Derby Dealing With Estimated Budget Deficit Of More Than $2 Million

DERBY – City officials are trying to deal with an estimated budget deficit of between $2 million and $2.5 million.

To close the hole, Derby Interim Finance Director Brian Hall is recommending elected officials:

1. Take the one-time action of reducing the city’s pension contribution from $1 million to $500,000.

2. Use about $1.8 million from the American Rescue Plan Act. That’s money the federal government sent as part of the post-COVID-19 economic recovery plan.

The Derby Board of Aldermen & Alderwomen (BOA/A) voted 6 – 2 on Feb. 22 to adjust the pension plan payment. A vote on taking the ARPA money could happen at a BOA/A meeting scheduled for Thursday (March 14).

Hall was hired in December, just after Mayor Joseph DiMartino took office.

In an interview with The Valley Indy on March 1, Hall said the deficit is within the current Derby budget – that is, the budget approved last spring (under former Mayor Rich Dziekan) covering the fiscal year starting July 1, 2023 and ending June 30, 2024.

Hall said the current budget underestimated the money needed to pay for medical benefits. The budget set aside $8 million for benefits, but the actual dollar amount the city is spending is between $9 million and $9.5 million. 

Hall said the cost to collect garbage and recycling materials in Derby is coming in about $648,000 higher than the budget estimated. 

Mayor DiMartino has mentioned this previously, saying Derby’s contract with its trash hauler expired in July under former Mayor Rich Dziekan’s administration and wasn’t put out to bid.

“With those two pieces alone, we’re looking at at least $2 million in risk,” Hall said, referring to medical benefits and the sanitation contract.

Hall said the current budget also over-estimated tax collection by about $500,000.

Hall said the city could use its fund balance, or reserve, to close the estimated $2 million to $2.5 million gap. However, he is advising against doing that because it would leave the fund balance too low.

Due to past budget mistakes and poor financial reporting, Derby makes regular appearances in front of the Municipal Finance Advisory Commission (MFAC), an entity of the state. MFAC members were recently briefed on Hall’s recommendations, and they seemed supportive during a public meeting.

Hall said that MFAC wants to see the Derby fund balance at about $5 million. 

Hall said the best Derby can do at the moment is to keep the fund balance at about $3.5 million, where it is now. Taking $2 million or so from the fund balance would be a red flag and possibly put the city’s finances at risk of being taken over by the state, Hall said.

Hall said Derby’s fund balance has been trending in the wrong direction for a while.

The 2020 – 2021 budget had about $6.4 million in the fund balance. But Derby has been using the reserves to bolster its operating budget and to plug deficits, something that isn’t sustainable over the long term.

“Unfortunately we are in a place where we kept spending more money than we were taking in. And with inflation and everything else, that number goes up and you always have this deficit,” Hall said.

Hall recently told MFAC that fiscal discipline, including a tax increase of some kind, is almost a certainty if Derby wants to get back to stable financial ground.

“You can’t cut your way to a balanced budget,” Hall said. ​“Over the next month, myself, the mayor and the board of taxation have to work that out. What is that going to look like? How do we keep this (fund balance) at $3.5 million?”