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Llodra Responds To Governor’s Demand For Fund Balance Details

Published: August 20, 2017

On August 14, First Selectman Pat Llodra provided The Newtown Bee with a copy of a concerned memo she fired off to Governor Dannel Malloy and state Office of Policy and Management Secretary Ben Barnes after the governor, through his subordinate, requested Newtown and other municipalities provide “information and analysis regarding municipal aid, local tax levels, expenditure trends, fund balances, and any other criteria that could better inform” decisions regarding the future of municipal aid distribution.

A letter from the governor to Mr Barnes specifically singled out the “$4.1 billion, or 81 percent of all state funding given to local governments.” His letter also suggests the state has “sacrificed state services and raised revenues in order to shield town government from facing difficult choices required of state leaders and implementing reforms.”

The governor also said that in the face of declining state population he described as “shifting demographics,” and revenues, the state takes unnecessary risks when “not investing in the communities that should be our assets in attracting economic development, young professionals, and families.”

On August 7, Mr Barnes dispatched a letter to Mrs Llodra noting the already reported Newtown total fund balance and unassigned fund balance for the fiscal years 2015, and 2016, and requested verification of the estimated and projected numbers for the 2017 and 2018 fiscal cycles, respectively.

The memo, with an August 16 deadline, also requests that Mrs Llodra “provide any supplemental information about the potential impact of a continuing state budget impasse” on Newtown’s finances, “such as plans to utilize fund balance, issue supplemental taxes, or reduce spending.”

Mrs Llodra replied that Newtown’s “fund balance level represents an eight-year effort put forth by my office in concert with Newtown’s Director of Finance to establish and institutionalize fiscally prudent policies and practices.”

Partnering For Success

She notes that all levels of municipal government and the Board of Education have partnered for Newtown’s success, by weaning the town government from the decades-old practice of using fund balance to mitigate tax increases.

“And we established a strong fund balance policy that continues to guide and control budgeting and spending,” Mrs Llodra wrote. “We reduced spending substantially, cutting overheard, eliminating waste and inefficiency, consolidating work roles and staffing, and more. We bargained for changes in pension plans, moving from defined benefit to defined contribution. We held salaries at a point lower even than inflation, only just now with some salary agreements reaching over two percent. We moved to self-funding our medical/health program and continue to thrive in that system, finding it even more reasonable in cost than the state’s program.”

The first selectman also pointed out that Newtown has committed to the significant use of capital nonrecurring fund expenditures in its “annual operational budget so that we are able to save for anticipated capital items. We established an effective capital improvement planning process and we are continuing even under these economically difficult circumstances to invest about 8.5 percent of our annual operating budget in municipal improvement and facilities.”

“We manage debt very well and are thoughtful and careful about how we use resources,” Mrs Llodra responded. “And we dedicate $1.6 million annually in a local program of tax mitigation for seniors. All of these actions, policies, and leadership/management attributes resulted in two upgrades of our bond rating. Our residents and taxpayers have supported these changes, and have accepted the accompanying modest tax increases. We are proud of these accomplishments and point to them as examples of good management and strong leadership.”

In the face of the recent requests and statements from the governor, Mrs Llodra told Mr Barnes that Newtown officials “cannot help but feel that our strong efforts over the past few years to gain solid financial footing, grow our fund balance, and reduce debt will serve us badly — that we are going to be punished, not rewarded, for our good behavior. One wonders if our current circumstances vis a vis the ‘state’ would be less daunting if we had not made the internal improvements in financial policy and practice.”

“What if our fund balance was still at a measly 6.2 percent, and our debt ratio at 10 percent, and if we were still using savings to mitigate tax increases, and if we did not save for known capital costs; did not bargain for changes in pension and health care, and more? Would we then be less vulnerable to reductions in state aid? Would we be rewarded for our failure to address necessary changes?”

She said that Newtown officials and its residents are very aware of the fiscal crisis facing the state.

“And we are aware, too, that our cities, and some of our towns, are struggling and need more help,” she continued. “We don’t presume to have an answer for these problems; they are too complex and too long-standing for any simple solution or quick fix. We do strongly feel however, that preemptive and draconian funding reductions in municipal aid may set us on a downward spiral.”

The ‘Downward Slide’

Mrs Llodra advised Mr Barnes that “such an action flies in the face of good planning, effective problem-solving, and strategic thinking. To harm Newtown and other municipalities in this fashion almost guarantees that Connecticut’s downward slide will continue.

“We, the very municipalities who are subject to having their piggy-banks raided by the state, must remain stable and productive if the state itself is to survive and thrive,” she wrote. “We can do the state no good if we are weakened, if our financial status is compromised and we become unable to provide quality services at a reasonable tax level.”

Mrs Llodra said that Newtown is prepared to incrementally reduce its reliance on state aid.

“That response began this year with a budget passed at referendum that anticipates more than 30 percent reduction in state aid,” she wrote. “We have been open and honest with our residents and taxpayers. We have an excellent cadre of elected and appointed government officials at all levels and in all disciplines; and we have positive and committed employees throughout all departments and agencies. We can face this looming challenge head-on and we can find ways to accommodate the impacts — but only if we are given the chance to plan forward and properly prepare.”

Mrs Llodra told The Bee that the $8 million that the town faces losing in a single reduction action by the governor either will need to be replaced by other revenue sources — likely residential tax increases — or “there are things we just don’t continue to do.”

While she recognized that the governor’s announcement that he would not be seeking another term “can be positive, in that it takes politics out of the equation,” she said Mr Malloy should be held accountable for “doing the right thing instead of the political thing.”

Mrs Llodra said it is time for Newtown and all state residents to demand their legislators drop their political posturing and “find common ground, and drop their political baggage at the door” as they reconvene to address the state’s budget impasse.

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