On Hamden’s tragic fiscal decline

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Many Connecticut municipalities are flirting with financial disaster. Hamden’s story is about the tragic fiscal decline of one, once special, community:

Twenty five years ago Hamden was a healthy, thriving town with generally happy residents. Taxes were manageable, schools were good and the town had excellent services. Town workers were fairly paid and got great benefits, particularly top-notch, town-funded health care and a generous defined-benefit pension plan. The Hamden real estate market had its ups and downs but was as strong as most in the area. Unfortunately, decades of miss-management and union commiseration have reversed the town’s strong prognosis.

People complained that pension funding was neglected. The 1998 market crash had caused a big drop in the fund’s assets. Despite under-funding, the town got into the habit of giving retirees a 3 percent cost-of-living increase every year, beyond the contractual requirement to match the consumer price index. That continued until several years ago, resulting in roughly an 80 percent increase in payments over 20 years. The current liability of the old pension plan, applicable to people hired prior to 2007, is $450 million, present value! Nothing has ever been done to moderate that number.

Town salaries and benefit costs have continued to grow while taxpayers, working in the private sector, have seen their earnings stagnate, all resulting in big budget and tax increases compared to the residents’ ability to pay.

Somehow, along the way the schools declined. The once excellent quality dropped severely and Hamden became an Alliance district, ranked within the lowest 30 percent of the state. School administrators claim that the problem is related to a large disadvantaged population and the high level of special education. Their promise to improve if they got ever-more funding has not been fulfilled.

In FY2016-17 Hamden spending had swollen to over $20,400 per student, putting it third among larger school districts, not counting small wealthy towns, and overall quality still lags. Hamden’s Board of Education employs about 825 full-time people, including a large administrative staff and 550 teachers, all very well paid. Employee benefit cost is the highest in the state and teacher pay is $6500 above the state average. Enrollment has declined to only 5,300 students, an overall ratio of less than 10 pupils per teacher. Despite ongoing spending increases, including this year’s record $3.1 million bump, problems remain. Money is obviously not the solution.

After 9/11/2001 things really changed, not just in Hamden but all over.

The nation went to war and the economy got tighter. The private sector stopped giving people raises. Hamden continued to treat the employees well, giving increases and maintaining those great benefits.

In 2008, after years of financial skullduggery which had driven home prices up, the economy tanked and home values crashed. Homeowners became stretched to the limit. The Hamden government recognized that something had to be done about the pension plan, which had an increased liability, due to years of growing salaries. That was when the town made two huge financial blunders.

In 2007 the town decided to place new employees into the state of Connecticut CMERS retirement plan. Hitching the town to the state was foolish. The town might have changed to a 401K type retirement savings plan, a change which was fiercely opposed by the unions but which would have prevented the town’s liability from growing further.

Retiring under the state plan many workers, particularly police and fire, will do even better than under the town plan. The next big financial mistake was that the town decided to bond $125 million to bolster the old pension plan. This added $8 million in debt service for 30 years and forces the town to make full actuarial payments into the fund.

In FY2018-19 pension contributions are over $25 million, not counting debt service, and will grow every year. In addition the cost of the heath care plan has skyrocketed. Despite somewhat higher contributions from employees the town’s share has grown to $42.9 million and there is no end in sight.

Along the way the town’s Democrat-controlled government has continued to spend without restraint. Salaries, including management, have grown generously but none so much as the guardians: police officers now average $130K and firefighters $120K plus they all get to retire early making their post-employment costs devastating.

Capital spending is also out of control, particularly excessive spending on vehicles (The fleet is now 266 strong!) and large projects which chronically overrun and have big quality and management problems. The worst have included the middle school and the new police station/town hall renovation. That project cost over $40 million; a perfectly acceptable police station could have been done for one third that much.

Generally, Hamden government spends as if the town were rich and by so doing they have horribly damaged the town’s long-term fiscal condition.

As the country has recovered from the 2008 financial meltdown, Hamden has not. Over the last eight years the mill rate has grown 63 percent and the median house price has dropped $27,000 to $199,000. The median price is down $66,000 from the peak before the financial crisis. Buyers are convinced that an investment in Hamden is not a smart idea. House values bottomed in 2016. A 5 percent bounce over the last two years is small compared to other well-managed towns.

Responsible governments have tightened their belts and weathered financial ups and downs, moderating spending, particularly personnel costs. Hamden’s only solution has been to play financial games; overestimating revenues, short-funding pensions, bonding without any effort to cut liabilities and refinancing debt irresponsibly.

This year the town plans to pay interest-only on the entire debt, except the pension bonds which were not yet negotiable. This gimmick stinks. It is kicking the can down the road at a massive level. Also, financial problems for FY2017-18 resulted in a budget shortfall around $10 million. There is no good way to handle that problem. Calling the town’s situation a crisis is an understatement.

Unless the town achieves exceptional economic growth it is unlikely that it will ever recover. Taxes will likely continue to increase while the grand list stagnates. The truth is that you cannot spend yourself into prosperity and you cannot contain a budget with phony revenues and financing gimmicks.

School cost is massive and even with an expected redistricting it will remain crazy high. Personnel costs will not drop without either layoffs or big changes in benefits, particularly pension and health care. Capital spending needs to be moderated and yes, the town is likely to see some decline in the level of services.

This year’s budget has grown to $231 million. The spending says it all:

Mill rate: $47.96 (based on a real estate grand list of only $5 billion).
BOE Spending: $87.6M (grown over $4m from FY2016-17 despite big drop in  enrollment)
Health Care: $42.9M (town and Board of Education, plus retirees)
Pension: $25.5M (except teachers and administrators in the state plan.)
Debt Service: $16.4M (short funded by $12.25 M)
Everything else: $59.1 M (Police $17M, Fire $12.3, Public Works $10.2 etc.)

Hamden is at the end of the road financially!

The town is flirting with bankruptcy or receivership.

Politicians have painted the town into an impossible corner and the unions refuse to compromise. Nobody is willing to make the long-term changes necessary to recover.

George Levinson lives in Hamden.


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