Norwalk's Finance Director, Tom Hamilton, believes the proposal put forward by superintendent Salvatore Corda to resolve the budget crisis is "fundamentally flawed." I disagree with Hamilton's conclusion. The finance director's analysis, in my opinion, is based on a very questionable premise – that the city of Norwalk requires an undesignated fund balance projection of roughly 7% for the end of the 2009-2010 fiscal year.
But before discussing that premise, it might be worthwhile to note that the last time there was a major disagreement between Corda and the Board of Education on the one hand, and the Finance Director, the Common Council and the Mayor on the other, the BOE was correct.
That was in 2004 when the BOE negotiated a contract extension with the Norwalk Federation of Teachers. The health insurance savings generated by that contract over a two-year period were consistent with the projections made by the superintendent. The Mayor was wrong, and the finance department, relying on strict accounting procedures, refused to project savings beyond a single year.
Corda is now proposing that the BOE proceed as if its budget reflected a 6.2% increase (in reality, the increase is 3.8%), that it continues to look for additional savings and, most importantly, that the Board of Estimate agrees to make a special appropriation to cover expected shortfalls in various education accounts. I concur with Hamilton's view that this is not an appropriate way to craft a budget. Special appropriations are for emergencies, they should not be "planned."
But these are exceptional circumstances. The Common Council's ill-conceived spending cap, coupled with the phase-in of the last revaluation and the need to address expensive storm-drainage issues, along with the various question marks on the amount of education aid that can be expected from Hartford, have created a unique set of circumstances for Norwalk. Corda should be applauded for his imaginative proposal.
I also agree with Hamilton's decision to base his analysis on the possibility that the BOE might require an appropriation as high as $3.2 million. Considering Hamilton's responsibilities as finance director, he should indeed work from a worst-case scenario. However, I would suggest that the BOE and the BET agree to a hard number, perhaps as little as $954,000, depending on the latest information from Hartford. Whatever the amount, I believe it should come, as Corda suggests, from the fund balance.
And this is where I disagree with the finance director (and implicitly with Mayor Moccia). The key question for Hamilton is the size of the fund balance in 2009-2010. His entire analysis is based on being able to project a fund balance (or rainy day fund) that is at least 7% of total revenues for the 2009-2010 budget. The question is why?
According to Hamilton, we need to maintain a fund balance that is close to the median fund balance (as percent of total revenue) for Connecticut towns with AAA ratings, which is 6.9%. After factoring in fund balance withdrawals for 2007-08 (almost $4 million), 2008-09 (about $3.5 million) and 2009-10 ($0), he believes our fund balance will be roughly 7% of total revenues. That is close to the 6.9% standard, and thus Corda's proposal was dead on arrival, unless, of course, the city decides to raise taxes to unacceptable levels in the next two years.
But there is no compelling reason for Norwalk to match the median percent fund balance for other AAA towns. The rating agencies and fiscal monitors do not require it; the very existence of a median indicates wide variations among AAA towns. Moreover, we are larger than most Connecticut towns, and the rule of thumb is that the smaller the town the larger the percentage should be. In other words, Norwalk at 7% provides us with millions more to deal with a catastrophe than, say, Weston at 7%.
Norwalk could dip below 7% and the rating agencies would not be overly concerned, although they would consider Corda's proposal a questionable precedent that should not be repeated. (Our official fund balance policy requires us to stay between 5% and 10% of total revenue. A fund balance withdrawal of $1.5 million beyond Hamilton's projections would leave Norwalk at roughly 6.5% for 2009-2010.) It is important to note that during the latter years of the Esposito administration Norwalk hovered just above the 5% minimum, yet we achieved and then maintained a AAA rating. The point is, we are in good shape financially and there are funds we can tap into to solve this budget crisis.
Norwalk's Common Council and the BET have put the city in a difficult position. Limiting the increase in the education budget to 3.8%, when the cost of mandated salaries and health insurance alone requires a 5.7% increase, was a politically motivated gesture that will wreck havoc on our school system. Cooler heads need to prevail.
Fortunately, Corda and the BOE have come up with a proposal that opens the door. Now all we have to do is muster the political will to walk through it, sit down and seriously discuss how to solve this crisis.
Bruce Kimmel
