October 9, 2008

Fiscal crisis could slam Bristol

The fallout from the mess on Wall Street is beginning to hit home on Main Street.
Though there's still cash to finish a public works project on Main Street - the replacement of a culvert - there may not be anything left in the months ahead.
We already know the federal government is borrowing $700 billion or more to prop up the financial sector, thanks to the bailout bill approved last week. Even its prodigious capacity to pump out money is starting to feel crimped, unless authorities decide that a dose of inflation might help.
And we know the state is looking at a deficit that could reach $1 billion during this fiscal year, which ends in June.
We see that income tax revenue is down, lottery sales are down, casino revenues are down, and on and on and on.
About the only thing that's up are the length of the lines at the soup kitchens.
During hard times, state and local government tend to borrow to keep up with expenses, counting on good times to replenish the coffers. That makes sense.
But this time around, nobody wants to buy the bonds. Borrowing is nearly impossible.
While that could change -- there are a lot of finance experts pointing out that municipal bonds are a good bet in these tough times -- might remain a problem for a long while. The normal buyers, typically big banks and investment houses, haven't got any money to fork over for bonds or anything else.
That would leave cities like Bristol with no options other than to cut wherever they can to ensure they don't run up deficits they can't finance.
It's no surprise that Mayor Art Ward and other city leaders are eyeing the budget warily, wondering what they can pare. Projects that can wait, from schools to parks, are a sure bet to be put off unless the market conditions change.
But it could go much further. Services could be slashed, programs dumped and layoffs reluctantly considered.
It sure looks like it'll get a lot uglier unless the economy rebounds far more swiftly than almost anyone is predicting.

Update: I don't know if I explained well enough what the city is facing in the bond market.
Before counting any new projects, including the schools, the city needs to raise about $25 million to pay for projects that are mostly already done, including the purchase of the mall.
For now, it just owes the money to itself because it borrowed against the rainy day fund.
But to provide the liquidity and cash flow it needs, those projects have to be bonded and paid back to bond holders over the next 17 years, which makes the annual burden for taxpayers relatively modest.
At the moment, selling the bonds woud be a trick. Some communities have had luck, but many have found no buyers or interest rates that are too high to accept.
Things are likely to get better, of course, but there's no guarantee that the rates will improve much, particularly if inflation takes hold (since it's the easiest way for the government to help debtors, including the government itself, pay off what they owe).
So if there's a window for a city bond sale next year -- and there probably will be -- the top priority has to be to sell the bonds to pay for projects that are already done.
Then officials have to consider something quite basic: can the taxpayers come up with enough extra to pay for any additional projects? That's where the schools might lose out.
Putting aside the schools and looking at the recreation complex long eyed for the former Roberts property, can make this easier to see. A recreation complex is a nice thing, but nobody believes it is essential. It's never going to make the cut until officials are sure that its cost can be dealt with both by the city itself and the taxpayers who ultimately foot the bill. It could be a few years until that happens, or it could be decade. It surely won't happen soon.
The school project is perhaps more essential, but it's almost more expensive. So does it happen? Well, watch the economy. Unless things start looking up, it's a long shot now.

Copyright 2008. All rights reserved.
Contact Steve Collins at scollins@bristolpress.com


cseguin said...

Thanks for the info Steve. Although I have a liberal arts/legal background, your explanation seems to make a lot of sense.

It's an interesting time, to be sure. With all the changes going on in Bristol (the mall site, new schools, etc.), it will be intriguing to see how this affects the variety of projects slated for the city.

Anonymous said...

Any idea of what the General Fund gap is for CT in the coming year?

Anonymous said...

You won't get a legitimate answer until after the elections, when all the incumbents are back in Hartford.