You asked for information about Waterbury and Springfield's financial oversight boards, including a comparison of their formation; powers; financial resources; and impact on municipal deficit, taxes, and employment.

SUMMARY

The state legislatures of Connecticut and Massachusetts created oversight boards to restore fiscal stability in Waterbury in 2001 and Springfield in 2004, respectively. Both cities had large budget deficits that threatened their ability to meet current expenses and secure access to credit. Consequently, the legislatures granted the boards broad powers to control all aspects of municipal finances and operations.

While the boards have similar powers, they and the cities have significantly different access to funding resources. Waterbury may issue state-guaranteed short- and long-term bonds to finance its deficits. Springfield, on the other hand, may only borrow money from a loan fund the state established for the city. Although the loans are interest-free, the repayment period is relatively short. The city must repay the loans by 2012.

Additionally, the boards work with different tax bases and tax structures. Waterbury has higher property taxes, fewer citizens to service, and easier access to long-term bonds than Springfield. Waterbury's FY 06 budget calls for $ 332. 1 million in revenue and expenditure, and anticipates about $ 180 million in property taxes, which covers about 55% of the budget. Overall, about 37. 7% of Waterbury's general fund revenue comes from the state, according to Waterbury's Comprehensive Annual Financial Report for FY 05 (Waterbury audit FY 05, 17).

Springfield has a larger budget than Waterbury. Its population of about 150,000 is greater than Waterbury's population of 108,000. But Springfield collects far less tax revenue and depends more heavily on state aid than Waterbury. Springfield's FY 06 budget is $ 452. 7 million but its tax levy is estimated at $ 128. 6 million, which covers only about 30% of the budget. The state pays for about 63% of the budget, or $ 285. 8 million (Springfield FY 06 Budget).

These differences in the cities' fiscal resources seem to account for how their fiscal condition changed since the boards' establishment. Waterbury has posted a balanced budget every fiscal year since FY 02. By contrast, Springfield's board has been unable to post balanced budgets since its establishment in 2004. It projected a $ 6. 5 million budget deficit for FY 06.

Waterbury's solution to its budget crisis has been to issue bonds to pay off old debts, creating a fiscally clean slate. While this approach has led to short-term fiscal stability, it has not addressed long-term issues such as pension liabilities and infrastructure needs. By contrast, Springfield has not achieved this level of stability because it does not have access to long-term financing. Springfield seems to be caught in a cycle of dependency on the state, which provides proportionately more state aid than Connecticut and access to interest-free loans. In January 2006, the state actually froze the loan fund, which the city anticipated using for its payroll. It only released the funds after the city promised to repay the loan by using other sources of state aid.

The boards have tried to avoid future financial problems by adjusting and maintaining their cities' tax bases. In Waterbury, mill rates have experienced a rollercoaster ride, rising from 74. 64 in FY 00 to a peak of 97. 80 in FY 02 and then declining to a stable 53. 31 in FY 04. Meanwhile, beginning October 1, 2002, Waterbury performed its first property revaluation in 22 years, resulting in a doubling of property tax assessments for FY 03. As a result of these changes, many taxpayers pay higher taxes since the board was installed. The Office of Policy and Management (OPM) calculated that Waterbury's equalized, or effective, mill rate had increased from 29. 49 in FY 00 to 36. 28 in FY 04 (Municipal Fiscal Indicators FY 00-04, OPM (2006)). Similarly, while

Springfield's mill rate has declined slightly, most taxpayers pay more due to higher assessments. Massachusetts law limits the amount by which a city may raise its residential tax rate annually, but Springfield has not pressed these limits and continues to rely on the state to augment its small tax base.

Both states expect that the cities will lower expenses by cutting labor costs. To increase efficiency, both boards have consolidated departments. Springfield's board has privatized some services and hired management consultants. Yet neither board appears to have greatly changed the level of services offered by the cities, nor have they ordered mass layoffs to control spending.

STATUS OF THE BOARDS

Establishment and Formation

Municipal deficits led the Connecticut and Massachusetts legislatures to establish boards to oversee Waterbury and Springfield's finances, respectively.

During the 2001 Special Session, the Connecticut General Assembly declared that a financial emergency existed in Waterbury that threatened its access to credit. Waterbury had an accumulated deficit of approximately $ 75 million as of June 30, 2001 and was facing a projected budget gap of $ 60 million in FY 02, according to analyst Robert Dakers, from OPM Intergovernmental Policy Division.

To address the emergency, SA 01-1 established the Waterbury Financial Planning and Assistance Board (WFPAB) and authorized it to finance the city's deficits, impose financial management controls over all city departments, and restore fiscal stability. Under SA 01-1, the board retains control of the city's finances until, among other things, the city's budget is balanced for five consecutive years. Thereafter, the OPM secretary must reestablish the board with all its powers if the city fails to meet specific fiscal targets.

Similarly, in 2004, the Massachusetts legislature found that a fiscal crisis in Springfield posed “an imminent danger to the safety of the citizens and their property” (2004 Mass. Acts, Ch. 169 § 1(4)). It based this finding on the fact that the city (1) had a projected structural deficit in FY 05 and would likely have one in FY 06; (2) would be unable to collect property taxes during FY 05 if it did not have an approved balanced budget; (3) had a slipping credit rating; and (4) received more than $ 260,000,000 in state aid in 2004, which constituted 60% of the city's operating budget, a proportion that had not significantly changed in recent years. The legislature concluded that these were long-standing problems unresolved by earlier special acts intended to help the city (2004 Mass. Acts, Ch. 169 § 1).

The 2004 act provided two “extraordinary remedies” (2004 Mass. Acts, Ch. 169 § 1(10)). First, it established the Springfield Finance Control Board (FCB), but authorized the state to abolish the board at any time. The board, which began operating on June 30, 2004, is authorized to continue until June 30, 2007 (2004 Mass. Acts, Ch. 169 § 4(a)). The legislature is currently holding a bill that would extend FCB's tenure until 2010. Second, the act allowed the state to appoint a receiver if the board concluded that its powers were insufficient to restore the city's fiscal stability (2004 Mass. Acts, Ch. 169 § 5(a)). It authorized the receiver to abolish the office of the mayor and exercise both the mayor's and the board's powers (2004 Mass. Acts, Ch. 169 § 5(3)(c)).

Composition and Appointment

The boards differ in size and composition, but in both cases the majority of seats are held by nonmunicipal officials. Springfield's board appears to be more locally controlled than Waterbury's, with both the city's mayor and its city council president filling two of the board's five seats. But if Springfield's board fails to achieve stability, the state can appoint a receiver who assumes all the mayor's powers.

WFPAB has a seven-member board consisting of the OPM secretary or his designee, the state treasurer or her designee, the mayor, and four members appointed by the governor, one of whom must be a Waterbury resident, one a finance expert, and one the chief executive officer (CEO) of a Waterbury municipal employee union jointly recommended by a majority of the CEOs of the city's unions (SA 01-1 § 10(a)). OPM administers the board, and the secretary or his designee chairs it.

Springfield's five-member board consists of the mayor, the city council president, and three designees of the secretary of the Executive Office for Administration and Finance, which is the state agency with jurisdiction over the board. The act does not specify which member chairs the board (2004 Mass. Acts, Ch. 169 § 4(a)).

Powers

The Waterbury board has broad oversight and control over the city's finances and operations. It can:

1. issue deficit financing if the aldermen fail to act;

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

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

4. 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 the issues raised and negotiated by the parties;

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

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

7. approve the terms and conditions of all city debt, including deficit funding bonds and notes the act authorizes;

8. approve the city's education budget by line-item; and

9. 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.

The Springfield board approves all municipal spending and borrowing. It can:

1. amend the city and the school committee's budget and implement and maintain uniform budget guidelines and procedures for all departments;

2. amend, formulate, and execute capital budgets and amortize operational deficits;

3. develop a uniform system for all financial planning and operations for all city agencies;

4. review and approve or disapprove all proposed contracts for goods and services;

5. assume control over all personnel matters formerly governed by the city, to alter the compensation of elected officials and to hire staff for FCB purposes;

6. reorganize, consolidate or abolish city departments, boards, offices, or functions of the city, and fill vacancies in any of these organizations;

7. buy, sell, or lease real property and other assets; and

8. promulgate rules and regulations for the city.

Furthermore, the board must report quarterly to the legislature about the city's progress (2004 Mass. Acts, Ch. 169 § 4(d)(1-20); § 4A).

FINANCE OPTIONS

Waterbury and Springfield have different financing options. Waterbury may issue enough bonds to finance its past and projected deficits. The city also may establish a state-backed special capital reserve fund (SCRF). Rather than issue bonds, Springfield has access to a state-capitalized interest-free loan fund and can issue short-term revenue anticipation notes.

SA 01-1 authorizes Waterbury to issue up to $ 75 million in state-guaranteed, 20-year bonds and up to $ 50 million in short-term notes to finance its existing and projected budget deficits through June 30, 2001. The purpose of this bonding was to allow Waterbury to have a balanced budget from FY 02 onwards, according to Dakers.

SA 01-1 also allows the city, with the board's approval, to establish a SCRF to secure the deficit funding bonds and notes. It appropriates state money as needed to maintain a minimum annual capital reserve in the SCRF. The state must recoup these funds by withholding the necessary amount from aid the state subsequently appropriates to the city (S. A. 01-1 § 6).

By contrast, Springfield's primary source of financing is the $ 52 million state-funded Springfield Fiscal Recovery Trust Fund. The fund provides interest-free loans that the city must repay by June 30, 2012 according to a schedule proposed by the FCB and approved by the administration and finance secretary. Any part of the loan not repaid by that date will result in an equal reduction in local aid payments from the state to the city in 2013 (2004 Mass. Acts, Ch. 169 § 2).

The city may also apply for revenue anticipation notes, which would allow it to receive a temporary loan in anticipation of expected revenue payments for the fiscal year (2004 Mass. Acts, Ch. 169 § 3).

CHANGES IN MUNICIPAL DEFICIT LEVELS

Before the boards were established, both Waterbury and Springfield were close to defaulting on past debts and could not meet their current budget obligations. After almost five years of oversight, Waterbury has a balanced budget but spends much of its resources paying off past deficits. Springfield's board has been in power for a shorter period of time, and the city continues to post deficits.

While Waterbury receives proportionately less state aid than Springfield, the state-backed SCRF gives it more access to bonds, which it can repay over 20 years. On the other hand, Springfield must pay back its interest-free loans to the state within a relatively short time frame or face corresponding cuts in state aid.

Waterbury

In FY 02, Waterbury was able to bond to pay its long-standing deficits and the city posted a positive fund balance of $ 84. 7 million. Since then, the city has posted four consecutive balanced budgets and recorded a budget operating surplus of $ 4. 6 million in FY 05 (Waterbury audit FY 2005, 5). Consequently, in 2005, Standard & Poor's upgraded Waterbury's bond rating from BBB- to BBB with a stable outlook, and Moody's affirmed the city's Baa2 rating and assigned a positive outlook.

Meanwhile, as Table 1 shows, the city's total long-term debt has almost doubled since the board took control.

Table 1: Waterbury's Debt, FY 00-04 (in thousands)

Source: OPM, Municipal Fiscal Indicators FY 00-04

Waterbury currently pays about $ 10 million in annual debt service to pay for its 2001 bonding, in addition to about $ 7 million in annual debt service payments for old bonds, according to Dakers.

Table 2 shows Waterbury's ratio of annual debt service to total general expenditures. It appears that after a half-decade of financial restructuring and state aid, Waterbury's debt service constitutes about the same proportion of Waterbury's budget that it did in 2000, yet the city carries twice the debt load and is still able to post a balanced budget.

Table 2: Ratio of Annual Debt Service to Total Expenditures for Waterbury, FY 99-05 (in thousands)

Source: Waterbury audit FY 05, 91

It is unclear why OPM's report and the city's audit show different levels of annual debt service in 2000. OPM reported that Waterbury paid about $ 19 million in annual debt service in FY 00, while the city's audit reported about $ 15 million. Based on OPM's FY 00-04 data (Table 1), the city had a significantly higher proportion of annual debt service to total expenditures in 2000 (7. 75%) than it did in 2005 (5. 73%). But both sources provide the same data in subsequent years, showing a gradual increase of the ratio until 2004.

Springfield

Springfield is unlikely to have a balanced budget in FY 06. In July 2004, the city projected a $ 22 million budget deficit for FY 05. But FCB discovered that the actual figure was $ 41 million after it performed an initial review of the city's finances. After freezing the city's payroll and changing its health insurance coverage, the board projected a $ 22 million deficit in FY 05 and a $ 6. 5 million deficit for FY 06 (FCB Budget Message, June 29, 2005).

To cover these shortfalls, the board borrowed $ 52 million from the Springfield Recovery Trust Fund and used about half of the loan to pay down the FY 05 budget deficit. But in January 2006, the state froze the balance and demanded repayment of the outstanding amount. In March,

the state agreed to release $ 17 million in state loans, which allowed the city to meet its payroll (Peter Goonan, “Springfield Gets Loan for Payroll,” The Republican (Springfield), March 28, 2006).

Meanwhile, Springfield is still negotiating contracts with thousands of city employees, and the board warned that the deficit could inflate to over $ 30 million depending on the outcome of these negotiations (Mike Plaisance, “Control Board: No Time for Public,” The Republican, March 31, 2006).

MILL RATES

Waterbury's mill rates have decreased substantially since the board took control of its finances, but reassessments have doubled. As a result, the equalized, or effective, mill rate has increased and taxpayers seem to be paying more taxes since the board's establishment. Springfield's mill rate has not fluctuated substantially, but assessments have increased, resulting in higher property taxes for most homeowners.

Table 3 summarizes changes in Waterbury's mill rate and grand list between FY 00 and 04. In Waterbury, the equalized mill rate gradually rose during the board's term, showing that the city's higher assessments and lower mill rates have led to a steady increase in the amount property owners pay to the city.

OPM calculates the equalized mill rate to show the real costs to taxpayers of mill rate changes. The equalized mill rate is the amount of tax dollars collected (the adjusted tax levy) divided by the equalized net grand list (ENGL), which OPM calculates by estimating the market value of all taxable property in the city. There is a significant difference between the ENGL and the net grand list before FY 03 because, at that time, the city had not revalued its grand list for over two decades.

Table 3: Waterbury Grand List Data, FY 00-04 (in thousands)

Source: OPM, Municipal Fiscal Indicators FY 00-04

Massachusetts property tax laws appear to constrain Springfield's ability to raise property tax revenue. Unlike in Connecticut, Massachusetts law allows municipalities to divide properties into classes and to set different mill rates for each class, but also prohibits municipalities from increasing the tax levy above 2. 5% of the previous year's levy. This limit applies only to the taxes paid by existing properties; it does not apply to new developments added to the grand list during that assessment year.

Yet even within these limitations, Springfield is still not taxing residential property to its full capacity. In fact, its residential mill rate has declined in the past six years, from 20. 80 in FY 00 to 17. 00 in FY 06, while residential assessments increased. The assessment on an average single-family home increased from $ 81,900 in FY 00 to $ 131,200 in FY 06, according to Springfield's board of assessors. As a result, property taxes increased for many taxpayers even as the tax rate has decreased.

Table 4 shows how the tax bill for the owner of an average single-family home has increased since FY 00 in Springfield.

Table 4: Tax Burden for Owner of an Average Single-Family Home in Springfield, FY 00-06

Source: The Republican (Springfield)

Springfield's board of assessors reported that property tax bills will increase for 81% of homeowners in FY 06 and more than half will be paying $ 250 or more than the year before (Mike Plaisance, “Springfield Tax Trend Irritates Some Officials,” The Republican, March 6, 2006).

LAYOFFS

Neither Waterbury nor Springfield significantly changed municipal employment levels. Data from Waterbury suggests that employment levels have actually gone up in recent years.

Waterbury's board has not ordered any layoffs during its tenure, although some employees have left through attrition, Dakers stated. Yet the board consolidated many agencies, reducing their number from 28 to about twelve. The board created (1) a finance department, consisting of the tax assessor, tax collector, and comptroller and (2) new public works and human resources departments. This change has helped limit the mayor's span of control, and improved coordination and efficiency, Dakers stated. But OPM has not quantified the savings.

Waterbury has not implemented any new programs or services, but expenditures will continue to rise as the costs of employee healthcare, wages, and schools increase, according to its FY 05 audit (17).

As Table 5 shows, despite efforts to cut costs, recent employment statistics demonstrate an increase in municipal employment between 2004 and 2005, but a decrease in federally funded workers.

Table 5: Municipal Employment in Waterbury, 2004 and 2005

Source: Waterbury audits FY 04 and 05

Similarly, Springfield's board has not ordered mass layoffs, and most job loss has been due to retirement and upper management resignations, Ann-Marie Mahnken, FCB executive assistant, explained.

The board reorganized some departments. It eliminated the police commissioners board and replaced it with a single commissioner. It also eliminated the practice of having employees work directly for boards and commissions; instead, employees now work directly under department heads. Lastly, the board consolidated the economic development and planning departments into a single entity and merged the community development and housing departments.

The board also privatized some services. The board is preparing to hire private firms to sweep streets and administer the city's workers compensation program. It decided to keep trash collection services within its Public Works Department after putting these services out for competitive bidding. It is also considering privatizing school cafeteria workers. The board has also hired private consultants to make recommendations for improving efficiency in city departments.

We were unable to find data on municipal employment levels in Springfield.

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