Board of Finance to Mayor Martin and Superintendent Tamu Lucero: cut your proposed budget by 10%

April 15, 2020

Board of Finance directs Mayor Martin and the Board of Education to work within tax and revenue projection that is $35 million less (~6%) than last year’s receipts and $65 million less (~10%) than the Mayor’s proposed projection

 

In an ordinary year, the Board of Finance sets the city’s expenditures, which are subject to further reduction by the Board of Representatives. Then, it makes revenue estimates for fees, services, and grants, and sets a reserve for property taxes assessed but not collected. Finally, the Board of Finance determines what mill rate is necessary to keep the budget in balance.
 
In an ordinary year, revenue estimates and assumed property tax collection rates do not affect city spending, since the mill rate is “solved” to be set at a rate consistent with city spending.  Unlike the federal government, Stamford is not allowed to run a budget deficit.
 
This year is not an ordinary year.
 
This year, to prevent taxpayers from facing a tax increase, the Board of Finance is working backwards. They are starting the budget process by setting the mill rate.  So, the lower the tax and revenue estimate, the less money the city has to spend.
 
In 2018, the Board of Representatives reduced the city’s budget by $2.2 million, which the Mayor called “unprecedented.”  $2.2 million will be a drop in the bucket when compared to this year’s budget reductions.
 
Last night, the Board of Finance met for nearly four hours to discuss tax and revenue projections for the upcoming fiscal year, FY 2020–21.  At the meeting, the Board first expressed a desire to keep taxes flat in light of the economic hardship caused by the coronavirus. Unanimously, they approved a mill rate “recommendation” identical to last year’s:  26.11 mills.
 
Then, they estimated revenues, and the amount of “uncollected” property taxes, to determine the total amount of expenditures available for the city this year.
 
Excluding operating and capital grants, 90% of the city’s annual receipts comes from property taxes.  This includes commercial, residential, and personal property taxes, as well as the automobile tax.  The remaining 10% comes from fees, such as the conveyance tax when real estate is sold and the building permit fee when a developer or homeowner seeks to build on their land, and governmental grants, such as educational cost sharing funds from the state of Connecticut. 
 
Before the impact of coronavirus was widely understood, the administration estimated the city would have approximately $630 million in receipts for FY 2020–21.  That included $54 million in revenues, and nearly $600 million in property taxes, accounting for a 4% mill rate increase to 27.19, and including a $6 million reserve for uncollected property taxes in line with years past—an “uncollected” rate of about 1%.  (There is also $15 million set aside for "all other reserves" which I won't go into, because I don't know what it is.)

 

The Board of Finance went line by line through the various revenue projections.  After lengthy discussion, the Board decided that revenue projections should be reduced to roughly $41 million—$13 million less than the Mayor’s projected budget and a full $15 million less than the $56 million received last year.
 
Then they turned to set the reserve for uncollected property taxes.

 

As discussed previously, last year, the city boasted that “[t]he combined current levy collection rate (for all property types) was 98.9%, marking the seventeenth consecutive year that the City’s collection rate exceeded 98%.”

 

The Board does not expect anywhere near as high a collection rate this year.  

 

Going line by line, the Board set collection rates in categories broken down by parcel type (condominiums, commercial, residential, etc.) and size ($0–$250,000; $250,000–$500,000, etc.) to refine their estimate of uncollected property taxes.

 

While the Board expects property tax collections for more expensive property to remain roughly the same as years past, because such property owners are more likely to have the resources to weather the recession, it anticipates collections to drastically fall for less expensive property.  For example, for the least expensive parcels, such as condominiums less than $250,000, the Board projects a collection rate just above 80%.   

 

Revenue and tax estimates are usually a science, with property tax estimates highly predictive of realized taxes, and revenue estimates less precise but still helpful.

 

This year, the estimates are educated guesswork.

 

When the dust settled, the Board projected an “uncollected” rate of 6.1%—three times as high as any realized uncollected rate in recent memory.  The Mayor’s projected $630 million of receipts available for spending and contingency had been chopped to $565 million—a $65 million reduction, and $35 million less than the $600 million of actual receipts for FY 2019–20.

 

The Board approved that projection, and unanimously voted to direct the Mayor and the Board of Education to submit a new proposed budget for FY 2020-21 consistent with their estimate.

 

Of course, none of this is set in stone.  The mill rate vote last night was just a recommendation and is nonbinding.

 

Pursuant to state law, it will be officially set by the Board of Finance at the end of May.

 

So, either the Mayor and Board of Education will need to find savings of about $65 million from their original budget projections, or the Board of Finance will acquiesce and raise the mill rate to a level commensurate with higher expenditures.  Or a mixture of both.  Only time will tell.

 

Update (April 15, 2020):  The Advocate has also published an article on the Board of Finance meeting.  
 

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