Hamden Financial Updates
Below are a few updates on the town’s financial situation. As you will see, they are not encouraging, and they raise the question of what we as residents should be doing to demand more effective action to address the challenges we face. We are working on some specific proposals that we will share in the near future once ready.
Hamden Debt Downgraded
In connection with the town’s proposed issuance of approximately $31M in bonds to refinance existing debt, we approached two agencies to rate the bonds – Fitch and S&P. As discussed in more detail below, we intentionally did not approach Moody’s. Having reviewed our financial information, each of the agencies approached downgraded Hamden’s debt as follows:
- Fitch: downgrade of one notch from BBB+ to BBB and maintained our negative outlook
- S&P: downgrade of two notches from A to BBB+ and revised our outlook downward to negative
Note that these downgrades do not yet take us into junk bond status. Moody’s is the ratings agency that had previously downgraded us to one notch above junk status. Fitch and S&P maintain slightly higher ratings for the town. The town did not ask Moody’s to rate the current issuances (according to the town’s financial advisor, because Moody’s is historically the toughest of the three ratings agencies on the town). That said, Moody’s could still act on its own initiative to lower its ratings on the town’s other debt. If it did so, we would be in junk status. As a result of these downgrades, we are now nearing junk status with Fitch and S&P as well.
I encourage everyone to read the downgrade reports for themselves. As you will see, the ratings agencies are raising the same concerns that we have repeatedly noted – imbalances between revenue and expenses, pressure from the rising costs associated with long-term liabilities, overly optimistic budgeting, etc. As usual, the New Haven Independent also has excellent coverage of the downgrades:
FY20 Deficit Updated
The town’s FY20 ended on June 30, 2020. One of the new pieces of information contained in the downgrade reports is a projection from the town that our FY20 deficit will be approximately $6M (the exact amount won’t be known for certain until the town’s audit is completed several months from now). Projections included with the proposed budget for FY21 had indicated that the deficit could be as high as $12M, so a $6M deficit would be an improvement over that scenario. It will be necessary to see the final numbers to know for sure, but it could be that a significant amount of this improvement results from medical costs that will ultimately hit in FY21 given that people put off elective surgeries, routine doctor visits, etc. because of the pandemic.
Given how weak our financial position was to begin with, even a $6M deficit has devastating consequences. As the downgrade reports note, with a starting fund balance of less than $2M, this deficit means that we will end the fiscal year with a negative balance of over $4M. For context, the town’s outside financial advisor has indicated that our fund balance should be about $20M in order to be considered healthy.
The debt restructuring described above is intended to address our fund balance crisis. Essentially, if we continue to budget full debt service payments but are able to temporarily lower our actual debt service payments through a restructuring (something that will unfortunately cost us millions of dollars in the long-run), the “savings” (more accurately, the delayed payments) can be used to rebuild the fund balance. The issue is that as many observers (the town’s financial advisor, the ratings agencies, etc.) have noted, this approach only works if we have the discipline to actually balance our budget while maintaining fully budgeted debt service payments. As the town’s financial advisor noted of the ratings agencies’ reaction to the restructuring and what would be needed in its aftermath, “[t]he big concern both of them said was that the town does not have a good history of following through with these plans.” (from the New Haven Independent article linked above).
There has been and will continue to be a concerted effort by the administration to attribute the FY20 deficit to the pandemic in order to mask the continued structural imbalances in the town's budget. Anyone making this argument should be asked the following questions:
- What specific revenue did we not realize in FY20 as a result of the pandemic that we would have realized had the pandemic never happened (for example, it is ludicrous to assert that Quinnipiac would have given us $2.1M had the pandemic not occurred when they've given us a total of $1.0M in the previous three years combined)?
- What specific expenses did we incur in FY20 as a result of the pandemic that we would not have incurred had the pandemic never happened (and were any of these expenses defrayed)?
- What specific expenses did we NOT incur in FY20 as a result of the pandemic that we would have incurred had the pandemic never happened? On this point, note that the town's insurance advisors projected that the town will save several million dollars in medical costs in FY20 because people delayed elective surgeries, dentists appointments, etc. and that these expenses will be pushed to FY21 when the pent-up demand is realized.
Comparing the numbers from #1-#3 gets you the impact of the pandemic. I'll reserve final judgment until seeing the audit, but based on preliminary numbers the impact of the pandemic on FY20 financials seems minimal (and paradoxically, may actually be slightly positive given the medical savings mentioned in #3 above). The FY20 deficit is very likely an almost exclusive product of the town's imbalanced finances and make believe budgeting, not the effects of the pandemic in any meaningful sense.
This is not about assigning blame. It is about accurately diagnosing the problem and not allowing ourselves to be misled into thinking that what we're dealing with is the temporary result of the economic fallout from the pandemic versus deeper structural issues that will be with us long after the pandemic has receded.
Town Email Problem Being Investigated
Many people have experienced problems contacting town officials in recent months, specifically with emails bouncing back as undelivered. I have run into this several times myself. Lauren Garrett and Phil Cronan are looking into this issue. If you’ve experienced this problem yourself, please contact them at laurengarrett214@gmail.com or hamdenplainsfriends@gmail.com. They’re trying to get their arms around the magnitude of the problem. In this virtual world, the ability to reach town officials via email is obviously of increased concern.