Finance board strives to maintain flat mill rate or total taxes
At Thursday’s Board of Finance meeting, Chairman Jon Zagrodzky presented scenarios for possible goals of a flat mill rate increase or total taxes.
Due to the coronavirus pandemic, the status of the town’s finances have changed, which has caused town leaders to re-evaluate the 2020-2021 Darien Town Budget.
“We are trying to see if we can reduce these budgets and reduce pressure on our taxpayers, given the circumstances that we are in currently,” said Zagrodzky, who was the only member of the Board of Finance to physically attend the hour-long meeting. All other members participated remotely.
Zagrodzky said Darien First Selectman Jayme Stevenson is hoping to see if the town can have a flat budget in the coming year.
“The way she laid that out is what would it take to have a flat mill rate increase,” he said.
“A flat mill rate increase would mean that the mill rate that you’re currently assigned to pay your taxes would remain the same as it was last year,” Zagrodzky said. “But you could actually be paying higher taxes. The reason is that between last year and this year, the Grand List has actually gone up because of various improvement projects, and other reasons.”
Zagrodzky continued: “So even though we would have a flat mill rate increase if we wanted to aspire to that, the total amount of tax revenue would be still higher, simply because the Grand List is higher.”
In order to keep the mill rate flat, the town would either have to cut or defer in spending $2,569,000, Zagrodzky said.
The Board of Finance has set the mill rate to what it is this year, which is 16.47.
For the capital projects that both the Board of Selectmen and Board of Education have proposed, some are considered bondable, according to Zagrodzky.
“We could borrow the money to do those projects,” Zagrodzky said.
For the Board of Education, those projects are:
Refurbishment of the Darien High School tennis courts for $525,000
Replacement of the HVAC system at Holmes Elementary School, about $300,000
For the Board of Selectmen, those projects are:
Sidewalks for $500,000
Conversion of the Noroton Fire Department to natural gas, $165,000
Town Hall heating project, $170,000
“One million, six hundred thousand dollars in those projects would be bondable instead of being included in the operating budget, so that the first piece of the short-fall target that I mentioned of the two million, five hundred thousand would actually come from bonding these capital projects that are currently in the operating budget,” Zagrodzky said.
He added that all of those projects are long term in nature and lend themselves to being bonded.
“We have an excellent credit rating so this is the time to do something like that,” he said.
Debt service items
According to Zagrodzky, the town has several debt service items that could also contribute to savings.
“The debt that we had on the books resulted in interest savings because we refinanced it,” he said. “That resulted in a reduction of interest income that we will have to spend next year, that was already budgeted into next year.”
The net reduction for those items is $292,450.
Interest income reduction
The town treasurer had budgeted $735,000 in interest income for the next fiscal year. In the reduced interest rate that has come about because of the crisis, that amount is overstated, according to Zagrodzky.
“Our assessment is a six hundred thousand dollar cut, in that to take it down to twenty-five thousand dollars is a good idea and consistent with what the treasurer has recommended to the Board of Selectmen,” Zagrodzky said. “It’s a reduction in income, which means an increase in the net spending to the town.”
Capital contingency, collection rates
The Board of Finance capital contingency now has about $864,000 in it.
“We want to take $400,000 out of that account and apply them to these cuts,” Zagrodzky said.
He added that the last item the Board would adjust are the collection rates. The collection rate is the percentage of assessed taxes that we expect to collect.
“We have determined this by taking an average of the collection rate of the past five years, and set that as the number, and from that deduct 25 basis points,” he said.
To determine that, the Board studied collection rates from the last crisis, in the 2007 to 2008 time frame.
“We picked out the lowest collection rate in that particular period, and said let’s take 25 basis points from that collection rate and use that as the assumed collection rate for this budget,” Zagrodzky said.
He continued: “If the town takes the bondable projects from the Board of Education and Board of Selectmen, $1,650,000 in savings — that we’ve taken the capitalized interest, but also the interest reduction and the refinancing that we did earlier this month — that totals to about $516,000. We’re going to reduce the interest income by $600,000, but offset that in part with the Board of Finance capital contingency, plus a mild downward adjustment in the collection rate.”
If all those Board of Finance suggestions are taken, instead of 2,569,000, it comes down to a target cut of $1,323,000.
“That would be the further reduction that we would need to do in order to close out this gap and get to a zero percent mill rate reduction,” Zagrodzky said.
With the remaining $1,323,000 in reductions that are required to get to a zero percent mill rate increase, the Board of Finance has allocated those between the Board of Education and the Board of Selectmen.
Board of Finance member Jim Palen said to come up with the adjusted, pre-allocated budget, they looked at the net operating budget of each board, and added to that their capital budget, reduced by the amounts that the Board of Finance would otherwise go out and bond on those projects move forward.
“It’s operating expense, plus capital budgets, less items that were bonded,” he said. “Then, we looked at what the relative size of each was.”
“We are looking at 104 million dollars of an adjusted budget for the Board of Ed and 38 million dollars of an adjusted budget for the Board of Selectmen, so that shook out to a 73.4 percent allocation to the Board of Ed and 26.7 percent allocation to the Board of Selectmen,” Zagrodzky added.
He added that of the $1,323,000, in trying to meet a zero percent mill rate increase, it would mean a reduction of $971,000 from the Board of Education and $351,000 from the Board of Selectmen.
The Board of Finance requested the Board of Education and Board of Selectmen take the two reduction amounts and go back to their individual boards and see what can reasonably be cut.
“We are interested in whether some or all of that cut is possible,” Zagrodzky said. “If you feel that the assets you maintain would be unduly impaired if you went down that route and made those cuts, we’d like to know that too.”
The goal is an attempt to get a reduction target out there that would help meet the objective of a zero percent mill rate increase.
A second possible scenario for the town would be to get a flat dollar increase. This would mean the taxes raised from last year to next year would be the same.
In order to get to a flat dollar budget, that’s $2,225,000, and a bigger reduction would be required, according to Zagrodzky.
That would be a reduction of $591,000 for the Board of Selectmen and $1,623,000 for the Board of Education.
“That is less about cutting budgets and more about looking at things that you can defer until later,” Zagrodzky said. “The big things to defer are new projects to avoid laying off people and curtailing services that are already in existence.”
He did add, however, the construction of the new Ox Ridge Elementary School should go forward as planned.
“We should not interfere with or delay that process,” he said. “This is something that we needed for a very long time.”
Meeting calendar, next steps
The Board of Selectmen budget is due to the Board of Finance by May 1. The Board of Education budget is due to the Board of Finance by May 6.
Breakdown for Board of Selectmen budget:
May 5: First budget work session, selectmen budgets for police and building patrol, public works and parks and recreation
May 7: Community and environment, human services, library, debt service
May 12: General government, fire dept and all other protective and emergency, capital projects, fund balance, and discussion of Board of Education budget
May 14, The Board will have a final budget vote and vote to set the mill rate.
June 10: The budget and mill rate will then go to the RTM for consideration.
Town in good shape
Zagrodzky ended the meeting by reassuring residents that the town is going to get through the crises successfully.
“This town is extremely well managed,” he said. “We’ve prudently managed our expenditures for a very long time.”
He added that despite the fact that Darien is in the middle of this crisis, it retains its top bond rating with both agencies.
“The town is in no way under financial duress or stress,” he said. “We have our fund balance in place. This is the main reserve fund for the town. In the event of an emergency or something unforeseen, that’s the reason that fund balance exists. The balance of that is about 23 million dollars.”