With $90 million in long-term debt, and pension commitments to some 700 workers and retirees, Ridgefield has its obligations. But Ridgefield is not like Detroit, or San Bernardino, Calif., or Central Falls, R.I., town officials say — it is not a local government so deep in borrowing and pension promises that it is sliding toward bankruptcy.
“We’re not Detroit,” said Dave Campbell, chairman of the Pension Commission.
“We’re not close to bankruptcy,” First Selectman Rudy Marconi said. “Our ability to maintain a triple-A rating is proof of our strong financial position.”
Ridgefield’s $90 million in long-term debt is a collection of obligations from borrowing in the bond market, that the town simultaneously pays down and adds to.
When Mr. Marconi came into office in 1999, the town had just authorized construction of the $34-million Scotts Ridge Middle School.
In 2000 the town approved and soon began borrowing for the $90-million “bundle” of school-related projects: expansion and renovation of the high school and Ridgebury School, renovations to East Ridge Middle School, construction of the new Recreation Center to allow Barlow Mountain to be converted from a recreation facility back to a school, renovation of and reopening Barlow Mountain School, computer rooms and library expansions at other elementary schools.
All that school construction pushed town debt up, with borrowing increasing as construction gained momentum.
High-water mark
“The high-water mark for our long-term debt was $141,905,000 in 2003 and it’s been declining — and will continue to — ever since,” said Town Controller Kevin Redmond.
“We’ve done a good job bringing our debt way down from where we started at $140 million, down to 90,” Mr. Marconi said.
The town pays $13 million to $14 million a year in debt service — it’s part of the budget voters approve each May. Of the $14 million, more than two-thirds is paying down principal owed.
In an analysis in June, Board of Finance Chairman Dave Ulmer said that the town paid $9.8 million in principal and $3.4 million in interest in the 2012-13 fiscal year.
The town does continue borrowing, as well as paying down. The trick to lowering the debt total is to keep the additional borrowing significantly below the roughly $10 million a year principal repayment.
The town administration’s unofficial goal is to hold borrowing for the routine capital budget — roofs and repairs, highway equipment and fire trucks, police cars and radios — below $4 million a year.
“We could see long-term debt reduction of up to $6 million annually due to paydown of principal, assuming newly issued capital projects are kept around $4 million annually,” Mr. Ulmer said.
The town doesn’t always keep the borrowing that low, however. That’s the case this year, as some larger approvals by voters are added to the $3.7 million in more routine capital spending.
Looking at fiscal year 2013-14, Mr. Ulmer’s June analysis calculated borrowing for previously approved projects: “We will issue bonds covering the library ($5 million), the May 2013 approvals ($3.7 million) and some amount (up to $1 million) to cover the demolition of the Schlumberger property.
“Those new FY14 bonds will pretty much match the FY13 $9.8 million a year of principal payments (and 3.4 million in interest),” Mr. Ulmer said.
Another $731,000 may be added if the proposed school security capital spending program is approved by voters at town meeting Wednesday, Aug. 14.
That analysis doesn’t count most of the $7 million voters approved in December 2011 for the purchase of Schlumberger. The selectmen are preparing to sell off parts of the property to recover much of that outlay, so Mr. Ulmer doesn’t expect it to be added to long-term bonded debt.
Ratings agencies
The financial ratings agencies seem to agree the town’s debt is under control, giving Ridgefield AAA ratings — their highest. They tend to use words like “moderate” or “average” to describe the town’s debt load. But they like the town’s other financial indicators and acknowledge the town is paying its debt principal off at a good rate.
“They talk about a very rapid amortization of our debt,” Mr. Redmond said.
A 2013 Fitch Ratings analysis uses those very words: “The debt burden is average and expected to remain so given the town’s manageable issuance plans. Amortization is very rapid.”
A Standard and Poors analysis in late 2012 said: “The debt burden is about 1.2% of market value, which we consider low, and about $3,800 per capita, which we consider moderate. The debt service carrying charge is, in our opinion, moderate at an estimated 11% of expenditures. Amortization is rapid, with about 85% of GO (general obligation) bond principal repaid over the next 10 years.”
Pensions
Pension obligations are difficult to pin a number on, since a big factor in the eventual amount to be paid is the longevity of future retirees.
Ridgefield’s largest union group, the teachers, get their pensions through a state-administered fund — their retirement checks aren’t the town’s obligation.
To maintain payments on the 700 or so pensions Ridgefield taxpayers are responsible for, actuaries currently project the town will eventually need a fund of almost $99 million — and it has 87 or $88 million now, according to Mr. Campbell of the Pension Commission.
Both town and schools make payments into the fund each year, as recommended by the actuaries.
“I got almost $1 million from the Board of Education and $1.7 million from the town,” Mr. Campbell said of the most recent payments in July. (The town pays more since the schools have fewer employees involved, with teachers and many administrators in the state plan.)
The January 2013 analysis by Fitch Ratings, “affordable retiree costs” were listed as a key driver of the rating.
“…As of July 1 2012, the plans were 88% funded on a combined basis using Fitch’s conservative 7% discount rate assumption and the combined unfunded liability was a manageable $8.4 million,” said Fitch analyst Leora Lipton.
Other benefits
Posing problems similar to pension costs are “other post-employment benefits,” sometimes called “OPEB.” Basically, these are health care, dental coverage and similar benefits promised to retirees in contracts over the years.
Both town and schools are putting money into funds to cover these obligations.
A Moody’s report from late 2012 said, “Starting with the fiscal 2013 budget, the town will also contribute the full $1.7-million ARC (annually required contribution) for its other post-employment benefit liability, which Moody’s views favorably.”
The January 2013 Fitch analysis said: “The town’s pensions are well-funded, and other post employment benefits (OPEB) are manageable.”
The town and school board are also addressing these concerns another way. They’re negotiating contract changes designed to limit future growth of the obligations.
Basically, rather than promising to pay certain future benefits to retirees, the town’s new contracts promise only that it will make certain contributions to the employees’ retirement funds.
“As each contract comes up, they’re turning them over,” Mr. Campbell said. “The old one is called defined benefit, the new one is called defined contribution.”
The amount the town is kicking in each year is about the same, for now. But the newer contracts have less potential for uncontrolled future growth of the obligations as more people retire, and live longer, collecting more benefits, as the investment fund that was supposed to cover it all gets overwhelmed.
“Everybody who’s in the plan now gets what they’re supposed to get, but the new guys coming get a check and the town is enrolled in program with The Hartford and keeps the records and give them choices of the funds,” Mr. Campbell said. “And, hopefully, they invest well, because otherwise they’re not going to have enough money.”
School obligations
School board member Chris Murray, long concerned with the growing obligations to retirees, pointed to the recent negotiations with the teachers union.
Although teachers are on the state’s pension system, Ridgefield’s school board was worried by its other post-employment benefits liability to the teachers. The board was criticized for the raises it agreed to give teachers, but what it got in exchange were contract changes that limit the town’s exposure for future retiree health benefits.
“We’re on the road to solving that problem,” Mr. Murray said. “In negotiations we used an expense item we do control, salaries, to negotiate away one we don’t control, which is OPEB.”
While they felt comfortable that Ridgefield’s debt and retirement obligations were under control, the local officials agreed that many municipalities and states — with Connecticut quite high on the list — have real worries about maintaining solvency.
“This is a serious problem,” Mr. Campbell warned.
“Most of America’s in pretty good shape, or at least can take care of itself, but there are some serious ones out there…
“The American public thinks the debt thing’s no big deal,” he said.
“We’ve got to get the nation’s budget under control, and then our state and municipal budgets.”
Mr. Murray had an analytical outlook.
“There is a pattern,” he said. “Public sector unions support politicians who then negotiate generous and ultimately unsustainable labor agreements.
“Politicians promise more than they can deliver. Subsequently, they routinely fail to fund the obligations. Eventually, that stops being possible and tradeoffs (reducing current services to fund retiree obligations) become unavoidable. Just look at Detroit.”