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Budget Problems in Bridgeport

Writing Bridgeport’s budget was never going to be easy. The city has a median household income of about $43,000 (compared to $72,000 statewide); 18% of its 147,000 residents have a four-year college degree (against 38% statewide); and the median owner-occupied home value is $168,000 (compared to $269,000 statewide). 22% of residents live in poverty, as compared to 10% statewide, and Bridgeport has long been stereotyped as corrupt and dilapidated. (Connecticut Public Radio journalist Colin McEnroe ’76 in Salon: “No outsider, including me, really understands it.”)

1. Before the Revaluation

For most of the 2000s and part of the 2010s, Bridgeport seemed to be defying its odds. In March 2003, longtime Mayor Joseph Ganim was convicted of taking bribes; he resigned the next month and was packed off to a federal prison in Fort Dix, New Jersey. He had been elected in 1991, in part on a pledge to fix the city’s finances after his predecessor Mary Moran unsuccessfully tried to declare municipal bankruptcy. Ganim’s successor John Fabrizi, a former president of the City Council, also found his administration engulfed in scandal when he admitted to abusing cocaine in 2006, but the city’s financial picture was unquestionably improving. Each year, Connecticut municipalities compile a “Grand List” of taxable real and personal property; between fiscal years 2008 and 2015, Bridgeport’s Grand List grew from $5.6 billion to $7.2 billion, giving the city some much-needed flexibility in the form of higher tax revenue.

In an interview with The Politic, Bill Finch, Bridgeport mayor from 2007 to 2015, described his time in office as relatively calm for the city’s budget. The city was often “a couple million dollars in the hole at the end of the year,” he noted, but the problems could be resolved each year, and the budget gaps never grew out of hand. “It was kind of a miracle that we didn’t have to cut services,” he said, pointing to concessions from city employees as a useful cost-cutting measure and emphasizing that he tried to reduce city expenses and spur economic development with a focus on environmental sustainability. With the exception of the city’s long-term obligations such as pension plans–there was “not enough there there” to fund them fully, Finch says–things seemed to be going well.

By 2014, though, storm clouds were visible. State law requires municipalities to reassess their property values–essentially, to rewrite their Grand Lists–every five years. Bridgeport hadn’t done it since 2008, and it was painfully obvious that property values had dropped since then because of the financial crisis. On February 24, 2014, City Councilman Richard Paoletto and Finance Director Anne Kelly-Lenz appeared before the Planning and Development Committee of the Connecticut General Assembly and asked them to waive state law and delay the revaluation for two years. The Grand List was on the hook, and Kelly-Lenz explained that it was almost certain to shrink substantially if the city had to revalue now, with adverse consequences for  Bridgeport residents. “This request is based on an historic economic recession which has had such an effect on the entire United States economy resulting in corresponding record high levels of subprime lending defaults and foreclosures that impacted Connecticut cities, particularly Bridgeport,” she told the committee.
Despite some concerns from legislators (“[W]hy will the problem go away two years from now?” asked then-State Representative Bill Aman, R-South Windsor), the General Assembly bought Kelly-Lenz’s argument that prosperity was just around the corner for Bridgeport, and the revaluation was delayed, as the city had requested. Between fiscal 2011 and fiscal 2015, the Grand List grew by a little more than $140 million.

2. Ganim, Revaluation, and the Fallout

Meanwhile, Ganim, who had been released from prison in 2010, was planning his comeback. Although he was unable to regain his law license, he and his brother started a consulting firm (Federal Prison Consultant LLC) to advise white-collar criminals, and he regained some credibility with a public apology at Bridgeport’s East End Baptist Church on New Year’s Day 2015. (He allowed that he had “made some errors in judgment” and said he was “truly sorry.”) In May, he was officially a candidate for his old job, and by December he was back in the mayor’s office after dispatching seven opponents, including Finch, the incumbent mayor.

When Ganim reentered office, he was in the hot seat for the budget disaster that everyone knew was coming. It is hard to say whether deferring the revaluation averted an even worse outcome, but Bridgeport’s finances were now on a shaky footing. The value of the Grand List, according to the city itself, fell by more than $1 billion, or around 15%, between fiscal years 2015 and 2016.

Like many municipalities, Bridgeport depends in large part on property tax revenue, which in 2017 made up more than half of its roughly $550 million annual budget. If the value of the Grand List had fallen by 15%, there was an easy way to continue collecting the roughly $300 million in taxes the city would need: raise the mill rate. There were only two obstacles.

First, Bridgeport’s taxes were already high. At 42.198 mills (4.2198%) for fiscal 2016, they were above those of neighboring towns, and, in fact, above those of most other municipalities in Connecticut (Hartford at 74.29 mills and Waterbury at 58.22 being two of the notable exceptions). This is fairly normal. Large cities with lower property values than the surrounding suburbs often have to charge higher property tax rates just to try to keep up with the level of services that competing municipalities can provide. But because increasing the mill rate can scare off investment, it’s not at the top of anyone’s wish list.

The second obstacle was more of a problem: Ganim had campaigned on a promise not to raise taxes. Now he was looking at revenues that were $20 million short of what he wanted. He raised the mill rate anyway, with the City Council’s approval, and for fiscal 2017 it jumped more than 25%, to 54.37.

Many homeowners were furious. In Black Rock, a prosperous neighborhood overlooking Long Island Sound, property values hadn’t fallen very much if at all, and many residents found that their tax bills had jumped impressively. Black Rock residents who criticized the city included David Walker, the former Comptroller General of the United States, and the controversy even made its way into the New York Times, which profiled one man, Peter Spain, who applied for a Guinness World Record for the “highest one-year increase in property tax rate in the world.” (Guinness declined to bite, although Spain was eventually elected to the City Council.)

Two years later, the dust has settled somewhat. But whether the tax increase was a good idea or not, it’s hard to say that Bridgeport is on the right footing financially. In October 2017, Moody’s cut the credit rating for a number of the city’s general obligation bonds – an indicator of the municipality’s fiscal health – from A2 to Baa1, placing them into the “moderate credit risk” category. Even though the downgrade was connected to the State of Connecticut’s bleak financial picture, which endangers the revenue municipalities can expect to receive from the state government (and even though Fitch and Standard & Poor’s rated many of the same bonds higher), low ratings tend to increase Bridgeport’s borrowing costs, and the city has to borrow money to meet its cash-flow needs, which does not inspire investor confidence. Meanwhile controversy erupted this spring over Ganim and the City Council’s decision to nearly flat-fund Bridgeport schools, and on top of all this residents like John Marshall Lee ’64, a longtime budget-watcher, insurance agent, and Chairperson of the Press and Publicity Committee of the Greater Bridgeport chapter of the National Association for the Advancement of Colored People, remain concerned that the taxes could deter economic development. “Why would anybody come to Bridgeport with a high tax rate?” Lee asked, in an interview with The Politic.

The picture isn’t totally bleak, according to people who are responsible for the city’s finances. “I’m actually somewhat optimistic” about getting back to a higher bond rating with Moody’s, Kenneth Flatto, Bridgeport’s current Finance Director, told The Politic; the rating agency has revised its outlook from “negative” to “stable.” Flatto also points out that the economic development prospects might not be as bad as Lee says, rattling off a list of real estate projects downtown and projecting that a new gas-fired electric plant, due to start operating in 2019, will add substantially to annual property tax revenue once it’s complete. Denese Taylor-Moye, a co-chair of the Budget and Appropriations Committee on the City Council, agrees that economic development is “picking up, looking good” and, like Flatto, says she anticipates that investments in the city (the Steel Point development on the waterfront, for example) will pay dividends in the coming years. “This is the time for a better Bridgeport,” she said in an interview with The Politic. Economic development may even arrive in the form of a highly anticipated MGM casino

3. The Path Forward

A lot of this optimism seems to be subject to Flatto’s caveat that development will be forthcoming “if the economy stays reasonable.” That may well work out, especially since millennials seem to like living in large cities, and Bridgeport has a number of advantages: a reasonable cost of living, the University of Bridgeport, a large waterfront park and beach, and a revitalizing downtown area, to name a few. But what can the city do in the meantime to avoid future tax increases or service cuts that could harm its residents? It’s up for debate.

One way to address the problem is to rein in employment costs. Like a number of government employers, Bridgeport offers its employees defined benefit pension plans. In contrast with defined contribution plans, defined benefit pensions guarantee employees a certain dollar amount of income in retirement; in Bridgeport’s case, that figure is determined by a formula based on the employees’ salaries during their time with the city. Defined benefit pensions are often expensive and they place a large amount of risk with taxpayers. Even if the assets used to fund the pensions don’t earn as much interest as expected or more beneficiaries than anticipated claim benefits, the city has to come up with enough money to pay out, which can strain its overall finances. Some observers–Lee among them–say the city should consider a defined contribution pension plan so that employees accept some risk that their benefits will be smaller if adverse events occur. (Lee also suggests that the city could save by cutting expenditures like medical care for retirees that fall under “other post-employment benefits”: “This is absurd, the way it has grown,” he says of OPEB.) But it is hard to imagine that Bridgeport employees would be enthusiastic about receiving less generous benefits or that the unions that represent them would be eager to acquiesce.

Another option is just to cut city services, but that, too, is a risky tactic. In a city with low educational attainment, is it a good idea to reduce funding for the schools? In fiscal 2017, the State of Connecticut paid Bridgeport $164 million (over 25% of the total city budget) through Education Cost Sharing (ECS), a program that is intended to relieve the burden on poorer school districts. But Bridgeport high schools posted a graduation rate of only 75% last year, compared to 88% statewide. If Seaside Park is one of the city’s selling points, is it reasonable to cut funding for parks and recreation? And while it might be possible to save on the Police Department, which cost more than $100 million last year, that seems likely to leave residents less safe. For many expenditures, cuts would lead to a “programmatic impact” that hurts citizens, Flatto explains. “How far do you go” with the cuts?

Bridgeport also has the option of petitioning the State of Connecticut to designate it as a Tier III distressed municipality, a legal classification that would make it eligible to receive aid and supervision from the state Municipal Accountability Review Board. The MARB is supposed to put struggling governments on a sounder fiscal footing, but it involves substantial red tape and requires participating towns to give up their authority to make assumptions about property tax or state aid revenue. (“There’s a lot of drawbacks,” Secretary of the Office of Policy and Management Ben Barnes has previously pointed out.) Only one municipality, Hartford, has asked for Tier III designation; another, West Haven, was placed into Tier III because it issued debt to finance a deficit, triggering automatic state oversight. And the funds that the MARB offers may not be enough to persuade Bridgeport to give up any authority unless its fiscal distress becomes much more serious.

More than any other institution, the Bridgeport Public Schools seem to be at the center of the problem. They are very expensive (at nearly $260 million in fiscal 2017, education accounted for more than 45% of the city’s expenditures) and they continue to underperform other districts in Connecticut. The Board of Education and the city government have had a difficult relationship in recent years. The tension is exacerbated by the fact that each body has little control over the other’s appropriations process–Board of Education member Hernan Illingworth, for instance, suggested to The Politic that “the city should do more” to control costs. And yet it’s hard to see even an aggressive cost-cutting initiative in the public schools as a practical solution. Asked whether school funding was sufficient, Board of Education member Maria Pereira told The Politic that “it hasn’t been adequate in Bridgeport for three decades”; Illingworth, in response to the same question, flatly answered “definitely not.” Even Chris Taylor, a Republican board member who told The Politic he believes “the funding is adequate,” noted that he was concerned the school district did not have enough paraprofessionals on staff and said he had encountered bad facilities as chair of the board’s Facilities Committee. And both Pereira and Illingworth argued that the state’s ECS program is not meeting Bridgeport’s needs, saying respectively that the state can’t be counted on to fully fund the formula–it’s endangered by the state’s budget crisis–and that the formula itself does not allocate enough to Bridgeport. Taylor also suggested that ECS funding had been mismanaged.

Some observers have also argued for more comprehensive reforms. Finch, describing Bridgeport’s budget as a “difficult situation regardless of who the Mayor is,” pointed to the municipal organization of Connecticut as the source of the problem: there are simply “too many governments,” he says, arguing that towns could reduce costs by collaborating or consolidating. Although proposals for regionalization face ideological and practical obstacles–Pereira, for instance, argues that local school boards are best positioned to supervise public education; and it seems unlikely that residents of more prosperous, whiter towns in Fairfield County would be eager to accept a merger with Bridgeport–fewer, larger, municipalities might be able to address a number of the problems that are near-impossible to solve under the current system. (Connecticut has no county governments.)

Bridgeport has to pick the best of a set of bad choices. Because of Connecticut’s ongoing fiscal crisis, municipalities are unlikely to receive much more state aid than they do now at any time in the foreseeable future. That leaves the city dependent on revenue sources within the city limits, and any tax rate is almost certain to be either too low to meet the city’s obligations or too high for Bridgeport to foster the robust market in goods, services, and real estate that will sustain long-term economic growth. Many of the possible solutions–more taxation, spending cuts, state oversight, merging with other municipalities–come with obvious adverse consequences.

But there may be some light at the end of the tunnel. If Flatto and Taylor-Moye are right about the new power plant, the Steel Point development, and downtown revitalization–and, in particular, if MGM is able to put a casino in Bridgeport–it’s possible that the city could grow its way out of this conundrum. That would be a boon to the many Bridgeport families who don’t get the same shot at success as their neighbors in more prosperous towns throughout Fairfield County. Residents of Bridgeport, who are disproportionately poor and disproportionately people of color, have been dealt a worse hand than their neighbors. But with luck, the city’s problems may not prove to be permanent.