The Cost Of Debt

City government watchdog John Marshall Lee (BEACON2 here on OIB) has spent months this year delving  into the serpentine world of city finances. He shares this essay:

Bridgeport: Finch’s Legacy: An Assessment

Today stands about two weeks before the Democratic primary election in the City. Mayor Finch recently claimed he has been the best Mayor in Bridgeport’s history. A statement like that at election time may be somewhat premature. It has little factual basis for comparison, and should await evaluation by historians rather than the emotions of the moment.

I am a believer in open, accountable, and transparent governance of human institutions. Our municipal structure, in contrast, reflects government “of the Democratic Town Committee (who select the majority of our interest-conflicted nominees for office), by the adult minority (of registered voters who use their ballot), and for the people (‘the special few’ who have a job, need a contract, or wish to increase their wealth at the expense of the broad base of taxpayers).

Finch’s four years might best be viewed from the standpoint of undisclosed but increasing financial burdens. His mantra from his first day in office (ignoring his $600 campaign pledge to property taxpayers) has been “no tax increase.” In a major way he almost accomplished that objective (mistaken references to the Library referendum aside) but at what expense for the community today and taxpayers of the future? If there are costs you face regularly and you kick them forward, that becomes part of your legacy. Rather than gathering wise minds together, sharing current information and problems widely and using best quality practices for today and into the future, if you choose to hide the truth of an ever-heavier financial burden, you hurt the community in ways it will later consider negatively.

Bridgeport/s debt burden has increased. Four years of Finch’s leadership show plans, execution and some accounting for over $1,800,000,000 of City revenue pursued to pay City expenses. However, as the end of Finch’s term approaches, one looks at the City’s liability, and asks how much greater is the citizen burden today? Did we truly ‘pay as we went’ or did the City kick things into the future secretly during the Finch years? Bridgeport’s liability burden has increased.

• Other Post Employment Benefits – retiree healthcare liability has added $80 Million of unmet costs with nary a word of public attention to the issue or any ongoing plan for dealing with the GASB* footnote below ruling that revealed our base liability of $800 Million in 2007. (*Comprehensive Annual Financial Report -2010 Note 12-CAFR)

• Pension Plan A*footnote below for mostly retired fire and police employees or surviving spouses – minimum professional actuarial recommendations have been ignored. At least $40 Million of additional necessary contributions were not funded by the City that could be earning respectable returns in volatile markets to increase the sustainability of this Pension fund. Problem? You bet. Those 900 retirees are receiving over $32 Million per year currently and projected for the next decade and longer. The fund has decreased to around $150 Million. Please do the math and consider the following. When the fund is depleted, the General Fund will have to bear the $30 Millions annually of pension outlays as long as the retirees live. (And that is on top of the thirty year $30 Million annual bond payments that we face for the next 18 years to repay the $350 Million borrowed in 2000 to create that Pension A retirement fund. (*CAFR Note 10)

• Internal Service Fund – this is a City account established by ordinance intended to handle Workers Compensation and the self-insured healthcare plans of some 7,500 City employees and retirees. During Mayor Finch’s tenure, an inherited liability has grown significantly larger by $60 Million* footnote below or more. The City reports: “The City anticipates eliminating the fund deficits through future grants and revenues.” How? When? No answers are posted to these important questions. And no public discussion is held. *(CAFR-2010 page 66)

Property taxes are payable and paid by most taxpayers in July and January of each fiscal year. Property tax revenues are the single largest revenue source for the City. With such seasonal cash flow, the City should be able to use the City “fund balance” for assistance. According to City policy the purpose of this account of the General Fund is: “To maintain a balance of funds within the total unreserved, undesignated fund balance to be available for unforeseen contingencies.” “The sum of all components will be set at no less than 8% of annual operating expenditures.” Our City fund balance under the strict definition stands under $12 Million today when it should be closer to $40 Million currently. The Mayor has spoken of the depletion of this fund from some $55 Million in the Ganim years to the paltry sum today, standing at less than 3% of our City budget.

That puts the City in a bind for months of the year where financial officers face inadequate cash flows. The City has used “tax anticipation notes” (TANS), short-term financing to get through those months. The use of TANS has increased from a level of $20 Million annually to about $95 Million currently under Finch. These funds, borrowed for a few months at a time and then repaid, do not represent a long-term burden for the City but they are an added interest expense. Bridgeport because of its A (Fitch) bond rating pays as much as 100 basis points (or 1% annually) for interest on these borrowings. This added interest, because of our financial position, represents hundreds of thousands of dollars that cannot be used elsewhere.

Leadership responsibility to inform the broad public on these matters has decreased. Finch calls his use of Facebook and Twitter transparency but the subject matter belies his claim. A public scoreboard has never been kept focusing on the importance of the City fund balance, or the balance sheet, or the growth of OPEB, etc. So the public is unaware of the positions taken by City administration. Where is Finch’s public financial scorecard? Why is it not available for view, for review, and for public dialogue?

Mayor Finch has declared the A rating by Fitch, one of three bond rating services, is proof of his successful financial administration and City fiscal standing. In reality the Fitch letter of August 11, 2011 continues the A rating. The reason for that rating is the City ability to repay $600 Million of general obligation bonds issued prior to 2008 through its unlimited taxing power. That is the extent of the rating. It does not ever inform us the A rating assigned to Bridgeport, in reality, is the lowest rating Fitch assigns within the 30 Connecticut communities they rate. Bridgeport is unique and lowest in the Fitch constellation of ratings. We are not leading their league with AAA, AA+, AA, AA-, or A+ but only A, a second step removed from falling into a B grading. How is this verification of a Mayor’s fiscal prowess?

So the debt, liability and responsibility burden have increased $180 Million in four years, an average of $45 Million per year not funded currently within the budget, not necessarily publicly disclosed and not reviewed as such by City Council members tasked with being a “check and balance” on City administration. How does the Council get a handle on the City balance sheet when such a report is not forthcoming except from an external auditor many months after the close of a fiscal year? How can the Council understand the relation of budget decisions ultimately hitting the balance sheet and allowing our burden to grow by $180 Million in four years without them holding a public hearing; or without them using their legislative budget to hire consultants to provide alternatives to our current path; or to do some basic research to look at activities that would raise our credit worthiness???

The adverse attitude from the Mayor’s office regarding open, accountable and transparent governance has increased our community debt, has added to financial disorder in many departmental areas and caused a sense of civic despair. Democrats need to vote on September 27 to exorcise the attitudes and conventions so plainly displayed by current leaders.