Budget Explained
John Leary, Chairman - Board of Finance
Budget Summary
The budget for Southington is $173 million for 2023/2024 fiscal year July through June. We have a balanced budget meaning both revenue and expenses are $173m. The budget is our authorization to the department leaders to tax and to spend as we set forth. Our budget is broken into 3 major components: Education Operations at $110.4m, General Government at $49.5m, and Debt Service at $13.1m. To fund that budget the town receives grants mainly from the state totaling $23m. Southington also has town generated revenue from fees for services of $4.2m and interest on investments of $1.3m. We recontributed a portion of the previous years’ surplus of $2.2m and lastly, we taxed $142m.
Board of Education operations spending increased $6m, from $104m to $110m prior year to current year. This increase was essentially for the same services and services levels. General government spending increased from $47m to 50m, up $3m also for essentially level services. Debt service increased $2m, from $11m to $13m. Debt service is the repayment of principal and interest on our bonds which is how municipalities borrow funds. At 6/30/2022 our debt was $107m and our permissible limit is $895m meaning we are at 12% of our limit, which is very conservative.
We continued to have grand list growth. That growth when taxes gave us $2.5m of new tax revenue that did not exist in the prior year. Grand List growth is always great news. However, spending increased $11m.
To fund this budget property taxes increased 4.22% or 1.23 mills. On the Board of Finance, we look at the budget requests and the income forecasts and then we carefully assess the impact on the taxpayers. We make adjustments where we feel it is prudent. This year was a real challenge and taxes did increase 4.22%.
In this budget we are funding the 2023/24 year of our 5 year capital plan. Notable items include School Construction (once agreed) of $71.7m of an estimated $165m for the Derynoski, Flanders and Kelley solution. These, along with the Karen Smith Academy, are the last remaining schools that did not receive renovation. There is a list of projects for 2023/24 funded by grants $37m, Bonding $37m and ARPA funds $721k and cash $4.2m.
Our Board of Finance members are available to go into more detail on any aspect of the budget. Please follow the link to BOF contact information Southington, CT
Commentary
Inflation – For essentially level services our budgeted costs have increased $11 million including debit service. Our Republican members of the BOF and our Town Manager, Finance Director, and Superintendent of Schools have all cited inflation as a major significant driver of the increased costs from 2022/23 to 2023/24 fiscal years. It’s simply the same services at a higher cost, a much higher cost. Each year inflation increases our compensation and the costs of the goods and services we consume. We hope to keep up. Political opponents point out that the town wages are under contract and not influenced by inflation and that inflation is not the driver. While town wages under contract are not affected by the abnormally high inflation we are seeing, the rest of the budget including busing, fuel, the price of vehicles, outside contracted services, medical costs, building supplies, and so much more is up considerably due to high inflation. Inflation, abnormally high inflation, is a significant driver of increased costs in this budget. The US government is rightly counteracting inflation, by increasing interest rates to slow the economy, in an attempt to prevent or soften a recession. Inflation and increased interest rates are affecting our homes, our businesses and employers, and our government services. We cannot escape inflation and increased interest rates. The budget was developed at the end of 2022 and early 2023. Since then, inflation did contract a bit, as higher interest rates slowed the economy. The forecasts vary but 2023 is expected to have inflation around 5%.
U.S. BUREAU OF LABOR STATISTICS
Consumer Price Index: 2022 in review
January 17, 2023
Consumer prices for all items rose 6.5 percent from December 2021 to December 2022. Food prices increased 10.4 percent, reflecting an 11.8-percent increase in prices for food at home and an 8.3-percent increase in prices for food away from home.
See full article here Consumer Price Index: 2022 in review : The Economics Daily: U.S. Bureau of Labor Statistics (bls.gov)
Fiscal Cliff – In Southington we use the term fiscal cliff to describe a condition where we have a long-term expense, but funding is short term. When funding ends and costs remain, we call that a fiscal cliff. We do not have a fiscal cliff in our town finances.
A real-life example in our town finances is the SAFER grant where the town hired firefighters and the federal government agreed to pay the first 3 years and then the town will carry the costs forward. In the case of the SAFER grant, we determined we needed the firefighters and were supportive of having the federal government fund them for 3 years. The SAFER grant is a minor expense but serves as a good example.
As the party in leadership, we have come under political criticism for having a material “fiscal cliff” in our budget. The simple answer is we do not have a fiscal cliff in our budget. We funded the 2022/2023 budget. We will fund the 2023/2024 budget. Spending increased $11 million from 2022/2023 to 2023/2024. A fiscal cliff argument would be like the SAFER grant where the costs remain the same and the funding source drops off. In our broader budget we have costs increasing $11 million offset by grand list growth and taxpayers stepping up to fund the increased costs with increased taxes. We have the same funding sources and increased costs.
Advance Preparation - There are political claims that we the Republican leadership, should have forecasted higher costs and anticipated higher taxes and took advance measures to counteract the impact to the town. The response is yes, we forecasted downturns in the economy for years and discussed options. We all were aware of inflation and the resulting interest rate hikes. We have an ongoing commitment to reviewing costs and driving for efficiency and effectiveness. A controversial discussion that we have had for several terms is to develop a fiscal policy to guard against spikes in the mill rate. Essentially the strategy would be to tax at a minimal and predicted rate. We would save any excess tax and then release it in future years when we encounter an anticipated spike in the mill rate. Overtaxing is the only way we can drive some smoothness into the mill rate. Overtaxing, even in conjunction with a strict and restrictive fiscal policy, was rejected. The thinking was money is best in the taxpayer’s pocket and we can address spikes in taxes when they arise. Deeper thinking considered that if the government had a “smoothing fund” they may be more likely to permit higher spending.
Conclusion – Municipal finance is complex and providing oversight to government finances is the role of the Board of Finance. We need to know finance. We need to know leadership and how to determine what is urgent and important and prioritize while having the experience on how to make things happen. We need to understand revenue, auditing, budgeting, bonding, forecasting, taxation, planning, and how all aspects of finance come together. We need to be able to make sound recommendations to the Town Council on the budget and sort through all the issues that may arise. We select the external auditors and provide citizen oversight to the government. Since 2009 the BOF has been run by a Republican majority. We have achieved a balanced budget, grew the rainy-day fund, scrutinized spending, improved infrastructure, improved the budget process, remain considerate of the mill rate and taxes, and use a long-term approach to looking after the needs of Southington. We run an honest, respectful and collaborative board. We have qualified candidates who work as a team, and we ask for your confidence and trust with Southington Finances going forward. Yes, inflation impacted our costs and drove up our mill rate. No, there is no fiscal cliff in our budget. There is nothing we could do to avoid higher costs for the same services. We continue to explore all options to run the town as effectively and efficiently as possible.
The budget for Southington is $173 million for 2023/2024 fiscal year July through June. We have a balanced budget meaning both revenue and expenses are $173m. The budget is our authorization to the department leaders to tax and to spend as we set forth. Our budget is broken into 3 major components: Education Operations at $110.4m, General Government at $49.5m, and Debt Service at $13.1m. To fund that budget the town receives grants mainly from the state totaling $23m. Southington also has town generated revenue from fees for services of $4.2m and interest on investments of $1.3m. We recontributed a portion of the previous years’ surplus of $2.2m and lastly, we taxed $142m.
Board of Education operations spending increased $6m, from $104m to $110m prior year to current year. This increase was essentially for the same services and services levels. General government spending increased from $47m to 50m, up $3m also for essentially level services. Debt service increased $2m, from $11m to $13m. Debt service is the repayment of principal and interest on our bonds which is how municipalities borrow funds. At 6/30/2022 our debt was $107m and our permissible limit is $895m meaning we are at 12% of our limit, which is very conservative.
We continued to have grand list growth. That growth when taxes gave us $2.5m of new tax revenue that did not exist in the prior year. Grand List growth is always great news. However, spending increased $11m.
To fund this budget property taxes increased 4.22% or 1.23 mills. On the Board of Finance, we look at the budget requests and the income forecasts and then we carefully assess the impact on the taxpayers. We make adjustments where we feel it is prudent. This year was a real challenge and taxes did increase 4.22%.
In this budget we are funding the 2023/24 year of our 5 year capital plan. Notable items include School Construction (once agreed) of $71.7m of an estimated $165m for the Derynoski, Flanders and Kelley solution. These, along with the Karen Smith Academy, are the last remaining schools that did not receive renovation. There is a list of projects for 2023/24 funded by grants $37m, Bonding $37m and ARPA funds $721k and cash $4.2m.
Our Board of Finance members are available to go into more detail on any aspect of the budget. Please follow the link to BOF contact information Southington, CT
Commentary
Inflation – For essentially level services our budgeted costs have increased $11 million including debit service. Our Republican members of the BOF and our Town Manager, Finance Director, and Superintendent of Schools have all cited inflation as a major significant driver of the increased costs from 2022/23 to 2023/24 fiscal years. It’s simply the same services at a higher cost, a much higher cost. Each year inflation increases our compensation and the costs of the goods and services we consume. We hope to keep up. Political opponents point out that the town wages are under contract and not influenced by inflation and that inflation is not the driver. While town wages under contract are not affected by the abnormally high inflation we are seeing, the rest of the budget including busing, fuel, the price of vehicles, outside contracted services, medical costs, building supplies, and so much more is up considerably due to high inflation. Inflation, abnormally high inflation, is a significant driver of increased costs in this budget. The US government is rightly counteracting inflation, by increasing interest rates to slow the economy, in an attempt to prevent or soften a recession. Inflation and increased interest rates are affecting our homes, our businesses and employers, and our government services. We cannot escape inflation and increased interest rates. The budget was developed at the end of 2022 and early 2023. Since then, inflation did contract a bit, as higher interest rates slowed the economy. The forecasts vary but 2023 is expected to have inflation around 5%.
U.S. BUREAU OF LABOR STATISTICS
Consumer Price Index: 2022 in review
January 17, 2023
Consumer prices for all items rose 6.5 percent from December 2021 to December 2022. Food prices increased 10.4 percent, reflecting an 11.8-percent increase in prices for food at home and an 8.3-percent increase in prices for food away from home.
See full article here Consumer Price Index: 2022 in review : The Economics Daily: U.S. Bureau of Labor Statistics (bls.gov)
Fiscal Cliff – In Southington we use the term fiscal cliff to describe a condition where we have a long-term expense, but funding is short term. When funding ends and costs remain, we call that a fiscal cliff. We do not have a fiscal cliff in our town finances.
A real-life example in our town finances is the SAFER grant where the town hired firefighters and the federal government agreed to pay the first 3 years and then the town will carry the costs forward. In the case of the SAFER grant, we determined we needed the firefighters and were supportive of having the federal government fund them for 3 years. The SAFER grant is a minor expense but serves as a good example.
As the party in leadership, we have come under political criticism for having a material “fiscal cliff” in our budget. The simple answer is we do not have a fiscal cliff in our budget. We funded the 2022/2023 budget. We will fund the 2023/2024 budget. Spending increased $11 million from 2022/2023 to 2023/2024. A fiscal cliff argument would be like the SAFER grant where the costs remain the same and the funding source drops off. In our broader budget we have costs increasing $11 million offset by grand list growth and taxpayers stepping up to fund the increased costs with increased taxes. We have the same funding sources and increased costs.
Advance Preparation - There are political claims that we the Republican leadership, should have forecasted higher costs and anticipated higher taxes and took advance measures to counteract the impact to the town. The response is yes, we forecasted downturns in the economy for years and discussed options. We all were aware of inflation and the resulting interest rate hikes. We have an ongoing commitment to reviewing costs and driving for efficiency and effectiveness. A controversial discussion that we have had for several terms is to develop a fiscal policy to guard against spikes in the mill rate. Essentially the strategy would be to tax at a minimal and predicted rate. We would save any excess tax and then release it in future years when we encounter an anticipated spike in the mill rate. Overtaxing is the only way we can drive some smoothness into the mill rate. Overtaxing, even in conjunction with a strict and restrictive fiscal policy, was rejected. The thinking was money is best in the taxpayer’s pocket and we can address spikes in taxes when they arise. Deeper thinking considered that if the government had a “smoothing fund” they may be more likely to permit higher spending.
Conclusion – Municipal finance is complex and providing oversight to government finances is the role of the Board of Finance. We need to know finance. We need to know leadership and how to determine what is urgent and important and prioritize while having the experience on how to make things happen. We need to understand revenue, auditing, budgeting, bonding, forecasting, taxation, planning, and how all aspects of finance come together. We need to be able to make sound recommendations to the Town Council on the budget and sort through all the issues that may arise. We select the external auditors and provide citizen oversight to the government. Since 2009 the BOF has been run by a Republican majority. We have achieved a balanced budget, grew the rainy-day fund, scrutinized spending, improved infrastructure, improved the budget process, remain considerate of the mill rate and taxes, and use a long-term approach to looking after the needs of Southington. We run an honest, respectful and collaborative board. We have qualified candidates who work as a team, and we ask for your confidence and trust with Southington Finances going forward. Yes, inflation impacted our costs and drove up our mill rate. No, there is no fiscal cliff in our budget. There is nothing we could do to avoid higher costs for the same services. We continue to explore all options to run the town as effectively and efficiently as possible.