Board of Finance: How to Make Tough Budget Choices in Middle of Coronavirus Crisis

At last Tuesday evening’s Board of Finance meeting, the members began their discussions about just what to do with the budget for FY 2021 now that the coronavirus pandemic has effectively detonated a bomb in the process.

The Board of Finance discussed the executive order made by Gov. Lamont that suspended and modified tax deadlines and collection efforts. First Selectwoman Lynne Vanderslice explained the options the town could consider implementing and the implications–the revenues that the town would potentially lose or be delayed in collecting. She told the BOF members that she was seeking their input before the Board of Selectmen have to decide what to do at its next meeting on April 21.

Under the governor’s order, the BOS is required to offer one or both of two options for paying property tax to the town:  a 90-day tax deferment to qualified taxpayers or a 90-day, 3% interest to all taxpayers. These options would apply to all types of taxable property–real estate, automotive, or personal property.

As Vanderslice explained, the 90 days would be counted from July 1. Because Wilton taxpayers have a grace period from July 1 until July 31 to pay their taxes, both options are really 60-day extensions.

Option 1:  90-Day Tax Deferment

For individual taxpayers to be eligible to use the 90-day tax deferment, they would have to qualify based on certain conditions, all related to what’s happened since the start of the COVID-19 crisis:  anyone who had a 20% reduction in household income and since March 10 has either been furloughed without pay, had a significant reduction in hours or has become unemployed.

For businesses or nonprofits to be eligible for deferment, their revenue from March-to-June 2020 must be expected to decrease by 30% compared to the same period (March-to-June) of last year (2019).

Landlords can qualify if they experienced the same significant revenue loss or if they offer a similar allowance to their tenants, including a deferral of one month’s rent to be paid over the 90-day period, or a deferral of 25% of the rent to be paid over the 90-day period.

Option 2:  90-Day Low-Interest (3%) on Delinquent Tax Payments

Any taxpayer who is delinquent–either current as of July 1 or as of March 10– would be eligible for the 3% low-interest option. If the town opted to offer this option, it would only be able to impose 3% interest instead of 18% interest for that 90-day period beginning July 1.

Vanderslice explained the extreme scenario that posed the biggest risk to the town:  if it opted to offer the low-interest rate for delinquent taxes and then no one paid property taxes for the first 90 days of FY2021. Although this worst-case scenario would be highly unlikely, Vanderslice said calculations show the town finances could tolerate it–the town expects to start FY2021 with a balance of $24 million; the expected expenses for the first three months is also $24 million. “We’d be pretty much at break-even.”

She also said the town could afford the tax deferment option, which she believed would be a better choice to help residents most impacted by any recent economic shifts.

“The deferment plan really helps the people who really need it–the unemployed or those whose wages are not being paid, or those who’ve had a significant cut. And it also has the least risk to the town because we know that people will be paying property taxes because not everybody is going to fall under those circumstances,” Vanderslice explained.

She added that she and town CFO Anne Kelly-Lenz believe that the best course for the town to take would be to only offer Option 1–deferment.

Vanderslice indicated that one unknown factor was whether the governor might extend the order beyond 90 days. Making the decision this early also means officials have to decide without the best information on what town finances or the economy will look like closer to the end of FY2020.

“We’re kind of put in a box because we have to make the decision on April 24, where it might’ve been more helpful if we could have made it in June when we had a lot more facts. We don’t know where we’re going to be by the end of June,” Vanderslice said.

After discussing the options, the BOF members agreed with Vanderslice and recommended that the town choose the deferment option.

“I think the sense of the group is the same as yours, that the deferment program is narrower and targets the people that have had the significant economic hit, relative to the other [low-interest] program,” said Jeff Rutishauser, the BOF chair. “It seems that that’s the better one to offer–better for the town and better for the specific people that have had some significant financial hardship due to COVID, rather than an open opportunity to get a [beneficial] interest rate spread even if they’re not injured.”

In Which Direction to Head for Setting the FY 2021 Budget

Turning to the budget setting for FY 2021, Rutishauser described this year’s process as basically as he could:  “We’ve obviously got a very unusual year this year, and we have less certain information and more uncertainty in the future than we’ve had in any of my years on the Board of Finance. This is uncharted waters for just about every one year.”

He added about the difficulty, “It makes us a little uncomfortable making judgments without the usual data that we often have, but we have to make them, that’s the requirement of our responsibility to set the mill rate, even if they’re a little uncomfortable where we’re at.”

With no Annual Town Meeting to vote on the budgets, the BOF must set the final FY 2021 budgets for both the schools and the town. Both the Board of Education and the Board of Selectmen will be reviewing and resubmitting their budgets, and are hoping for direction from the BOF–taking into account the toll the coronavirus crisis is taking on both town finances and individual residents.

“This is to give some guidance to both the Board of Ed and Board of Selectmen as they go and revisit their budgets to see if there’s ways to sharpen the pencil and provide a little relief to the town, since the town is clearly going to be hurting in the next foreseeable future,” Rutishauser explained to his fellow board members.

Peter Balderston started the discussion, suggesting some potential ideas. “It strikes me that good planning starts with, I’ll set up scenarios and certain actions that would be taken under each scenario. The things that come to mind, for me, both at the BOE and BOS, it is the kinds of things that you would do in a private corporation, which is hiring freezes, requests for deferrals on increases for union members. I’m trying to think along the lines of what’s fair and equitable. Because there are some who are losing their jobs, others who are protected. And the question is how do you fairly spread that pain in a manner that keeps us marching along until we can get through this. So those are the kinds of things that I would expect or I would hope the school and the town would come back with, options to manage financials in a way that lowers expenses. Because that’s really what has to happen here until we get through this and the financial engines kick back up again.

Stewart Koenigsberg said so much depends on “how much the town gets impacted and how painful it will be for the taxpayers” but with so much uncertainty of what will happen, that’s difficult to predict.

“That’s the biggest challenge because on the one hand, we’d like to continue to make our town more attractive. On the other hand, a lot of people–including me–believes that this will be worse, perhaps considerably worse than the financial crisis. And as a result of that, there will be more pain felt, particularly in the commercial base as well as the consumer base. So the issue is really what do we have at our disposal to put ourselves in line with our constituents. If we could figure out if we had that data, obviously it would be easy, but we don’t, and it won’t be coming for some time,” Koenigsberg said.

Michael Kaelin said he was concerned with how reduced budgets would reduce town services.

“It’s not really our job to be economic forecasters. To the extent it is our job, I don’t think we’re going to have any difficulty forecasting–it’s going to be bad; it’s going to be really bad. But we need to find out about from the Board of Ed and the Board of Selectmen is how reductions and expenses are going to affect the provision of services. Because what’s different about us [from] a corporation is we’re a government and our business is providing services to people and in difficult times and crises such as this, government services become more important,” he said, adding, “I don’t know where you could reduce expenditures, without reducing services.”

To that end, Kaelin said he would look to the other two boards to explain what services would be lost if certain expenses were to be cut.

Kevin Gardiner agreed with concerns about what would be cut.

“It’s important to realize that we kept the budget at zero. There was no increase last year. So to keep it flat again as to two years–at least for the BOE–with no increase, my feeling is what was proposed prior to all of the really craziness of this COVID-19, I thought the budgets were very reasonable. I would like to see if they came back to us and said they do think there’s some room potentially to cut now, but I’d want to know, like Michael said, what are the consequences?”

Koenigsberg suggested the school district consider looking at planned capital improvements as a place to defer expenses.

“I think they were talking about $600,000 in capital improvements. Mike, I respect your point about not being a corporation, but if the BOE is considering all options, obviously deferring on capital improvements is an option. There probably are many that we could probably list, but we probably should have them go through the exercise first.”

Additional questions were raised regarding whether the BOF could set a budget and then, if tax revenues did not come in later in the year because taxpayers couldn’t afford to pay, could the finance board instruct the BOE or BOS to reduce their spending.

First Selectwoman Lynne Vanderslice clarified that such an idea likely wouldn’t be allowed, at least for the Board of Education. “I don’t think you have the legal ability to force the Board of Education, once you give them their budget, you can’t force them to reduce their spending. They can voluntarily do it. The Board of Selectmen, you can force them to reduce their spending. That’s my understanding,” she said, adding, “It would have to be pretty extreme to get to that point.”

Vanderslice added that residents may want to protect services now, but that if the financial crisis were to continue long-term, they might not object to deeper cuts. She recalled being on the BOF in 2009, when residents objected to deep cuts the finance board made to the school budget.

“They were upset about the board of ed cut. And then the next year nobody came back because they realized that the loss of income and loss of home value and all of that was not short term, that it was long-term. That just tells you something about how people react to things. So if this is worse and this is long, people may feel differently once that realization is known better next year than they might feel now.”

Rutishauser recalled that during that period of financial difficulty, town leaders had secured wage freeze concessions from all municipal unions–except one.

“Bill Brennan, who was First Selectman, went around to all of the municipal unions and asked for a voluntary wage freeze for one year and they all granted it. And he asked the Board of Ed to do likewise and all the unions except the teachers’ union agreed to also help out the town. Bill was quite upset about the teachers basically not helping out and made some very strong comments in the ATM thanking all the other unions except the teacher’s union. He did that about six times to humiliate them or to embarrass them for not helping out the town in its time of need. But there were one-year wage freezes for everybody on the municipal and the BOE side except the teachers’ union,” Rutishauser said.

He added making that plea to town employees might be a consideration. “That’s something that might be worth considering this year. Making that plea again to the people that serve the town to help us out.”

Vanderslice countered that the timing of that for police and firefighters on the frontline of a medical crisis might be difficult.  “Right now you have police and firefighters who are on the frontline in the middle of this medical crisis. So I’m not sure that I would want to do that for this July one. I don’t know, I’d have to think about that.”

When the conversation turned to financing the town’s budgeting, using a bonding instrument called a TAN (tax anticipation note, that would assume people anyone who didn’t initially pay their taxes would eventually pay within a year) Vanderslice raised her objection.

“The thing that’s making me very nervous about this conversation is conversation about financing a large percentage of the population’s inability to pay their taxes. I don’t think that’s a good solution.”

She also told the BOF that Wilton CFO Anne Kelly-Lenz has run different scenarios for what the town could afford depending on certain percentages of residents who don’t pay.

Vanderslice continued to be very conservative in her outlook.

“If you don’t think that people can afford it, you’re going to have to make some significant reductions, you’re going to have to make some changes in the way things are done. You are going to have to reduce services, if that’s where your thinking is.”

Rutishauser worried about the unknown. “I just don’t think we’ll have that clarity by June 1.”

Chris Stroup asked for some additional research on the consequences of different options the BOF would consider, depending on scenarios of people being able to pay taxes or not.

“I just want to know what we might have to do in extreme events. There’s probably a range of outcomes that’s within some reasonable band that we can manage through, [or] normal processes. Even if that probability is 1-2%, I think we should at least invest a little bit of time understanding what we might do if we all are terribly surprised about actual behaviors,” he said. “I just think we should understand generally what our choices are. This is not something we’re going to be able to say definitively on June 1. I just think we should know as we go down the possible really severe outcomes, what we might do.”

Vanderslice said Kelly-Lenz could put together those scenarios so the BOF could evaluate them.

All of the members agreed that they needed to hear feedback from residents, about their employment and wage changes since the coronavirus crisis began. They also want to hear scenarios and options from the other two boards.

Gardiner added, “The only feedback I’ve gotten from outside of this group is a few people that seem panicked and just want to take a big axe to budgets, which doesn’t feel prudent. So let’s see what we can get from the Board of Selectmen, the Board of Education on what potential decreases there could be, what the impact would be, and then we make a choice.”

Balderston said soliciting that feedback from the public should be done sooner, rather than later, even before the BOF’s next meeting on May 12, when it’s expected to put forward a proposed possible budget.

“I’m wondering if we need to do that sooner, if we can insert that into the process. There’s obviously people out there who have strong opinions. To see where people are coming out on that. It may have to come after the resubmissions from the BOS and the BOE to see how responsive they are and what their feelings are. But I would, I would find value in that.”

Vanderslice encouraged the finance board to do so. “The BOF can certainly solicit feedback. You can either write a letter to the editor or put out an appeal. You could do a survey monkey–anything you guys want to do, you can do.”

The Board of Finance is meeting Monday evening, April 20, at 7 p.m., to discuss what feedback to give the other two boards. The Board of Selectmen is meeting Tuesday, April 21, at 7 p.m. to review its budget. The Board of Education is meeting Thursday, April 23, at 7 p.m., to review its budget.