Topic:
STATE BOARDS AND COMMISSIONS; MUNICIPAL FINANCE; MUNICIPALITIES; DEBT;
Location:
BOARDS AND COMMISSIONS;
Scope:
Connecticut laws/regulations;

OLR Research Report


November 29, 2000

 

2000-R-1120

STATE FINANCIAL OVERSIGHT BOARDS

 

By: Saul Spigel, Chief Analyst

Judith Lohman, Chief Analyst

John Rappa, Senior Analyst

You asked us to compare the conditions and requirements the legislature imposed on Bridgeport, Jewett City, Waterbury, and West Haven when it authorized them to borrow money to meet financial emergencies. You also wanted to know the extent of each municipality's financial problems when the legislature acted and when the review boards it established terminated.

Tables 1 to 4 compare the conditions and requirements for bond issuance, financial oversight, local government functions, and other matters. They show all jurisdictions had to set up a mechanism to intercept property tax revenues and funnel them into a reserve fund to pay debt service on deficit financing bonds. Except in Waterbury, these reserve funds were backed by a state capital reserve fund (SCRF).

All four review bodies (three boards and one single receiver) had similar basic functions: approving budgets, financial plans, and proposed bond issues. Three of them (Waterbury being the exception) approved tax rates, had some say in collective bargaining and other contracts, and could order municipal officials to implement their decisions (in Jewett City and Bridgeport they could seek court action to force officials to do this).

The Bridgeport legislation contains explicit requirements for city government officials in areas such as budget preparation and fund transfers; in the other locales city government obligations are implicit in the board's functions.

When the legislature first addressed the Bridgeport emergency in 1988, the city had a projected cumulative deficit of $60 million, including an anticipated $20 million shortfall for the current fiscal year, 1987-88. West Haven faced a $7 million actual and a $10 million projected deficit in FY 1990-91, according to a February 1991 audit. Jewett City had run deficits for six of the seven fiscal years between 1985-86 and 1991-92. Its cumulative deficit in FY 1991-92 was $80,000, which represented over 10% if its annual operating budget. But because the borough's books were in such terrible condition, no one was really certain of its financial condition. When Waterbury first asked for state assistance in 1993, it reported its $32 million of outstanding debt, $10 to $12 million of which was in five-year instruments it had used to finance recurring deficits. When it asked for further assistance in 1996, the city was reporting a $24.8 million operating deficit.

Bridgeport's financial review board voted itself out of existence in September 1995. Jewett City's receivership ended in June 1996. A representative from the West Haven comptroller's office reports that its finance review board terminated in 1993. But this date may be inaccurate since the 1992 special act creating the board called for its termination after the city budget had balanced for two consecutive years and the board had approved positive operating budgets for three successive years. We are checking the date with the Office of Policy and Management.

Table 1: Conditions for Issuing City Bonds to Finance Deficit

Conditions

Bridgeport (SA 88-80, 89-23, 89-47, 90-31, 91-40)

Jewett City (SA 93-4)

Waterbury

(SA 93-25,

96-3)*

West Haven (SA 92-5)

Authorization

Common Council can authorize issuance of bonds & bond anticipation notes to cover up to 50% of specified fiscal year deficits until eliminated

City cannot borrow money for other purposes during emergency period

Borough voters must approve bonds

No dollar amount specified

Aldermen & board of finance must approve refunding bonds up to $29.6 million (93-25)

Aldermen must approve deficit financing bonds up to $20 million (96-3)

City council majority can authorize, by resolution, up to $35 million in state guaranteed bonds, with governor's written approval, for FY 1991 & 1992 deficits only

Terms and Conditions

Council can delegate to mayor power to set bond terms and conditions, subject to board's approval

City can issue 20-year bonds and 12-month notes under terms and conditions set by mayor and approved by board

No provision

Mayor, comptroller, or city board of finance can set bond terms (93-25, 96-3)

Refunding bond proceeds cannot be used for operating expenses (93-25)

Maximum term – 10 years

Governor must approve any bonds with maturities greater than five years, whether or not backed by the state.

City council can delegate to mayor & board of finance power to set terms & conditions

Assurances

Property tax intercept placed in an indenture of trust

State-backed special capital reserve fund (SCRF) for up to $35 million

City must affirm bondholders rights and benefits and use bond proceeds to repay notes first

State advances funds appropriated to city for other purposes if it defaults on bond payments

State pledges not to limit or alter act until bonds are repaid, unless bondholders are protected

Property tax intercept & debt service fund for obligations with terms more than 1 year

State-backed SCRF, if state treasurer approves & OPM secretary & treasurer certify that bonds cannot be sold without one

State pledges not to limit or alter act until bonds are repaid, unless bondholders are protected

Trustee, after written request by holders of 25% of principal of outstanding bonds, can seek (1) mandamus to enforce their rights & (2) injunction to stop unlawful acts or (3) acts that violate their rights, or bring action on the bonds

Property tax & other revenue intercept & debt service fund (93-25);

Revenue intercept, either separately or in combination with 93-25, to extent necessary to pay debt service on deficit bonds (96-3)

State pledges not to limit or alter act until bonds are repaid, unless bondholders are protected (96-3)

Trustee or bondholders can seek (1) mandamus to enforce their rights, (2) injunction to stop unlawful acts or acts that violate their rights, or (3) special tax to meet debt service payments or fill debt service fund or bring action on the bonds (93-25)

Revenue intercept & debt service fund

State-backed SCRF

State pledges not to limit or alter guarantee until bonds are paid off

State Investments in Bonds

State can invest funds in notes

No provision

No provision

No provision

* The two special acts for Waterbury are independent of each other and are identified separately throughout the table; the various Bridgeport acts all amend SA 88-80.

Table 2: Finance Review Board

Characteristics

Bridgeport

Jewett City

Waterbury

West Haven

Composition

11-members

State treasurer, OPM secretary & mayor

2 gubernatorial appointees

2 mayoral appointees, 1 of whom is city resident

2 members of public, one appointed jointly by House speaker and Senate president pro tem and other jointly by House and Senate minority leaders

2 treasurer appointees, one of whom is city resident and the other organized labor representative

1 Receiver

Appointed by governor to one year term, renewable by OPM secretary

3 members with municipal, accounting, financial, or government experience;

Governor & mayor each appoint 1

Senate president pro tempore & House Speaker jointly appoint 1 member (96-3)

7 members:

OPM secretary or designee (chair)

State treasurer

Mayor

4 gubernatorial appointees, at least one of whom represents organized labor

Powers

n Budget

Approve or reject

Adopt interim budget or modifications

Certify modifications adding funds from unanticipated revenues to existing appropriation

Approve all general and capital fund transfers before submission to Common Council

Modify budget if city runs deficit or loses access to credit market

Approve or reject

Adopt interim budget if borough fails to adopt budget or receiver disapproves it by beginning of fiscal year

Modify budget if borough fails to do so when asked

Review & approve budget transfers

Approve or reject

Modify budget if city fails to do so within 60 days of request

Approve or reject

May adopt interim budget & tax rate if it rejects any annual budget

Review & approve budget transfers

Require city to take remedial action to improve operating results before end of FY 1991-92

n Taxes

Approve budget's annual tax collection rate percentage

Establish tax rate if borough fails to adopt budget or receiver disapproves it by beginning of fiscal year

No provision

Approve annual tax levy

n Financial plan

Approve plan & modifications, certify revenue estimates, and conduct compliance audits

Modify plan if city runs deficit or loses access to credit market

Prepare 3-year plan for OPM secretary approval

Modify plan if borough fails to do so when asked

Review & approve

Modify plan if city fails to do so within 60 days of request

Review & approve initial 3-year financial plan and all subsequent modifications

Regularly examine financial plan & city budget & require city to make modifications

n Borrowing

Approve bond issuance

Review bond ordinances & resolutions for issuances over $250,000

Approve delegation to mayor of Common Council's power to set terms and conditions

Approve terms & conditions for bond anticipation notes

Approve SCRF creation

Review & approve all borough obligations

Establish property tax intercept, debt service fund, & SCRF

Review & approve proposed terms of deficit bond issues

Review & approve deficit funding bonds

n Collective Bargaining

Identify proposed agreements' impact on budget and plan

Comment on fiscal impact of proposed agreements in binding arbitration

Approve or reject all agreements or amendments, indicating specific provisions rejected

Review entire contract, not just negotiated elements, in making decision

Approve or reject revised agreements

Stipulate new, binding agreement if parties unable to revise or receiver rejects revision

Impose binding arbitration after 75 days of negotiation & act as binding arbitration panel

No provision

Approve or reject all agreements or amendments, indicating specific provisions rejected

Review entire contract, not just negotiated elements, in making decision

Approve or reject revised agreements

● Stipulate new, binding agreement if parties unable to revise or receiver rejects revision

Impose binding arbitration after 75 days of negotiation & act as binding arbitration panel

n Contracts

Review contracts above specified amounts for compliance with plan

If city runs deficit or cannot obtain credit, reject proposed contracts if inconsistent with plan

Approve all contracts if there is a deficiency after a specified date or the city loses access to credit market during or after emergency period

Review & approve

Set aside contracts not authorized according to state & local law

No provision

Review and approve contracts worth more than $50,000

Set aside contracts not authorized according to state & local law

n Property

No provision

Purchase, sell, or transfer real & personal property or other assets with OPM secretary approval

No provision

No provision

n City Officials

Review & report on operating & management efficiency & productivity

Apply, through state treasurer, for mandamus ordering city officials and employees to carry out board's orders

May order officials to implement receiver's decisions

Attorney general may apply for mandamus or injunction to require implementation of receiver's decisions or property tax intercept, debt service fund, or SCRF

No provision

May order city officials to implement its decisions

Attorney general may apply for mandamus on board's behalf to carry out board's orders

n City Employees

No provision

Supervise borough employees

Hire, fire, & set terms of employment

Pursue legal action against any officer or employee for spending more than budgeted appropriation

Retain outside financial, legal, & other consultants

No provision

May appoint emergency financial manager to manage city's financial affairs

Pursue legal action against any officer or employee for spending more than budgeted appropriation

n Other

None

Formulate borough recovery plan

None

May review & approve education budget on a line-item basis

May require board of education to submit budget transfers

Termination

6 months after emergency ends

Reactivates if deficit reoccurs while bonds issued under act are still outstanding

June 30, 1995 or 6 months after retiring bonds authorized by act or

After 3 years of balanced budgets and projection of 3 years of positive fund balances

Receivership reestablished if audit finds annual operating deficit more than .5%

After city budget balances for 3 consecutive years

When city budget operating funds have been balanced for two consecutive fiscal years and board has approved positive operating budgets for three successive fiscal years

May reactivate if, while state guaranteed borrowing is outstanding, city incurs annual general fund operating deficit more than .5% on most recently completed annual budget.

Table 3: Explicitly Required Local Government Obligations

Requirements

Bridgeport

Jewett City

Waterbury

West Haven

Financial Plan

Annually prepare & modify 3-yr plan for eliminating deficits and addressing related matters

No provision

Prepare 3-year plans & modify as directed by board

Prepare 3-year plans & modify as directed by board

Budget

Prepare & submit budgets that include only sums board certified

Forecast annual tax collection rate percentage based on the average annual rate for the 3 prior years

No increases to appropriated amounts except as allowed

Expenditures prohibited before receiver approves budget

Prepare budget

If board disapproves or fails to approve budget within 10 business days of submission, aldermen can establish it as interim and set appropriate tax rate that remains in effect until board approves a modified budget

No provision

Revenues

Assess & levy property taxes needed to fund budget

Revenue derived from sales of assets and other nonrecurring sources must be applied as the act specifies

No provision

Submit monthly or quarterly cash flow reports (96-3)

Provide reports, data, audits, etc. as requested (96-3)

Provide reports, data, & other records as requested

Fund Transfers

No transfers of operating funds to a bond funded capital project without increasing amount authorized in bond ordinance

No transfers permitted from bond funded projects

No provision

No provision

No provision

Contract Limitations

Must obtain board's prior approval

Amounts cannot exceed those in financial plan

No provision

No provision

No provision

Table 4: Other Provisions

Provision

Bridgeport

Jewett City

Waterbury

West Haven

Court Appeals

Parties can appeal Superior Court decisions invalidating act's provisions to Supreme Court

Provisions found unconstitutional do not affect other provisions

No provision

No provision

No provision

Acceptance of Act

No provision

Borough voters accept act by approving bond issue

Aldermen must vote to accept act (96-3)

No provision

Bankruptcy

No provision

Bankruptcy filing prohibited

Bankruptcy filing prohibited while refunding bonds are outstanding (93-3)

Bankruptcy declaration barred without governor's written consent while state guaranteed borrowing is outstanding

Supplemental Tax

No provision

Receiver can levy if original rate is insufficient to cover current expenditures

Aldermen can levy if original rate is insufficient to cover current expenditures (96-3)

City council may impose at any time when revenues are insufficient to pay current expenses.

Supersedence

Act overrides statutory & charter bond issuance procedures

Act overrides state laws & borough charter

Acts (both) override state laws & city charter

Act overrides state laws & city charter

Liability

Board members & their agents immune from liability when exercising powers under the act

City employees & officials are personally liable when they spend more than the appropriated amounts

State officials & receiver not liable

No provision

City employees & officials are personally liable when they spend more than the appropriated amounts

State officials & board not liable

SS:JL:JR:ro