State of city finances appears bleak

Expressing concern about the city’s reliance on one-time revenue sources, two bond-rating agencies recently called into question the state of New Haven’s finances, though they cited Yale as a stabilizing economic presence.

The two firms, Moody’s Investors Services, Inc. and Fitch Ratings, downgraded New Haven’s bond-ratings outlook from “stable” to “negative,” signalling that the city’s bond rating — which dictates the interest rate at which the city can finance its capital projects — may be in jeopardy in the near future.

Both agencies criticized the city’s dependence on non-renewable revenue, in particular the pending sale of the Water Pollution Control Authority, which the city is counting on to close its current budget deficit. However, the reports commended the long-term financial benefits of Yale’s and Yale-New Haven Hospital’s ability to attract new business and job opportunities as well as their commitments to investing capital in the city.

“The negative outlook speaks to a larger issue of a fairly aggressive city budget that has been drawn for fiscal 2005, which assumes a lot of revenue streams that, if they don’t come in, will create big problems,” Moody’s Assistant Vice President Jennifer Lewis said.

Mayor John DeStefano Jr. — who in previous years has pointed to the city’s improving bond ratings as a sign of economic progress under his administration — said the bond outlook results are a “big concern.”

“I think it does reflect accurately a weakening in the city’s finances,” he said.

DeStefano blamed the city’s financial problems in part on declining levels of state aid, on which New Haven is particularly reliant because of its small tax base. The mayor said Gov. M. Jodi Rell’s recently released budget proposal, which gave New Haven less funding than the city had requested, does nothing to alleviate the problem.

“The state determines what taxes we can use, what is eligible for taxation,” DeStefano said. “What the budget does is continue to make us more dependent and continues to weaken our financial situation.”

Though DeStefano acknowledged the city’s recent dependence on one-time funding sources was a cause of concern, he said the problem was largely the result of an expensive ongoing public school construction program, which he said was a “once-in-two-generation” investment.

“The alternative is to dramatically cut public safety and education services or dramatically increase the property-tax rate in the city, which I think will harm economic growth in New Haven,” he said, adding he would work to minimize any impact on property tax rates.

The Fitch report said New Haven’s improved relations with Yale, the city’s largest employer, should work to offset the city’s financial problems. As an example of these improved relations, the report cited growth in the biotechnology sector associated with the hospital and the School of Medicine, in particular the planned cancer center, as well as investment in the neighborhood around the University.

Associate Vice President for New Haven and State Affairs Michael Morand said Yale is consistently recognized by national financial experts as a major asset to New Haven and pointed to the University’s still-undisclosed voluntary financial contribution to the city this year as evidence of its support for the community.

“Through our multi-million dollar tax fee and voluntary payments, Yale University pays its fair share and then some, and Yale’s presence brings tens of millions more directly to the city budget and hundreds of millions to the local economy every year,” he said.

The University’s large amount of non-taxable property detracts from the city’s ability to generate revenue, but the state of Connecticut compensates New Haven through a program of payment in lieu of taxes, which Morand said only exists in Connecticut and Rhode Island.

“Although it is a lot of tax-exempt property, the University spurs a lot of development that you would not have seen without its presence,” Lewis said.

DeStefano also emphasized that there is good news for the city’s financial situation — in particular, record Grand List growth, high tax-collection rates and declining city workforce costs due to government downsizing. He said New Haven was coping with decreasing state aid better than most Connecticut cities.

Cities such as Springfield, Mass., and San Diego, Calif., are currently at a similar risk of downgraded bond ratings in the near future. Two thirds of municipalities are consistently spending money faster than they take it in, according to a study by the Carnegie Mellon Center for Economic Development. The report said the problems of fiscal distress are much more widely shared than is commonly believed.

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