Money must grow on trees in Stamford.
In May, the mayor and elected boards approved a record $555 million in operating budgets and reserves for the city and WPCA, mostly covered by higher property taxes and another WPCA rate increase. They also approved a $43 million capital budget, to be funded mostly by issuing bonds.
Before the budget ink was dry, the mayor and boards whizzed through two more capital appropriations totaling $65 million to buy the Sacred Heart property on Strawberry Hill Avenue and build a new school. The schools superintendent promised she would try to trick the state into giving the city some money for the project, but it doesnt matter. The mayor and boards agreed to pay for it by issuing bonds.
I guess it doesnt matter that the 2014-15 capital budget more than doubled to more than $100 million even before the fiscal year started on July 1, or that the recommended safe debt limit is $30 million. It doesnt matter what it might cost to build new schools, repair existing schools, renovate police headquarters, replace the animal shelter, or repave crumbling streets. It doesnt matter whether the city prioritizes capital needs or manages its growth. When the city needs capital funding, it just issues bonds.
When a city says it will issue bonds, thats code for saying it will borrow money. Stamford usually issues general obligation (GO) bonds, which is code for saying that city officials borrow and spend the money today, and city taxpayers are generally obligated to pay it back tomorrow. Bonds are like a mortgage: a bond issued today has to be paid back, with interest, every year for at least the next 20 years. Those annual payments are called debt service.
The problem is that city officials never talk about debt service. Instead, they pretend that issuing bonds is like winning a lottery. When Stamford issued $50 million in GO bonds in August, city leaders thumped their chests about Stamfords strong financial health and crowed about how much money taxpayers will save because of the administrations hard work.
I guess it doesnt matter that the $50 million bond issue will actually cost taxpayers another $3 million a year over the next 20 years. It doesnt matter that the combined debt service for the city and WPCA has increased by $25 million in the last 10 years (during a period of historically low interest rates), or that Stamford taxpayers and WPCA ratepayers are paying $60 million in debt service this year.
That doesnt include payments to the Harbor Point Improvement District. Harbor Point is a tax increment financing (TIF) district, so the city gives Harbor Point 50 percent of all the new property taxes from Harbor Point to help pay its TIF bond debt service. That payment is $5 million this year but its not called debt service in the city budget -- its called a reserve. Its confusing because most people think a reserve is money saved, not money spent, but it doesnt matter.
None of it matters because money grows on trees in Stamford. Mill River trees, to be precise.
The Mill River Corridor is also a TIF district, and 50 percent of the new property taxes from that district are dedicated to the Mill River Parks debt service. In 2011, the Mill River folks borrowed $16 million in 30-year TIF bonds and optimistically promised their bond investors 7 percent tax-free annual interest. The Mill River TIF debt service is now more than $1 million a year.
The problem is that the Mill River TIF mostly consists of Mill River Park, which doesnt pay any property taxes, and RBS, which pays a lot less than everyone expected. Now the Mill River TIF is in an awkward situation: it doesnt have enough revenue to make the promised payments to its bond investors.
That should be the bond investors problem. When they made their investment in 2011, the bond offering statement included three pages explaining the financial risk and warning in bold capital letters that, in the event of insufficient TIF revenues, BOND NOT A DEBT OF THE STATE OR THE CITY OF STAMFORD. On five different pages, in capital and sometimes bold letters, it repeated:
NEITHER THE FULL FAITH AND CREDIT OF THE CITY OF STAMFORD, (NOR) THE STATE OF CONNECTICUT . . . IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS. NEITHER THE STATE OF CONNECTICUT NOR THE CITY OF STAMFORD SHALL BE OBLIGATED TO PAY THE PRINCIPAL OR REDEMPTION PRICE OR INTEREST ON THE BONDS.
It was crystal clear that Stamford taxpayers were not liable for the Mill River TIF bonds.
It doesnt matter. Three weeks ago the mayor and Board of Representatives agreed to borrow up to $22 million in taxpayer-funded GO bonds to give the Mill River bond investors their 7 percent tax-free interest for the next seven years and 100 percent return on their original investments.
I explained this to a friend who has a masters degree in business and a lot of experience in the financial industry. He said this is sort of how a Ponzi scheme works. He also said he wished the city would guarantee 7 percent tax-free interest on his investments, since the property taxes on his house went up by $7,000 last year.
The citys 2014-15 budget includes $1.1 million for the Mill River TIF reserve, $350,000 for the Mill River Collaborative, and $300,000 in capital funding to expand the park. I just read an article that the Mill River project also received $3.8 million from the federal Hurricane Sandy Resilience Grant Program -- almost half the grant money for the entire state of Connecticut. According to the article, the Mill River Collaborative pledged another $6.8 million in matching funds as a condition of the grant, but it didnt say who is paying for that.
Lets hope the Mill River folks plant some more of those money trees fast.
Mary Uva is a former member of the Board of Representatives.