Hamden’s net liabilities remain high, but town shows signs of improvement

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HAMDEN – The latest town audit shows that Hamden continues to face significant responsibilities.

But it also gives residents reason to be optimistic, as the city’s fund balance has grown over the past fiscal year.

In 2019, Hamden had more debt per capita than any city in Connecticut, according to a state report from last year.

Its net position should therefore come as no surprise: at the end of the last fiscal year, the City’s liabilities exceeded its assets by nearly $950 million. The number marks an improvement from the city’s last audit, which put the number closer to $1 billion.

Yet his fund balance, which faced a deficit of $2.3 million at the end of fiscal 2020, was in much better shape in June 2021, when it measured “$7.3 million.” dollars, an increase of $9.5 million over the prior year,” according to the audit report.

“I think what should come out of everyone is that we have a positive fund balance…which is fantastic,” Mayor Lauren Garrett said. “The general fund balance is basically what our credit rating agencies are looking for, you know, the health of the city.”

Under former mayor Curt Balzano Leng, Hamden passed a multi-year bond restructuring plan in 2020 in a bid to improve its bond ratings.

By pushing payments further into the future, the city has artificially and temporarily reduced its debt service.

He then overbudgeted debt service, paying more than the required payment but less than would have been necessary without restructuring. The strategy creates an embedded surplus that falls into the fund balance at the end of the fiscal year, assuming the city has otherwise balanced its revenues and operating costs.

Bond restructurings can be controversial. Barry Bernabe, Hamden’s financial adviser, previously discussed their risks with the New Haven Register.

Although reissued bonds often have lower interest rates, they can still cost the city more in the long run.

And if cities use restructuring to ease their operating costs, they may hit fiscal cliffs when debt service payments return to normal levels.

But if Hamden sticks to his plan, Bernabe said, it could be a tax transformation.

So far, the strategy seems to be working, as the audit shows.

The Legislative Council also approved the remaining bond reissues needed to complete the plan, Garrett said, and within a few years Hamden is expected to have a fund balance of between $24 million and $25 million.

Meanwhile, liabilities associated with pension plans and other retirement benefits remain among the city’s biggest challenges, the audit showed.

As of June 2021, the city’s estimated net liability for other post-employment benefits was nearly $634 million.

OPEB includes health care costs for retirees, Garrett said, making liability sensitive to changes in the cost of medical bills. The liability estimate is also “based on many assumptions,” she noted.

“When we talk about how to mitigate this liability, we are talking about short-term and long-term contributions. In the short term, we need to make contributions to OPEB and fund accountability,” she said. “The longer-term solution is that when our contracts are open, we have to negotiate our medical liabilities down.”

Renegotiating employee benefits could improve the city’s position, she said, also indicating that she was “working with our finance and personnel department to make a medical offer.”

As part of a broader approach to Hamden’s tax problems, Garrett also advocates the sale of assets the town doesn’t need. She recently announced a deal to sell Wintergreen School for $16 million.

“What we really think, you know, some of our solutions have to be, is to use some of the assets that we have and sell assets that we don’t need, and use that money to pay some of our capital projects needed to maintain the city, to avoid having to constantly borrow for projects,” she said.

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