NAUGATUCK — The borough is staring at the possibility of a budget shortfall this year as revenues have not reached expected levels.
Mayor N. Warren “Pete” Hess, who is in his first term, provided a look into the budget issues facing the borough during a March 15 workshop with the Joint Boards of Finance and Mayor and Burgesses. As things currently stand, the $115.26 million 2015-16 budget is projected to end with a deficit between $600,000 and $900,000.
The budget “was designed to fail upon its adoption as a result of several inaccurate assumptions and phantom revenue sources,” Hess stated in a letter to the members of the joint boards.
The budget overstated revenue from the sale of real estate. The budget projected the borough would receive about $750,000 from real estate sales, Hess said, including the sales of parcels A, B, and C downtown, the former train station, and the former Prospect Street School.
The deal to the sell the former train station is the only one that has been closed so far, and the borough is getting a $60,000 payment, which is the first of five scheduled payments, this fiscal year.
Hess said there is a possibility that the borough could close the sale of Parcel C, as well, which would bring in approximately $150,000 to this budget. However, this is more likely to happen after the next fiscal year starts, he said.
Tax collections have also fallen short of projections. The budget anticipated collecting 96 percent of the taxes. However, about 95 percent was collected. This equates to a loss of revenue of approximately $700,000, Hess said.
Hess said the borough typically collects 100 percent of the taxes it is owed, with interest for delinquent taxes, within four years. However, it would not be in time to offset the loss that the borough is facing in this budget.
Along with less than expected revenues, some expenses have come in higher than anticipated.
Controller Robert Butler said workers compensation claims are $148,000 more than budgeted due to a larger than expected number of claims, which are split between the borough and Board of Education.
Butler said the borough originally assumed it would see a decrease in the number of claims since it privatized trash collection. However, the claims rose in this budget and are likely to rise in the next budget, he said.
The borough is also facing an additional $40,000 in the assessor’s office due to overtime.
While she was aware the borough was facing a deficit, Board of Finance Chairwoman Diane Scinto said in a subsequent interview she did not know the extent or everywhere it was coming from before the mayor made his presentation.
“Being only the middle of the year we were not sure where we would end up. There were indications, but I didn’t know how bad it was,” Scinto said.
In a subsequent interview, Butler said the borough has enacted a discretionary freeze on purchases. This means that departments are only allowed to purchase items that are absolutely necessary for them to complete their jobs. The borough hasn’t put a freeze on hiring for positions that have already been approved, he said.
If the budget ultimately ends with a deficit, Butler said the money to cover the shortfall would come the general fund.
A deficit could have a larger impact on the borough’s financial footing if problems persist.
Moody’s Investor Services and Fitch Ratings recently reaffirmed their bond ratings of Aa2 and AA, respectively, for the borough. If the borough runs a deficit two consecutive years, it will drastically effect the borough’s bond rating.
“If you have two deficits in a row, you are deemed to be having a structural problem. A structural problem will really, really decrease our bond rating. So as we go through the budget process this year … we have to be conservative this year. No matter what we do we can’t have a deficit in the 2016-17 budget or we will pay a harsh penalty,” Hess said.
The borough is currently crafting its 2016-17 budget. Hess said the borough is already facing a difficult task when it comes to the 2016-17 budget.
The borough will have to make its first bond payment for the $81 million renovation project at Naugatuck High School next fiscal year. The payment is estimated to be $660,000.
The borough will also be facing new bond payments for upgrades at the wastewater treatment plant mandated by the federal government.
Hess said upgrades to the incinerators at the plant are expected to cost $3 million. This will add an additional $280,000 to the borough’s 2016-17 budget, he said.
In addition, the borough might have to temporarily shut the plant down while it is working or while its incinerators are not in compliance, Hess said, which would lead to a loss in revenue.
Hess said the borough is also facing a $500,000 increase in the workers compensation budget and a $350,000 increase in the pension contribution due to retirements
“I think, right now, this upcoming budget is extremely difficult and we’re going to have to have a tax increase. Going forward, the year after won’t be easy,” Hess said.
Hess said there is some good news when it comes to the 2016-17 budget. The grand list increased $18.8 million to $1.6 billion. The growth brings an additional $850,000 to the borough’s tax rolls based on the current mill rate.
Hess added the borough is projected to receive $1.5 million more in state funding next fiscal year, which does not take into account a $1.7 million grant the Board of Education received earlier this year.
The borough is also expecting to save $176,000 by refinancing its bonds. Of that amount, $56,000 is expected to be saved in this year’s budget and $120,000 is expected to be saved in the 2016-17 budget, Hess said.
Hess also touched on plans in the works that would yield savings in the long term, including switching all of the street lights to LED lights, which would is expected to save the borough about $190,000 a year within five years, investing in solar projects and using fuel cells to power the wastewater treatment plant to cut back on electricity costs.
“The people that I’ve talked to want significant tax relief. They do not want to see us cut $100,000 here or there; they want the mill rate to be down 15 mills. We can’t do that by cutting. We have to grow,” Hess said.