Pale City Revenues, Finance Department Needs TAN

Update: Due to weather, City Council meeting rescheduled to 7 p.m. Tuesday. Several hot topics on the City Council agenda for Monday at 7 p.m. including a request for a public hearing regarding the city’s proposed lease agreement with United Illuminating for construction of a solar facility on the old municipal dump, a request by the Finance Department to approve $100 million in tax anticipation notes (TANs) to cover expenses and potential action to approve a legal settlement following fallout from the airport land deal for the $400,000 access road to developer Manny Moutinho’s Stratford mansion.

The Finance Department requesting the council to approve tax anticipation notes has become a regular yearly occurrence when the city’s cashflow lessens in the final quarter of the budget year. The city borrows money to pay operating expenses. The notes are paid back when the city’s cashflow improves from tax revenue at the start of the budget year beginning July 1. Some council agenda highlights:

Request to Order Public Hearing before Full Council for February 18, 2014 re: Proposed Resolution concerning a Ground Lease with United Illuminating Company to facilitate the construction of a Solar Electricity-Generating Facility on the Landfill near Seaside Park and the construction of a Fuel Cell Facility on Adjacent Land (Item#13-13 Pending in Contracts Committee)

Communication from Finance Department re: Approval of Tax Anticipation Notes to Pay Current Expenses and Obligations of the City ($100,000,000), referred to Budget & Appropriations Committee.

Public Safety and Transportation Committee Report re: Executive Session Discussion and Potential Action as Appropriate with respect to Certain Litigation specifically the Pending Appeal concerning the Stratford ZBA’s Granting of a Variance for the New Access Way Constructed by Mark IV Construction Co. Inc. on Sikorsky Memorial Airport Property.

Full council agenda here.



  1. I can only think of one reason to be issuing Tax Anticipation Notes this long before the end of the fiscal year. It looks like the City is bonding to pay current expenses.

  2. *** Half the fiscal year has gone by and i’ts time for a winter TAN to pay for all the city holiday gifts that have accumulated from July 1st ’til now and then some, no? *** “WHAT’S IN YOUR WALLETS” ***

  3. So Lennie, when you can pull yourself away from your other blog gig OR blogig as it is otherwise known, what was the timing and amount of last year’s TAN sale?

        1. Hey Jim,
          You should ask Sue for that list of every town that does it; the amount these towns are borrowing; the percent of the TAN’s to municipal generated revenue and the cost of the TAN interest the city pays. Then you should ask if the city has considered offering taxpayers an anticipation discount to taxpayers for paying taxes earlier.

  4. Here’s the news: 50 years of deficit spending, inflation and fixed costs (always authorized by the City Council) has produced a forever-shortening spending cycle. Permanent costs are due before taxes are collected. It’s a direct result of Federal spending gone off the rails. No city or town in America has been immune to its fiscal damage–Bridgeport’s just felt it the worst!
    When aggregate demand exceeds nominal costs, the spending cycle gets shortened. It’s the result of a bad cause and it makes things more expensive.

  5. The City Council provides authorization at this time of year in the range of $100-110 Million and later in the spring as it proves necessary, the City causes $70 or $90 Million to be borrowed for several months until the July 1 Tax revenues flow. Fortunately the interest costs have been low in recent years because of low market interest rates. But the TANs still cause a taxpayer expense for legal, marketing, etc. When the City administration trumpets our supposed good ratings, fellow taxpayers, remember that what the credit review services are really saying is the City can always increase taxes!

    From a taxpayer viewpoint two City documents became available this week but received neither the publicity nor distribution that would attract attention from those who pay the bills.

    First is the annual Comprehensive Annual Financial Report for 2013. Generally fewer than 150 pages long but chock full of info on City debt, cash flows and long-term responsibilities. They have been archived for a decade among Finance Department site offerings but are not yet listed for 2013. I sent a note to Chief Finance Officer Kelly-Lenz on Friday asking about this. No response yet. See below.

    “I had an opportunity to look at the bound 2013 CAFR this morning that was delivered to the City Clerk office on January 24, 2014 along with the Single audits for State and Federal fiscal review.
    Your letter within the document as well as the cover letter bear dates during later December. Why did it take nearly one month to become available for taxpayers who are interested?
    Is there any plan to provide an opportunity for public comment and response by Finance Department?
    When will the material be posted along with the past 10 years of reports? If the material exists in electronic data files can it be available simultaneously, or even earlier, than the hard copy that is provided to City Clerk? Will the State and Federal audits be included in electronic posting?
    Look forward to any response you can provide to these three questions. Thank you. Peace. JOHN”

    The other City document available only in hard copy is the June 2013 Final monthly report that for the first time in over 20 years provides the revenues, expenses and variances for each budget line item for an audited budget year. And I will guess one or more people have questioned my pursuit of this document for the past four years. But isn’t it interesting for the City to indicate based on adjustments (assuming all numbers are correct and fairly entered THOUGH CERTAIN Excel Spreadsheet Headings are OBVIOUSLY WRONG) the City had a $128,413 Surplus for the year. Two revenue adjustments helped get us there … The Comptroller’s Office includes Line Item 41538 Misc Cash that was budgeted for FY 2013 at $50,000 an increase from $17,427 in 2012. As of the end of June a negative $52,205 was reported, but suddenly, enough CASH was discovered to show a FY 2013 Actual of $510,767. Isn’t that news? The last-minute appearance of CASH equal to three times the size of the City Surplus. An appearance that would never have been known except for this report. And no comment has been made by Comptroller’s office yet as to where the funds were found, although a rumor I heard indicated when the City computer system was converted from the ADVANTAGE system to MUNIS, some accounts were not included. Is this inclusion part of that recognition? Or did someone empty the vacuum cleaner bag from the ANNEX and discover $460,000. Or did it fall from the pockets of a City employee using the treadmills in the exercise room?. (OIB.)

    The other major revenue change was in Line 41693 where $150,000 was reduced from an already positive variance for FY 2013 actuals for Current taxes all properties to $278,372,505 for the year. Did someone unpay the taxes reported in the earlier draft report?
    A final Revenue curiosity: the June Draft reported a previous Line Item 41343 Room Occupancy Tax showed as a 2013 Revenue item of $34,000 but had no actual revenue for the year. This showed as a negative variance for the line. It was just REMOVED from the FINAL REPORT. That helped get to a Surplus conclusion, but is it real?

    There is no narrative in the FINAL REPORT to explain any such changes or other anomalies and errors. Obviously it requires more study of both revenue and EXPENSE items.
    But it does raise a new question when Line Items appear and disappear (as they occasionally do, from one month to the next) in these monthly reports without any comment, what is going on? Is Council Budget and Appropriations even aware of this? Do they care? What direction can be given to the Finance Office so their ACCOUNTABILITY efforts can become more TRANSPARENT? Time will tell.

  6. Correct me if I’m wrong: The City Council approves a 12-month budget that is supposed to cover operating expenses for … 12 months. Then eight months into the fiscal year, the City is out of money and has to borrow in anticipation of the next year’s income. They borrow $100 million or so for which they pay interest charges (plus Stafstrom’s percentage). Isn’t this like putting four months of the fiscal year on a credit card? Imagine if we all lived like that. We’d be bankrupt in no time. But in the COB it is common practice, not questioned by anyone in a position of authority. Keep digging JML–I hear you’re starting to shake up Tom Sherwood. He’s threatening to retire (again!).

  7. There is a very basic accounting concept called a “city fund balance.” Though the definition seems to have changed slightly during the years, I guess it is a number that reflects the amount of uncommitted, unreserved, and/or unrestricted cash available to a municipality to meet expenses in their operating budget.
    Though our budget looks like it is over $500 Million in recent years, the BOE portion of that has been running about 45% of that (assuming no grants in either budget). The City documents call for a City fund balance to be available between 2 and 8% of the budget, that is between $10 and $40 Million. Mayor Finch talked in past years about how the City had $55 Million of those funds that got spent down during previous administrations, though he has continued that process. 2013 may have reversed the process but that bears more study and it would be helpful if the administration talked about the pluses and minuses of the CAFR-2013 rather than ignore the entire topic.
    If we require $70 to 90 Million of TAN money during a given year for “cash flow purposes” then you are correct. Even had we maintained $55 Million of city fund balance since Ganim faltered, we had too many expenses for the cash we could generate from taxes. Budget cutting and discipline have not been a Sherwood strength. Rather he has been a story teller to any who will listen (like most City Council members) that his way of analyzing the budget is the only effective way so they restrict their oversight, expenses continue to increase, and taxes do so also.

    Questions for your Council persons today:
    Did the City allocate funds in the 2012-13 and 2013-14 budget years to pay for revaluation and in what amounts?
    When the Request for Proposed services went out in fall 2013, did Vision Appraisal or Vision Government Services get a contract to perform an update of City property values to 10-1-2013?
    Was most or all of the work completed and put in the hands of the City administration?
    What has the City paid to the appraisal firm for their work?
    Curious about the work, the expense, etc.? Time will tell.

  8. Because property tax revenues flow unevenly, with the vast majority of revenue coming in during July and January, many communities use Tax Anticipation Notes (TANs) in order to provide for a more even cash flow throughout the year.

    However, two aspects of Bridgeport’s use of TANs stand out. They are the size of the issuance and the fact they are both authorized and issued earlier than most. Both suggest the possibility, and given Bridgeport’s history the probability, the TANs are being used to cover the shortage of funds, not just timing issues.

    Before the Council authorizes more Tax Anticipation Notes it needs to know 1) how much borrowing will be needed (not just the guesstimate it usually gets); 2) what the money will be used for; and 3) when the notes will be repaid.

    Then, and only then, it can make an informed decision about how to proceed.

  9. It would be inaccurate to say Bridgeport is bonding to pay current expenses. Known certainties expressed in the top post have been replaced by decisions that remain unmade. It’s a Fast World we live in but …
    Even Confucius is confused.

  10. I can’t say if borrowing in anticipation of future revenues (no matter where they are coming from) is a common practice for municipalities, but I will say when I managed funds for a NYSE company, our revenues were cyclical. I spent September through April first paying back LOC notes and then investing until the revenues slowed. I then used the invested funds until they ran out, and then started borrowing on our LOC again, and the cycle repeated itself every year, without fail. It’s called cash flow management. I don’t know if this is relevant, but it sure seems similar.

  11. Tax anticipation notes are one type of notes that are issued by municipalities. Generally, the tax anticipation note is issued by a state or local government with the understanding that a certain amount of taxes will be collected within an appreciable period of time. The note allows the municipality to fund capital projects now rather than waiting for the actual collection of the taxes.

    Sometimes referred to as a tax anticipation warrant, the tax anticipation note is understood to be a short-term debt obligation. That is, the municipality is expected to have enough revenue in hand to cover the face value of the debt within a relatively short period of time. Generally, debt obligations of this nature are expected to be paid in full within no more than one calendar year.

    When a tax anticipation note is issued, the municipality typically is committing to three basic covenants. First, the face value of the note will represent funds that are channeled into a specific capital expenditure, such as the construction of new roads or the repair of existing roads. The funds will not be diverted to other projects or used for general operating budget shortfalls.

    Second, the maturity date of the tax anticipation note is considered solid. The date is not moved, revised, or otherwise altered in any way. If necessary, the current tax anticipation note is paid off early and a new note is issued that carries a different maturity date.

    Last, the tax anticipation note has first claim on any tax collections that take place. This means that before any portion of the collected taxes are used for other budget items, the monthly allotment set aside to allow for the timely retirement of the debt obligation created by the tax anticipation note is covered. In short, the tax anticipation note remains a priority until the debt is discharged on or before the date of maturity.

    A tax anticipation note is often in the best interests of the citizens residing in the issuing municipality. The ability to finance large projects by the issuance of this sort of note makes it possible to begin work immediately. This means that citizens can begin to derive benefits from the project sooner rather than later.

  12. Jim, you have provided a most complete explanation of your understanding of TANs. I believe you are correct in that the borrowing period (including the payoff date) is defined and cannot be modified; also the TAN holder has a priority or primary claim on tax revenues.

    What I wonder about is your statement about TANs being used for Capital items including large projects. That does not fit into my understanding that it is operating cash flow that property taxes fund, but because they enter the system at only two times per year, other funds must supplement financially weaker systems without appropriate fund balances. Can you give me a call to discuss at your earliest, 203-259-9642? Thank you.

    By the way, is anyone else surprised the restated June 2013 Final AUDITED monthly report showed the Comptroller’s Office recognized over $500,000 of CASH revenue between August, 2013 when the DRAFT report was issued and January 2014 when the FINAL report showed up? Will the Budget and Appropriations Committee review that Final report and raise a question about that “windfall?” Did a generous City friend contribute the money to cover the Airport expenses? Or are we back to ‘easy come, easy go’ as long as you are not a taxpayer? Time will tell.


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