Referendum Looms—

Llodra Defends Fund Balance

By John Voket

Facing questions and requests for clarification from residents, First Selectman Pat Llodra defended the town’s commitment to reducing debt costs, increasing the town’s fund balance, and protecting Newtown’s bond rating as a third-round budget referendum approaches on June 5.

On that day, polls will be open at Newtown Middle School from 6 am to 8 pm. Absentee ballots are currently available at the town clerk’s office in the municipal center, and special absentee voting hours are available Saturday, June 2, from 9 am to noon.

Taxpayers are being asked to approve a budget request totaling $106,606,523, which would increase taxes by 1.07 percent. A proposal that would have increased taxation by 1.28 percent was defeated May 15 by 77 votes.

The first selectman, along with Finance Director Robert Tait and Board of Finance Chairman John Kortze, responded to queries from The Bee after posts on various social networking sites suggested the town side of the budget was harboring a substantial surplus.

One of the most vocal critics on this issue was Bruce Walczak, who ran unsuccessfully against Mrs Llodra for first selectman in 2009.

On May 24, Mr Walczak posted on the FaceBook page for a group called “Accountability In Newtown,” saying: “What is interesting is that The Town Finance Director told me that this year’s budget will produce a surplus. Get it, the LC does not cut a dime from town expenditure, but we’ll have a surplus this year.”

In a series of posts one day later, he stated: “We saved $700,000 this year cash, and its going into the town savings account. That’s not a small portion. We didn’t have to also budget a $400,000 surplus for next year for a total surplus of $1.1 million.”

A short time later he responded to another comment stating: “…the $700,000 saves by refinancing this year did not go to debt service, they plan on putting it in the ‘savings fund.’ Next year some of the savings is used to cover the increase in debt, but the town also decide to set taxes higher to create revenue at $400,000 higher than budgeted expenses, and to stash that in the savings account. I can’t keep my eye on the pea in this shell game, but I am sure trying.”

And at the end of another follow-up post, Mr Walczak says: “Can anyone really look me in the eye and say that seems fair or transparent. How many readers knew we were projecting a cash surplus of $700,000 this current year?”

The first selectman referred to Mr Walczak’s allegations numerous times in her written clarification.

“There are a few important points to be made regarding the ‘surplus’ comments posted by Bruce Walczak,” she stated in a written reply. “First of all, the surplus is not from the municipal operational budget. That budget is near completion as we come to the end of the fiscal year. Nor is it from the educational operational budget.”

The first selectman said that funds in the municipal budget not used for the items specified in the approved spending plan move into fund balance unless specific action is taken by the Board of Finance and Legislative Council.

“No such action has been taken,” Mrs Llodra said. “Any monies left in the BoE [Board of Education] budget may be used to pre-purchase items for the next year or may be set aside for the BoE to access for a specific capital need or may be returned to the fund balance. That decision is made by the BoE in concert with the BoF.”

Mrs Llodra explained that the surplus Mr. Walczak referred to comes from the debt service budget.

“We were able to re-fund bonds this past winter and were granted a very favorable rate going forward,” Mrs Llodra said. “That action netted a savings to Newtown of approximately $1.6 million, to be distributed as follows: ($375,000 in reduced interest cost; plus a $370,000 premium) to be allocated to fund balance for 2011-2012 — this is the $700,000 being referred to in Mr Walczak’s posting.

“Further, the re-funding will generate $800,000 to lower debt (and thus reduce taxation) for fiscal 2013; and $375,000 applied to debt in fiscal 2014.”

The first selectman said details of those allocations were discussed far in advance of the first failed budget referendum in April. Mr Tait first presented his plan to the Board of Selectmen on February 21, and subsequently to the finance board on March 5, as well as to with Legislative Council’s finance subcommittee.

Three Desired Outcomes

Mrs Llodra said the plan is designed to achieve three very important outcomes: reduce debt payment; increase fund balance; and maintain positive bond rating.

Furthermore, Mrs Llodra said the savings from bond re-funding are not available to either the municipal or educational operational budgets.

In a document presented to the selectmen and finance board officials, Mr Tait shows the savings of $375,246.88 within the 2011-12 fiscal cycle as a surplus in the debt service account that will revert to the fund balance on June 30, 2012.

The document also shows $804,619.45 in re-funding savings being applied to reduce future interest payments in the 2012-13 fiscal year, and $375,618.76 to be applied for the same purpose in fiscal year 2013-14.

“I always bristle at the suggestion that we are being less than transparent,” Mrs Llodra said, “and I have tremendous respect for the integrity of the finance director.”

The first selectman said Mr Tait designed the plan to maximize the effect of the re-funding savings in 2012-13, because that is the year when the largest debt service payment is due on the bond to pay off construction of a high school addition.

“Bob [Tait] is using every strategy he can to reduce the debt, because we have to look at debt payments as a bill that we have to pay,” Mrs Llodra said. “To reduce the debt is reducing taxation.”

Mr Tait said that any surplus that might be developed as he closes out the hundreds of various budget lines in the current municipal spending plan through the final week of June may be allocated to replacing aging town motor pool vehicles.

Mr Tait said he anticipates there will be a surplus in the education budget as well, and said officials on the district side have already committed to spending much or all of any surplus versus preserving funds for future capital projects, or returning it to the general fund to offset taxation next year.

Mr Tait also said that all savings are accounted for in building up to the minimum eight percent fund balance that Newtown officials promised bond rating agencies would be in place by July 1, 2013.

“Without the $700,000 [being applied to the fund balance] this year, we would not reach the eight percent we promised to the rating agencies,” Mr Tait said. “The alternative would be to request additional amounts [in fiscal years 2012-13 and 2013-14] to exceed that eight percent goal. That’s why we are not going to dip into that $700,000.”

Many Moving Parts

Mr Kortze said that as the fiscal year begins to close, “a lot of moving parts in the operations budget” begin to settle, which may or may not yield a small surplus, depending on whether other budget lines come up short.

“There may be a very small surplus or no surplus. We don’t know,” Mr Kortze said. “But it’s important to clarify that while we saw $1.6 million in bonding savings this year, that did not create $1.6 million in additional cash [revenue].”

The finance board chairman also noted that while the 2011-12 budget accounted for a certain amount of interest on borrowing which was raised by taxation that year, this year’s re-funding or refinancing of eligible bonds provided the $375,000 that is being used to increase the fund balance this year.

Legislative Council Chairman Jeff Capeci said the town’s fiscal management, and the plan that Mr Tait has designed, is sound.

“What we are doing is consistent with our financial policies, and it makes sense to do it,” he said. “Even after two failed referenda, we are [committed] to sending a message to the ratings agencies by putting that money into the fund balance.”

The council chairman added, “I’m afraid that not putting it in would also send a message to the ratings agencies.”