NAUGATUCK — Mayor Bob Mezzo learned of a projected $1.2 million revenue loss for the 2010-11 fiscal year shortly before the Board of Education met Monday night to pare its budget and prepare a final number to request from Town Hall.
So even as the education board strove to find ways to achieve the zero-percent increase the joint boards of Mayor and Burgesses and Finance requested, borough officials realized they’d still have to dig themselves out of a $1.2 million hole.
Mezzo said about $650,000 of that sum was lost through cuts to state aid and grants—$500,000 to the Board of Ed. and $150,000 to the borough.
“That’s tough for a town like Naugatuck to make up,” he said. “When the state reduces aid by a half-million dollars, it might not seem like a lot to them, but it’s a lot to a community like Naugatuck.”
The borough also projects a loss of approximately $300,000 in “miscellaneous revenues,” including interest and lien fees.
The designated fund balance, a revenue item which funds capital improvement projects, has been decreased by $250,000. The designated balance is drawn from the undesignated fund balance, a reserve kept on hand to secure municipal bonds.
Mezzo said the undesignated balance is about $7 million currently, or approximately 7 percent of the borough’s overall budget. Ratings agencies recommend a town reserves a fund balance of about 10 percent of its operating budget.
Budget surpluses are injected into the fund at the end of each fiscal year, but since Naugatuck expects little surplus—given its assumption of the education board’s projected 2009-10 deficit of almost $1 million—Mezzo said fewer capital improvement outlays were approved. In turn, less cash will be drawn from the balance to fund them.
“If there was more money that we expected in surplus this fiscal year … we may have increased our capital expenditures slightly and added more money from the fund balance,” Mezzo said. “Because we don’t expect a large surplus this year, we’re hesitant to add much to the designated fund balance. … But there is a strong need for some of those capital projects that have already been cut from the budget.”
The borough faces some of the same rising costs as the education board—including contractual obligations to town employees and rising utility costs—and a few not shared by the school system, such as debt service and pensions, which Mezzo said are projected to grow by $1.4 million next fiscal year.
He assured the Board of Ed. on Monday it wasn’t the only government entity experiencing a shortfall.
“Even if both of us come in at zero … we’re 1.2 million dollars in the hole before we even get started,” he said. “There’s a lot of work that’s being done here. We have not only the Board of Education to deal with, but a municipal budget that’s been dealing with the same numbers for three years in a row.”
Mezzo has not ruled out the possibility of a tax increase to combat rising costs and decreased revenues (see story here).