Every year, every town goes through a state mandated budget process to cover the next fiscal year. The process varies by town and their government makeup, but it must be done. We will take a look at the Branford budget, the process and key points, along with some political analysis: political analysis will be in italics in this article.
We have some key parts of the budgets that need to be defined. First, we have operating expenses, which are funds used that fiscal year to operate the town. Pay teachers, police and fire; cleans roads, buildings, cut grass, etc. The key here is this is ongoing, every year these expenses take place, and we tax for them that year.
There are times, and it’s a sign of poor governance, when a government in poor fiscal shape will actually borrow money via bonding for operating expenses. We can see this in towns that are struggling, like West Haven, and it should never be done in practice.
Second, we have capitol expenses. These are projects we pay for over time. In your home, they would be things like your car, house, new roof, etc. Things that have long term benefits and are paid for over time. They are typically spent on items that increase in value over time, like structures that are an asset that can be sold down the road or add value to property.
The goal in Branford is to keep the percentage of the budget spent on capitol expenditures (principal and debt service, or interest paid on the borrowing) to under 9% of the budget. This allows for a ‘smoothing’ effect on the budget, where we don’t have extreme highs and lows. For example, Branford’s government has typically preferred to have consistent budgets under 2% as opposed to having one come in at 6% and the next year come in at 0%.
There is often political narrative that specific projects will drastically increase the town budget. For example, currently one group is stating that the new fields and police station will increase the town budget 4% in the next 5 years. This is false. As the town takes on some projects, like fields or a police station, some we pay off, like the firehouse or Blackstone Library renovation; additionally, some projects we finance for a few years, and some for much longer, like a school. Passing capitol projects actually has very little impact on any tax increases; as we value investing in infrastructure, we try and keep that aspect of the budget under 9%.
For example, let’s say the town passes new fields at $7.5 million and the police station renovation at $20 million. So we take on $27.5 million in debt. Even over 30 years, that’s less than 1 million a year, or less than 1% of the budget. But now we also realize that the new debt is replacing old debt that we are paying off, much in the way taking on a new car loan at $500 a month replaces your past car loan at $500 a month. It’s new debt, but does not change the overall budget.
The process starts with town departments submitting their budgets to town hall. These budgets are often wish lists, and come in high. Initial town budgets are often at 6-7% increases, with everyone involved knowing this is not realistic or what will eventually pass.
This often becomes political fodder, as in ‘look how high the proposed budget is from the opposing party!’ But this means nothing, and anyone with even a basic history of town budgets realizes its step one of a process, and no budget increase has ever been anywhere near that. Its simply a wish list from town departments.
At the same time, the Board of Education sets its budget, and then is voted on by their Board.
Once the wish list budgets are combined, it is sent to the Board of Finance. In Branford, there are 3 Democrats and 3 Republicans on the BoF, with the chairman being Democrat Joe Mooney. Mooney sets a hearing schedule over 4 nights: 3 nights to hear each town departmental budget, and one night to make the needed cuts that will then be sent to the Representative Town Meeting. This is the first time the BoF will take up the budget, but there will be one more yet to come.
While the BoF hears all the budgets in-depth, it can make specific changes to items in each budget of town departments, the Board of Education budget is an exception. By state statute, they have control over the total amount approved for the Board of Education, but cannot control what line item are funded or how money is dispersed within the budget. For example, they cannot say to cut text books or computers, or to add teachers.
The budget is then sent to the Representative Town Meeting. This body is elected and has 30 members. But its role in the budget process is limited: it can make cuts, but it cannot add to the total budget. It also has no say in how the budget is funded. This is important to note, as the budget has multiple funding sources, such as property tax revenue, state grants, and undesignated fund balance, or the towns savings. We will discuss this in more detail later.
When the RTM receives the budget, it is very close to its final version. There is very little left to cut, and if they do make cuts, they are small amounts. As the body is elected, the process is often more political, but the end result ends up with very little difference from the Board of Finance budget.
It’s important to note that the vast majority of the budget is made up of, not building projects or long term capitol, but union contracts. As these have built-in increases in them and are passed over 3-4 years, every budget will have, on average, some increase in the 1-2% range unless there is a decrease or increase in personnel.
This year, there is a proposed increase in personnel for the fire department that can impact the annual budget far more than any projects. The increase will likely happen over time and may be impacted by a grant, but the increase will be part of the budget for years to come. We will write more about this in a future article.
Once the RTM completes its process, reviewing town departments and the Board of Education budget, it is voted on and sent back to the Board of Finance.
The Board of Finance then takes steps to set the mill rate, or the tax rate residents will pay. To do this, they analyze the total amount to be budgeted, how much will come from the state, how much will come from the Undesignated Fund Balance, and then how much needs to be taxed for.
The amount from the state is part of the state budget and is proposed by the Governor. This can change from year to year, so the town works to keep money on hand for savings and to offset changes at the state level.
That balance is called the Undesignated Fund Balance. This money essentially comes from contingency monies in past budgets not used, extra monies remaining after projects are complete, or budgeted dollars not used. Generally, rating agencies like to see this number around 20% of the overall budget; but guidance from ratings agencies as of late has pushed for even higher, especially due to volatility at the state and federal government level. Branford currently has about 30% of its town budget in its savings, and has had all of its AAA bond ratings reaffirmed by agencies, so there is strong fiscal footing.
Every year, the BoF decides how much of the Undesignated Fund Balance to use in the next budget, and its typically between 2-4 million. This happens every year.
There is a political narrative that the town should use the UFB for its budget. They already do use some of the UFB, and always have. However, there is also a push to lower the amount in the savings account, an unwise fiscal practice. Branford has been a state leader in fiscal management and has grown its savings account, something that has resulted in significant savings on interest rates when we borrow money for schools, fields and more.
The Board of Finance looks at the amount of total monies needed, subtracts all the revenue sources, then determines how much is raised by taxation. Then using that total combined by the expected collections rate, typically in the 98% range, they set the mill rate.
Then a final vote is taken, and the budget is law, to be in effect at the start of the next fiscal year July 1.
And that’s the process. If you have questions or comments, please post your comment below, or email me at [email protected].