WIKIMEDIA COMMONS
Derby City Hall
DERBY — It could have been worse: as in “state takeover of Derby finances” worse.
That’s what City Treasurer Keith McLiverty and a financial consultant told members of the Derby Board of Apportionment and Taxation at a public meeting last Monday (Sept 16).
McLiverty was talking about the city’s recent budget crisis brought on, in part, by the discovery that city government had accidentally double counted state grants as revenue in the 2016 – 2017, 2017 – 2018, and 2018 – 2019 fiscal years.
In addition, the city’s fiscal year 2017 fund balance had to be restated in a fiscal year 2018 audit because school district spending were understated and not previously fully accounted for.
Also, medical costs exceeded the budgeted amount by $1 million in the 2017 – 2018 fiscal year.
McLiverty said the medical costs were high because the city was switching insurance providers, so employees rushed to have procedures done worried that the procedures would not be covered under the new provider.
Those problems caused a negative fund balance of $3.5 million in the city’s budget as of June 19, according to a document handed out at last week’s tax board meeting.
Derby Spreadsheet by The Valley Indy on Scribd
The mistakes were first shared with the public during tax board meetings in mid-May and were referenced in an audit published in April. Click here for a previous statement issued by Derby Mayor Rich Dziekan.
As a result of the budgeting mishaps, S&P Global Ratings downgraded Derby’s debt rating from AA- to A+.
“Derby’s budgetary performance is weak, in our opinion,” according to the S&P report, which is embedded below.
Derby Credit Rating Downgrade 2019 by The Valley Indy on Scribd
“The city has consistently experienced general fund deficits over the past five years,” the report states, then goes on to explain the issues described above.
Click here for the Dziekan’s administration reaction to the downgrade, which was previously reported by The Valley Indy.
But at the tax board meeting, McLiverty and financial advisor Barry Bernabe of Phoenix Advisors, LLC said the administration was able to detail Derby’s recovery plan to the ratings agency in July, about a month after McLivery went over the plan in public.
The recovery plan was solid enough to prevent a more serious downgrade, McLiverty and Bernabe said.
Derby Presentation to S&P Global Rating by The Valley Indy on Scribd
The eight-point recovery plan includes: restructuring debt and selling assets such as the former VARA property on Coon Hollow Road; a mill rate increase to keep up with the increased costs of running Derby government; a tax sale (hiring a company to track down delinquent taxpayers); adjusting long-term costs (such as reducing retirement payments while still keeping the pension fund healthy); “structured organizational changes” (such as hiring a $30,000 bookkeeper to prevent mistakes in the finance department); and, hopefully, grow the grand list to get the ever-increasing cost of the schools and city government off the backs of homeowners.
“Back in 2015, 64.9 percent of annual taxes rested on the residents, and 17.7 were on commercial,” McLiverty told the tax board. “Today we’re at 67.6 percent on residential and 14 percent on commercial — clearly an indicator that (it has) shifted onto residential, and that’s because of the lack of grand list growth.”
McLiverty qualified his statement: “This isn’t one administration, folks. This is decades of us not growing our grand list on the commercial side.”
The “recovery plan” is meant to restore the fund balance and bolster the Derby budget.
The recovery plan saved Derby’s credit rating from severe consequences, according to Bernabe, the financial consultant.
“I really, in my mind, I was saying to myself: ‘the city is going to get downgraded multiple notches, a four-to-five downgrade, into what’s called triple ‘B’ category,” Bernabe said.
“(That’s) below investment grade and that the state would have to come in and take over the city like they did with the City of Waterbury.”
Bernabe said the fact that Derby was downgraded one notch should be viewed as a “home run.”
The city also benefited from luck — interest rates were at historic lows when Derby refinanced its debt.
Derby’s recent debt downgrade is the second time Derby’s credit rating has been downgraded since December 2017.
In December 2017, S&P Ratings Direct noted Derby’s “weak budgetary performance,” with operating deficits in the general fund in fiscal year 2016 (prior to the Dziekan administration), along with a small fund balance.
A debt rating is an indicator of a city’s fiscal health. Derby is already considered an economically distressed community. Low debt ratings can drive up debt costs.
