Impact of BOE situation far-reaching

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NAUGATUCK — The common perception among teachers, parents and other taxpayers seems to be that the Board of Education’s projected $2 million budget deficit affects only school system itself.

But the board’s latest cost-saving plan would bridge only $1.6 million of that shortfall—and the Borough of Naugatuck, already scrimped by a budget that did not increase this fiscal year, would likely be asked to make up the difference.

“The sad reality is at the end of the year, the borough has to pay its bills,” Mayor Bob Mezzo said of the Board of Ed. “And there’s a lot of fear [among officials] that there’s either been a flagrant disregard for finances or a laissez-faire attitude toward oversight [at the BOE].”

Mezzo said if the joint boards of mayor and burgesses and finance approved a bailout of any amount, the borough would look first to departments that are under-budget. Various departmental accounts could be tapped for extra funds, and Mezzo said the roughly $400,000 remaining BOE shortfall could be covered by sapping dollars from departments that are operating below budget.

Board of Ed. Business Manager Wayne McAllister, who is also the borough controller, says the board's budget deficit affects more than the school system.
Board of Ed. Business Manager Wayne McAllister, who is also the borough controller, says the board's budget deficit affects more than the school system.

“Let’s say you’ve got $100 to spend in four stores,” Controller and acting BOE Business Manager Wayne McAllister said. “You spend $25 in each store, you’re fine. You spend $35 in one, $15 in another, and $25 in the other two you’re fine. But you have a problem if you end up spending $110 or $105.”

McAllister said his department and the finance board are trying to prevent analogous overspending when considering a BOE bailout.

His first-quarter report indicates the borough side had spent 20.5 percent of its budget, as of Sept. 30, slightly less than the 20.4 percent spent over the same period last fiscal year. The numbers indicate systematic savings on the borough side—savings which may be transferred to cover a now-longstanding operating deficit at the Board of Education, a supposedly separate, autonomous arm of the borough’s government.

Alexius Conroy, the Fairfield developer charged with the management of the Renaissance Place downtown revitalization project, said the BOE’s budget mess would not be a “hindrance” to potential investment in the project.

Conroy said the value of an investment in Naugatuck has been preserved by an ongoing engagement in a “vibrant discussion and negotiation” between town leaders and citizens about how to solve the problem.

“There’s a major effort to deal with the issues,” Conroy said. “It would be one thing if no one was trying. … Quality of education is important and not easy to achieve, especially given the economy. That’s just a reality that’s faced everywhere right now.”

Normally, Mezzo said, when a municipal department spends less than it’s budgeted, the surplus is put into the contingency fund ($350,000 this year) then transferred to the fund balance, a separate account (about $7.5 million, at present), which is kept on hand to secure municipal bonds. This fund is drawn from once each budget season to protect against unforeseeable drops in tax revenue. It can only be tapped otherwise for “catastrophic emergencies”—not to shore up operating deficits.

Mezzo said most bond counselors and actuaries recommend a municipality maintain a fund balance that’s 10 percent of its overall working budget. The borough’s fund balance amounts to approximately 7.5 percent of its budget.

“A lot of people have this idea that the borough of Naugatuck sits on a lot of money they can use,” Mezzo said, but really, if the fund balance were milked for a non-catastrophic overage it would “devastate [Naugatuck’s] bond rating.”

Bailout money for the BOE could also come from two other places, should departmental spending catch up to its budgeted amounts.

First, there’s the $350,000 contingency fund, which is used typically to cover unplanned expenses and emergencies on the borough side over the course of the budget year. Mezzo said this sum is often mined for extra-budgetary overtime spending, overspent winter snow removal accounts and the like. He said the borough would be hesitant to use its own contingency fund to bail out the BOE, adding it should have an emergency fund of its own.

There may also be some emergency money available in the borough’s $350,000 internal service fund, which is another contingency fund used to cover any overspending of self-insured dental and prescription benefits for borough employees.

More broadly speaking, the potential effects of a floundering school system on the borough’s bond rating and property values are more far-reaching and systemic than those on yearly departmental or contingency accounts—but officials aren’t as worried these more extensive penalties will come to fruition.

McAllister noted the borough’s bond rating, like a personal credit score, is based on the perception of its credibility—and that credibility could be rocked by an examination of “the underlying causes of an overspent budget” and a consideration of whether the problem is a “one-time issue” or a long-term one.

As it stands, the Board of Education will have to scramble to pick up the pieces of this fiscal year’s budget and deal with another salary increase for teachers and more potential insurance problems next year. It may again be faced with a zero-percent increase in allocations from the borough for the 2010-2011 fiscal year, which begins July 1.

McAllister said he’s working with the Finance Board to “eliminate a long term impact,” which would affect future borrowing and Naugatuck’s financial rating.