NAUGATUCK — The borough’s 2015-16 budget ended the fiscal year with a deficit.
The $115.26 million budget closed the fiscal year, which ended June 30, with an estimated deficit between $600,000 and $900,000, Mayor N. Warren “Pete” Hess said. The exact number won’t be known for some time until an audit is completed, he said.
The majority of the deficit stems from the overestimation of revenue, especially from real estate sales, that never materialized, Hess said. The borough anticipated $750,000 in real estate sales as part of its revenue, but only saw $60,000, he said. The budget planned for the sales of parcels A, B, and C downtown, the former train station, and the former Prospect Street School.
“That is the major cause,” Hess said.
In addition, the budget didn’t account for the unforeseen loss of rent from Veolia North America, the private company that runs the borough’s wastewater treatment plant.
Veolia shut down the incinerator at the plant in April due to concerns about facing violations for not meeting federal mandates to reduce the amount of pollutants emitted. The incinerator has since been restarted, but Veolia did not pay rent to the borough during the time it was off. The company pays approximately $4 million a year in rent.
The deficit is somewhat offset by an increase in taxes collected, Hess said.
Finance Manager Robert Butler said the borough will use money from the unassigned fund balance to cover the debt. The account is where the borough puts surplus funds when it has them and pays off deficits when they occur, he said.
There is currently about $13.8 million in the account, Butler said, a figure that doesn’t take into account the deficit that has to be covered.
Although the borough is able to pay off this deficit, it has to be careful about not running another one during the 2016-17 fiscal year.
Earlier this year, Moody’s Investor Services and Fitch Ratings 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.
Hess said the borough has taken steps to ensure there will not be another deficit.
“We have a much more accurate estimate relating to not only sale of real estate but the stability in rent we will be receiving from Veolia. Going forward we have really tightened up the budget on the revenue side of equation,” Hess said. “On the cost side we feel pretty confident that our numbers are conservative and we will not be in the same situation next year.”