New Haven can fix its own problems, mayor insists

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NEW HAVEN, Conn. — New Haven does not intend to apply for Connecticut’s new oversight program for distressed cities, Mayor Toni Harp said.

“You go into the MARB when you can't do anything else,” Harp said in an interview at City Hall, referring to the Municipal Accountability Review Board. “We feel confident with our five-year plan, the refunding and our administration's initiatives. We can do these things without the benefit of MARB.”

Connecticut’s second-largest city has struggled in the past year. Harp projects a $10 million or $11 million gap for fiscal 2018. The state sharply cut educational aid in its fiscal 2018 budget. The city's deficit borrowing in August produced net present value savings of negative $9.9 million.

Persistent state underfunding of payments in lieu of taxes is also a problem in a city that is home to Yale University and Yale-New Haven Health System. New Haven depends on state payments for roughly 48% of its general fund revenues.

“We had a very difficult year the last fiscal year,” Harp said in a second-floor office that overlooks the historic New Haven Green.

The city raised the mill rate about 11%, to 42.98, with passage of the FY19 spending plan.

Connecticut's own fiscal struggles have "seeped into the city’s finances," said Alan Schankel, a managing director at Janney Capital Markets in Philadelphia. "To me, it doesn't look as though they're on the precipice. They're plugging along."

On Aug. 2, the city issued two series of general obligation bonds, including a $160 million deficit borrowing that extended debt maturities.

“This refunding was a classic scoop and toss, basically,” Schankel said. "Another thing you want to look at, as you want to do for everybody, is will they be ready for the next downturn? They scooped and tossed, but at the end of the day, what will have changed?"

While buying the city time to grasp with its immediate budget challenges, “the tactic highlights the budgetary pressures facing the city,” said Moody’s Investors Service, which called the move a credit negative. Moody's rates New Haven's general obligation bonds Baa1 with a negative outlook.

S&P Global Ratings and Fitch Ratings in late July downgraded the city's GOs to BBB-plus and BBB, respectively, both with negative outlooks.

S&P cited "sustained structural imbalance, stemming from optimistic revenue and expenditure assumptions, contributing to misaligned revenue and expenditures over the past three fiscal years." Fitch said New Haven's financial flexibility "has worsened from already weak levels."

Variables, meanwhile, surround MARB. The board has used most of its $27.3 million bailout allocation for this year after disbursements to capital city Hartford and New Haven's smaller neighbor, West Haven. A new governor and legislature will arrive in January, raising questions about the board's funding, staffing levels and reach.

Should New Haven's finances worsen, MARB could mandate the city enter its workout program, as it did with West Haven.

Past state interceptions have included Bridgeport, Waterbury, West Haven and Jewett City, the latter a borough of Griswold. Connecticut in 1991 opposed Bridgeport's Chapter 9 bankruptcy filing, which a federal judge negated.

This year, Hartford reached an agreement for the state to pay off the principal on the capital city's roughly $540 million of general obligation debt over 20 to 30 years. New Haven and other cities have criticized the move as overly generous to Hartford.

"We all are suffering at this point in time," Harp said. "As a parent — and I think of the General Assembly in that regard — why would I feed one of my children and let the others starve?"

Harp, elected to her third four-year term in November and the city's first female mayor, spent 21 years in the state Senate, about as appropriations committee chairwoman.

New Haven also issued a $58 million capital bond to finance a variety of infrastructure needs, notably a new public works garage. “The one we have now is about to fall down,” Harp said.

The refunding is expected to result in roughly $31.2 million in cash-flow savings for fiscal 2019 — or a 44.3% reduction in debt service relative to the adopted budget. Moody's expects the city to realize annual debt service saving through fiscal 2024, after which debt service will increase modestly through FY2026. Annual debt service will then be $57.4 million from FY26 to FY33 before decreasing.

City Controller Daryl Jones defended the borrowing.

“The term ‘kick the can down the road’ … I adamantly disagree with that,” he said. “There were negative present-value savings, yes, but in the aggregate scheme of things, since 2010 we have done eight refundings and they have generated $12.9 million of present-value savings.

“The city budgets very conservatively,” said Jones. “We’re prudent, and it’s paid off. We’re doing it in a way that makes sense.”

According to Jones, New Haven expects to complete its five-year plan by year's end. "A five-year plan, that's a big plus," Schankel said.

Other operational initiatives include audits of all city services and a review of its capital improvement plan. "The recent refunding will provide a degree of relief over the several years it will likely take for those efforts to yield tangible results," said Moody's.

Asked why the city hadn't conducted a five-year plan earlier Jones replied: "One issue was that was very expensive to do. It's labor-intensive, but now with new software, it's relatively cheap."

One plus for New Haven is the omnipresence of expansive Yale University and acquisitive Yale-New Haven Health, which contribute to a strong local economy. Also, "town and gown" relations between the city and the institutions have considerably improved over generations.

"Economically the city's really growing," Jones said. "We've been the center of attention. There's a lot of stuff going on, growth going on."

Yale last year opened two new undergraduate colleges, covering seven acres adjacent to Grove Street Cemetery and Ingalls Rink. The university projects Pauli Murray College and Benjamin Franklin College to boost its undergraduate enrollment by 800 students over four years, or 15%, to an all-time high of 6,200.

The big institutions, though, are tax-exempt, which curbs New Haven's ability to boost property tax revenue. According to Moody's, property tax revenue accounted for 43.3% of the city's fiscal 2017 revenues. In addition, the state has traditionally shortchanged cities on PILOT reimbursements.

"I think the state can do some more around economic development, like improve the transportation," said Harp. "I'd like a system to get us by train from New Haven to New York in one hour." Track and signaling improvements would involve negotiations involving the state Department of Transportation, New York's Metropolitan Transportation Authority and Amtrak.

Today's commuter trains on the MTA's Metro-North take about two hours to grind out the 72 miles between New Haven and New York.

"One of the things that we see as the future is bioscience," Harp added. "I'd like to see the state invest more and draw these types of businesses."

Last week, Harp and state officials celebrated the opening of the Holberton School, a software engineering school at a technology business campus called The District, a brownfields reclamation project at the site of a former Connecticut Transit bus depot.

"As digital technology assumes a greater and greater role in the lives of Connecticut residents, there will be a greater demand for those with the ability to write code and program computers and other digital equipment," Harp said.

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