Published April 09. 2014 4:00AM
The New London City Council appears to be doing its due diligence in assessing a series of unusual bonding proposals recommended by Director of Finance Jeffrey H. Smith and backed by the Finizio administration.
On Monday, the council approved bonding $3.3 million to cover state reimbursements owed to the city but not collected. The fault is the city's, having failed over the years to file the necessary documentation for the reimbursements. The $3.3 million is a portion of $6.9 million in state reimbursements the city has failed to collect, according to Mr. Smith.
The problem for New London, explains Mr. Smith, is that these reimbursements appear as an asset on the city's books, but one which the city cannot spend while those reimbursements are outstanding, creating a cash-flow problem. The finance director had warned the city could have difficulty paying its bills and meeting payroll as early as next month if the issue remained unaddressed.
Mr. Smith tells us he is "99 percent confident of receiving $3 million" in outstanding reimbursements. Reimbursement targets include $1.7 million for various school construction projects, $1 million for the Parade Plaza reconstruction and $600,000 for renovating Veterans Field. The council can only act on the best information available, and the finance director's assurances justified its decision, by a 6-1 vote, to authorize the borrowing. According to the approved ordinance, the city must use any reimbursements collected from the state to pay off the bonds. That is critically important.
As for the rest of the reimbursement money the city contends the state owes, the finance director says he is "75 percent confident of receiving the balance or some portion of that balance." That does not sound confident at all. Significantly, the council is not borrowing against that money.
In addition, the council authorized bonding $1.1 million for vehicle purchases made last year. The budget had called for paying for the purchases from the general fund. Borrowing for vehicle purchases is a sensible alternative for the cash-strapped city.
The borrowing authorized by the council should provide the liquidity that the finance director says the city needs.
The council tabled requests by the administration to borrow $1.1 million to cover cost overruns from past construction projects, and $1.1 million to pay for smaller projects authorized by prior councils using the general fund. Addressing prior poor financial management by using the city's credit card may not be the city's best choice, only the easiest. The council was right to wait and seek more information.