2 Million of tax anticipation repay into a long term bond, thus providing his administration with $3.2 to spend and Joel doesn’t care. And the Council did not know. And Bond Council apparently felt that he was able to channel the sense of the Council? Does that come with a law degree? A partnership in Pullman, a fine firm? Or rubbing shoulders with the politicians (rather than the taxpayers) of the City? Time will tell.
What I don’t care about is you getting pissed-off just becasu you don’t get everything YOUR way. By simply disagreeing or even asking you to answer questions (very simple ones) you quickly turn offensive then go into defensive mode. While you are a watch dog, I’ve always been a ‘watch and learn dog”. You’re the kind of watch dog who pisses on every fire hydrant and gets mad at any other watch dog or watch and learn dog that dare piss on your hydrant when in fact, it’s not yours.
I don’t see things the way you do. The state didn’t simply cut back funds, the two State Senator asked and allowed it to be that way so, that the City falls short (deficit) and perhaps raise taxes. so that they with your and your friends (the opposition) can have a better chance to win.