State Financial Support for Waterbury

You asked (1) how much state money Waterbury has received since FY 2000, (2) what the money was used for, (3) what the state did to help Waterbury’s pension fund, and (4) how involved the state currently is in Waterbury’s finances.

Since July 1, 2000, Waterbury has received over $ 625 million in state grants. This total includes between $ 100 million and $ 110 million annually in state education grants, including Education Cost Sharing (ECS) grants and grants for early reading, school accountability, extended school hours, and all-day kindergarten programs. The city has received between $ 17 million and $ 19 million per year in other state funding for payments in lieu of taxes, Pequot and Mohegan Fund grants, town road aid and local capital improvements, and surplus revenue sharing.

The state has also allocated almost $ 188 million in state bond funds for projects in the city. These funds have been used for a variety of economic development and social programs.

Finally, the state has provided special assistance to Waterbury to help it recover from accumulated operating deficits and financial mismanagement. This assistance began in 2001 and consists of state-backing for nearly $ 100 million in city deficit bonding, a state financial control board, and in various forms of in-kind state assistance.

Although a subcommittee of the state financial control board studied options for addressing the massive underfunding of the city’s pension fund, the state has not provided any financial assistance to the city pension funds.

The state continues to be heavily involved in the city’s operations and finances. The financial control board oversees city finances and operations, a state employee works full-time as the city’s interim budget director, and a state capital reserve fund provides security for the city’s deficit bond issue.

Education. Waterbury has received between $ 100 million and $ 110 million in state education aid each year since FY 2000. The largest education grant to the city is Education Cost Sharing (ECS), which rose from $ 75 million in FY 2000 to almost $ 91 million in FY 2004. Waterbury is a priority school district, a group of 16 school districts that are targeted for additional state aid based on educational and economic need. Because of this status, Waterbury receives additional state money for early reading programs, school accountability, keeping schools open for extended hours, all-day kindergarten, and reduced class size in early grades.

As part of the plan to address Waterbury’s immediate problems in FY 2001, Special Act 01-1 (1) accelerated payment of whatever part of the city’s FY 2001 ECS grant payment the Office of Policy and Management (OPM) secretary determined and (2) allowed the secretary also to accelerate FY 2001 installments from the Mashantucket Pequot and Mohegan Fund.

In 2002, PA 02-2, May 9 Special Session, waived various state school construction project requirements to allow Waterbury to:

1. carry over money from two prior school improvement grants to spend in FY 2003,

2. allow Waterbury to submit a consolidated school construction grant application for several school projects and be eligible for one state grant for them all,

3. allow the city to use discretionary federal block grant funds to pay its local share of school construction project costs, and

4. waived application deadlines to add several Waterbury projects to the 2002 state school construction project authorization list.

Table 1 shows each state education grant Waterbury has received for FYs 2000-2003 and for FY 2004 through May 11.

Other Grants. Between FY 2000 and FY 2004 Waterbury received between $ 17. 2 million and $ 19. 4 million annually in state grants not related to education. The current projection for FY 2005 is $ 20. 1 million.

1. Payments in Lieu of Taxes (PILOT) for state-owned property and colleges and hospitals – These grants are paid from General Fund appropriations and are based on the amount of (a) state-owned or (b) college and hospital property located in the city. Since such property is exempt from taxation by municipalities, PILOT grants-in-aid provide partial compensation for the property tax that the city would have collected if it were owned by a taxpaying entity.

2. Pequot/Mohegan Fund grants – These grants are funded from a General Fund appropriation of the revenue the state receives from slot machines at the Foxwoods and Mohegan Sun casinos.

3. Town Aid Road (TAR) – These grants are funded through appropriations from either the General Fund or the Transportation Fund. They are intended to help municipalities maintain local transportation infrastructure (roads and bridges) that is not covered under the statewide Transportation Infrastructure Program.

4. Local Capital Improvement Program (LoCIP) – These grants are funded from general obligation (GO) bonds and are intended to help municipalities maintain and improve capital assets such as roads and bridges, sidewalks, town-owned buildings, sewer lines and storm drains, dams, public parks, and other projects. In FY 2000 a portion of the FY 19999 General Fund budget surplus was used to provide towns with a one-time additional grant-in-aid under this program.

5. Surplus Revenue Sharing – These grants to towns were provided on a one-time basis in FY 2001 and FY 2002 from prior year budget surpluses.

Table 2 shows the grants Waterbury has received for FYs 2000-2004 and the projected amount for FY 2005.

State General Obligation Bonding. The State Bond Commission allocated a total of $ 187. 8 million in GO bond funds for projects and programs located in Waterbury from FY 2000 to the present. (This total does not include school construction or LoCIP grant funds. ) These include economic development, social programs, renovations and improvements at state-owned facilities and grants-in-aid for repairs or improvement to city-owned or nonprofit-owned sites and infrastructure.

Table 3 provides a detailed listing of actual and project GO bond allocations for projects in Waterbury from July 2000 to May 2005. We also attached brief descriptions of Waterbury projects overseen by the Naugatuck Valley Development Corporation.

State-Backed City Bonds. Special Act 01-1 authorized the city to issue up to $ 100 million in city GO bonds backed by a state special capital reserve fund. In April 2002, the city issued $ 97. 465 million in such bonds. Of this amount, $ 73. 4 million was used to pay off the city’s accumulated operating deficit, $ 12. 3 million was used to partly address deficits in the city’s self-insurance funds, and the remainder covered the final year principal and interest payments as required by the state special capital reserve fund, the operations of the state oversight board for the city (see below), and bond issuance costs.

Waterbury Financial Planning and Assistance Board. As a condition of state backing to allow Waterbury to issue the $ 100 million in city bonds to finance the city’s deficit, Special Act 01-1 established a seven-member board to oversee Waterbury’s finances and operations. The board consists of the OPM secretary and the state treasurer or their designees, the city’s mayor, a member representing the city’s municipal unions, and three members appointed by the governor. The board has broad powers over the city’s finances and operations. The city remains subject to the board’s authority until, among other things, its budget is balanced for five consecutive years.

State Personnel and In-Kind Assistance. The state financial assistance board used the resources of various state agencies to audit the city’s finances and books and revamp its management practices. The board’s first report to the General Assembly on November 12, 2002 listed the following such activities:

1. The board consulted with the State Department of Education to hire a team of education finance experts to review the city’s state and federal education grants and recommend procedural and organizational changes to prevent inadequate management of those grants.

2. A team of staff from OPM and the Office of the State Treasurer was put in place to help the city manage its daily operations.

3. The state helped the city to hire a full-time economic development coordinator to work with the mayor and city leaders to improve the city’s economic development programs.

4. A loaned OPM employee serves as the city’s full-time interim budget director.

5. A team from the state Department of Administrative Services helped to review the city’s human resources and finance functions to allow potential consolidation, increased efficiency, and better operations.

SA 01-1 authorized the financial assistance board to study ways to ameliorate problems arising from Waterbury’s chronic underfunding of its pension plans. In 2001, the board appointed a subcommittee to study the issue. State Treasurer Denise Nappier served as the subcommittee chairman, and the subcommittee was assisted by several pension consultants.

The subcommittee determined that the Waterbury pension fund’s covered ratio as of July 1, 2001, was 3. 8%, making it one of most seriously underfunded plans in the United States. The subcommittee considered various proposals for alleviating this situation. Among them were issuing pension bonds or selling or leasing one or more city assets to provide a cash infusion to reduce the unfunded liability. To limit future growth of unfunded liability, the subcommittee looked at moving away from defined benefit plans for new hires.

1. require the city to contribute a minimum fixed amount to the pension fund for the five fiscal years from 2004 through 2008;

2. starting in FY 2009, contribute to the plan based on an annual actuarial valuation to be performed by the city’s actuary;

3. keep newly hired employees in the city plan, but explore future participation in other acceptable alternative plans, such the state Municipal Employee Retirement Fund;

4. consider investing city pension funds through the state’s Combined Retirement Plans and Trust Funds to improve the city’s pension investment returns;

5. improve the pension plan administration; and

6. if the city realizes any significant future cash infusion, use it to reduce the unfunded pension liability.

In addition, although the subcommittee recommended against issuing pension obligation bonds at that time, it suggested that the city reanalyze the costs and benefits of issuing such bonds every year.

According to Jill Ferriolo, the state treasurer’s designee on the Financial Planning and Assistance Board, the board continues to play a very active role in the city’s finances, operations, and labor relations. The full board meets twice a month and its subcommittees on operations and labor relations meet two or three times a week. The city reimburses the state for the board’s legal and consulting expenses, but the state employees who serve on the board are paid by the state.

1. approve annual city budgets and annual three-year financial plans;

2. raise taxes and user fees in mid-year to pay off all or part of a projected annual budget deficit if the board of aldermen fails to do so;

3. impose its own terms in new and renewed collective bargaining agreements and binding arbitration awards between the city or board of education and union employees, regardless of issues raised and negotiated by the parties;

4. ask unions to reopen existing contracts and require bargaining unit members to vote on proposed revisions when the board and union fail to agree on revisions;

5. approve new noncollective bargaining city contracts costing more than $ 50,000 a year and set aside certain existing contracts;

6. approve the terms and conditions of all city debt, including deficit funding bonds and notes authorized under the act;

7. approve the city’s education budget by line-item; and

8. override any decisions, including personnel and administrative hiring decisions, taken by the mayor, the board of aldermen, or any city employee if they affect the city’s economic viability.


June 7, 2004		2004-R-0462
STATE FINANCIAL SUPPORT FOR WATERBURY

By: Judith Lohman, Chief Analyst Linda Miller, Principal Economic Analyst

*Grant*	*2000*	*2001*	*2002*	*2003*	2004*
Innovative Teacher Training	0	50,500	0	0	0
Coordinated Education -DSS	51,099	0	0	0	0
Omnibus Grant	89,369	91,727	96,271	92,311	0
Family Resource Center	0	100,000	100,000	86,171	77,975
Special Ed - Equity	652,540	888,797	1,147,669	0	0
Special Ed. – Excess Cost & State Agency Placements	1,089,819	1,433,432	2,280,666	1,938,216	1,213,811
Public School Transportation	1,825,554	1,889,133	1,952,938	1,854,882	1,800,134
Nonpublic School Transportation	342,287	366,316	402,701	346,081	258,513
Adult Education	1,919,208	1,493,688	1,480,940	1,471,070	1,159,285
Nonpublic Health Services	287,480	339,829	324,174	321,650	285,369
Supplemental Education Aid	0	0	4,000,000	0	0
Education Cost Sharing	74,991,869	79,518,947	84,705,588	89,787,762	90,771,141
Bilingual Education	259,881	280,109	291,159	274,709	65,407
Priority School Districts	1,584,125	1,584,125	1,584,125	1,529,569	1,132,954
Young Parents	15,540	15,540	15,540	14,767	0
Interdistrict Cooperation	0	101,589	165,621	162,735	65,568
School Breakfast	109,043	115,723	114,319	104,693	88,811
Student Achievement	38,314	33,096	0	0	0
Extended School Hours	268,367	275,571	301,989	290,342	105,187
Early Reading Success	2,089,281	2,089,470	2,244,621	2,222,012	1,134,282
Magnet Schools	1,707,001	2,945,248	3,229,303	4,026,383	3,296,348
School Library	355,222	357,202	0	0	0
School Accountability	0	824,380	336,101	254,975	128,580
School Improvement	0	0	94,088	0	0
Gen. Improvements to School Buildings	1,493,617	1,501,943	1,605,060	0	0
School Building Projects	18,438,206	6,945,307	4,323,529	3,706,683	205,910
Educational Technology	1,000,000	379,972	151,833	42,894	0
TOTAL	108,607,522	103,621,344	110,947,935	108,533,905	101,789,275*

*Grant*	*2000*	*2001*	*2002*	*2003*	*2004*	2005*
Payment-in-Lieu of Taxes:
State-owned Property	2,334,389	2,468,257	2,635,825	2,960,708	3,883,768	4,228,332
Colleges and Hospitals	5,753,339	5,627,992	5,922,006	6,869,142	7,272,867	9,480,440
Pequot/Mohegan	7,855,432	7,787,732	7,818,332	5,972,136	4,839,796	4,851,328
Town Aid Road	710,267	705,093	697,207	249,341	249,341	399,549
Surplus Revenue Sharing	0	1,156,992	1,156,992	0	0	0
LoCIP**
Annual grant-in-aid	1,223,239	1,208,737	1,163,820	1,181,080	1,172,872	1,172,872
One-time grant-in-aid	815,495	0	0	0	0	0
TOTAL	18,692,161	18,954,803	19,394,182	17,232,407	17,418,644	20,132,521