The Board of Finance on May 10 voted to recommend to the Legislative Council spending down an excess over the policy guideline for the Newtown fund balance, by making a number of capital purchases. That action will require a budget amendment to the current year’s approved spending plan according to Finance Director Robert Tait.

“While the assets were proposed in 2021-22, we’re going to amend this year’s budget increasing the use of fund balance and increasing a transfer to capital nonrecurring to purchase these items,” Tait told The Newtown Bee following the meeting.

The finance board had already crafted a recommendation on the shifting of fund balance to capital acquisitions, but withheld making any recommendations until the municipal and school budgets passed at referendum two weeks earlier.

“Now that the town has passed a budget, it would be a good idea to properly fund those items that were pulled out of the budget for that purpose,” said finance board Chair Keith Alexander.

A presentation from Tait outlined the infusion of money into the fund balance this fiscal year, bringing the total up to $16,366,000 as of June 30, 2020. Factoring the 12% cap into the 2020-21 budget of $121,626,535, the cap required a fund balance of $14,595,000, leaving an excess of $1,771,000.

To date this current budget year, only $400,000 for school district COVID-related expenditures has been used from that excess, leaving $1,371,000 to be used to offset budgeted capital purchases.

The capital items removed from the current budget either by the finance board or council included the following:

*$35,000 for the Board of Fire Commissioners;

*$9,300 for the town’s Emergency Management office;

*$10,000 for Public Building & Maintenance;

**$28,000 for Parks & Rec;

*$350,000 for school district IT, capital, and building site projects that was reduced by the finance board;

*$220,000 that was additionally reduced by the council, and

*$150,000 that was also reduced by the council from district IT spending.

Early Lease Payoffs

Another $130,000 was budgeted for the transfer station, offsetting a split lease payment on equipment that would have budgeted $65,000 in the 2020 and 2021 spending plans.

“I’m proposing we do the whole $130,000 now to take pressure off next year’s budget,” Tait said.

Tait said the fund balance reduction will also be applied to pay off three years of a remaining lease of $90,000 for a truck body replacement; and two years remaining on a Parks & Rec pick-up truck and plow lease totaling $20,000 — also releasing pressure on future budgets.

Two years ago, the town put aside $125,000 toward the next residential revaluation, but Tait reported that the next revaluation will cost closer to $150,000, so he proposed also using the fund balance excess to offset that added expense.

After all those transfers out of fund balance, $303,700 will remain in the excess — that will revert to the capital nonrecurring fund as “undesignated,” Tait said.

“We’ll need to go through the appropriation process to spend that, so we’re just parking that — I hope we can do that more often,” the finance director added.

Since there is a cap on how many appropriations the council can make by charter, Tait calculated the amount of the fund balance reduction, and determined it would be allowed under that appropriations mandate.

Finance Board member Christopher Gardner said he appreciated that the excess will be partially applied to paying off leases and other expenses to take pressure off future budgets.

During the conversation, First Selectman Dan Rosenthal said he is anticipating a surplus in the current year budget, which could also be applied to the capital nonrecurring account.

What Will Taxpayers Think?

Ahead of the board’s unanimous vote to recommend the transfers, Alexander discussed how to frame the use of taxpayer authorized budget funds and surplus monies for this raft of spending.

Tait replied that the actions would be reducing debt service and other expenses taxpayers would be saddled with in future budgets.

“That 10% is a burden, so this takes away from operational expenses,” Tait said of the average debt service cost in each year’s municipal budget. (All capital debt service including projects benefiting the school district are part of the municipal/Board of Selectmen’s annual budget request.)

“The capital nonrecurring [fund] is part of our long-term planning [strategy], and is coupled with the CIP [Capital Improvement Plan],” Tait said. “You could also argue that a fund balance of 12% helps taxpayers, as well, because when that is normalized, that’s going to reduce taxes, as well.”

Alexander said the process seemed “like a cheat” to him, looking to Rosenthal to “sell me.”

“What we’re doing here has far more impact to the taxpayer than leaving it in fund balance because it’s enabled us the last two years to have a zero percent tax increase, and then a minus 0.3 by using the financial flexibility. We still funded everything — the trains still ran on time,” Rosenthal replied. “We are recycling that money.”

Eventually the town will have to decide whether to lower the debt service number, he added. “Instead of bonding, you’re paying as you go.”

Alexander said he was concerned about holding excess monies that are undesignated.

The first selectman said recent years have been unpredictable, and that the town may get to the point where it may look at bonded projects on the CIP, and perhaps pay for them in cash, further decelerating bonding and its related borrowing costs.

“If we can make this our financial practice,” Rosenthal added, “hopefully we can pare debt service back because we’re growing capital nonrecurring at a rate where there’s no point in keeping [debt service budgeting at today’s level].”

Associate Editor John Voket can be reached at john@thebee.com.