NEW BRITAIN - After a meeting of the Standing Bonding Subcommittee, the Common Council will meet shortly before its regularly scheduled session Wednesday night to discuss the city’s debt restructuring plan.
Members of the council will be presented with a plan to authorize the mayor to appropriate and bond $115 million to pay, fund or refund any of the city’s existing general obligation bonds.
According to the presentation composed by John Healey and Richard Thivierge from Mesirow Financial, the restructuring would lower the city’s maximum annual debt service payment from about $40 million to about $26 million while adding an additional 10 years of payments.
According to the presentation, the savings will be accomplished by refunding and restructuring existing principal and interest payments and amortizing, or reducing, them in later years.
The effort to restructure the city’s debt goes back to the year Mayor Erin Stewart first took office.
“The goal of this restructuring is to complete my administration’s refinancing plan that dates back to the $30 million deficit from the 2012-13 budget. The goal is to fundamentally reshape the city’s debt profile, making our annual bond payments more level and manageable,” Stewart said. “Administrations in the future will have a predictable payment schedule that will allow them to responsibly pay down large portions of debt each year, while allowing us to continue making investments in critical infrastructure.
“This transaction is the final step in placing New Britain on the firm fiscal foundation we have been promising and will end the need for similar transactions year after year,” Stewart said.
According to Stewart, the city’s general obligation long-term net debt is $270 million. This number includes a combination of debt by the school system, general purpose and pension obligations.
“Municipalities always have infrastructure and school building needs, along with capital equipment and capital improvement needs. The cost to run a city is continuous and necessary. Like a mortgage, principal and interest are paid off on an annual basis, according to a maturity schedule. The paying off of annual debt allows governments to add to their infrastructure needs on an ongoing basis,” Stewart told The Herald.
Until now, Stewart said, there has been a statutory prohibition by the state of Connecticut on issuing debt beyond 20 years. Until changes this year, municipalities could not restructure debt beyond its original final maturity date.
“Both of these laws limited our ability to properly manage our debt and take advantage of the historically low interest rates since 2008,” Stewart said. “Those laws have since changed and, rather than asking the state for a bailout or oversight, we will be the masters of our own financial destiny.”
When asked if restructuring the city’s debt could increase taxes for residents in the future, Stewart said restructuring would do the opposite.
“The new, smaller payments over time will ensure that any future tax increase would not be because of an increase in debt. The city, both now and in the future, will have to spend within our means,” she said. “If the city does not undertake this transaction, tax increases are a virtual certainty.”
Republican Alderman Kristian Rosado, assistant minority leader, called a restructuring a necessary step.
“We want to make sure New Britain is on firm financial footing going into the future,” Rosado said.
Rosado said this restructuring aims to ensure the city will be able to pay its obligations for years to come.
Comparing it to restructuring a mortgage, Democratic Majority Leader Alderman Carlo Carlozzi noted that the restructuring would add ten years of annual debt service payments for the city.
“There will be a very lengthy discussion before any action is taken,” Carlozzi said.
Democratic Alderman Manny Sanchez also said he expected a discussion at Wednesday’s meeting, weighing the pros and cons of the restructuring plan.
“$115 million should not be taken lightly,” Sanchez said, while adding that short term cuts to debt payments don’t necessarily lead to long term sustainability.
Stewart, meanwhile, took to twitter to advance the restructuring plan.
“Big debt fixing plans on #NewBritain city council agenda Wednesday night will newly elected dems save the city? Or will they let us fail?”
Carlozzi and Sanchez emphasized the importance of fiscal responsibility when managing the city’s finances.
The Standing Bonding Subcommittee will meet at 6:30 p.m. in Council Chambers at City Hall to discuss the debt restructuring plan.
Following a subcommittee recommendation, the Common Council will hold a special meeting at 6:45 p.m. to discuss the report. The regular meeting of the Common Council will begin after that.
Skyler Frazer can be reached at 860-801-5087 or by email at firstname.lastname@example.org.