Milford mulls tax increase and sources for police station funding

MILFORD — The city’s Finance and Public Works Committee met Monday to discuss the need for a tax increase and potential funding sources for a new police station.

“We have a balanced budget,” said Lou Vitola, Milford’s finance director, “but there are some issues with the structural balance in the general fund.”

A budget is not balanced when operating expenditures cannot be met with reliable annually occurring revenues, according to a letter Mr. Vitola sent to the City Council based in part on the findings of City Manager Mark Whitfield.

“The (fiscal year 2021) General Fund operating expenditure budget featured an over-reliance on reserve funding, an over-dependence on realty transfer tax receipts, the avoidance or deferral of capital needs and indirect interfund transfers,” the letter says.

Although the city’s revenue from property taxes has grown with the increased number of parcels in town, the increase has not been enough to keep up with Milford’s growing slate of expenses.

“Growth in parcel count is really what has been driving the growth in property tax (yield) year over year, but that has stagnated,” Mr. Vitola said. “Even though things are looking good now in 2020, heading into 2021, the growth to the parcel count has pretty much leveled off.”

He said it has been 13 years since the tax rate in Milford was raised and that the city is expecting cumulative windfall of $2.5 million in the general fund for fiscal year 2022.

“We’d like to try to reverse that trend in the general fund rather than corrode those preserves,” Mr. Vitola said. “Long story short, we really do need a tax increase now for the existing things that have already been approved.”

Vice Mayor Jason James and Councilman Dan Marabello, both members of the committee, agreed with Mr. Vitola’s analysis.

“If we don’t do something now, it’s only going to get worse,” Vice Mayor James said. “We’re talking about an accumulation over time that got us to this point, and it’s not a pretty picture.”

Councilman Marabello said he wishes the city had begun dealing with the situation earlier.

“If we had raised it at only a penny a year, we would be in much better shape today,” he said of property tax rates. “The people would not have blinked at the increase per year.”

Although Mr. Vitola said the possible tax increase was “food for thought” and that no action was “required or being solicited,” his letter to the council outlined what actions could be taken to remedy the situation.

“In order to meet the minimum requirements simply to balance the (fiscal year 2022) General Fund operating budget, an additional $1 million in reliable, annually recurring property tax revenue is critical,” Mr. Vitola said in the letter.

“The revenue requirement equates to a tax rate increase of 10.7 cents per $100 of assessed value, or about $12.50 for the average parcel value,” the letter continued.

If the city wanted to remedy the situation in a single year, Mr. Vitola’s letter says the city would need to charge an extra 26.8 cents per $100 of assessed value on parcels.

The committee also discussed different places from which to borrow money to potentially build a new police station.

“I’ve been in discussion with our public finance advisers and bond council about funding options for the police facility,” Mr. Vitola said. “We’re open to a number of different financing options, but we’re unable to finalize anything now.”

He explained to the committee the three borrowing options he and the city are considering.

“We could do a public sale of debt,” he said. “We could also do a private sale directly to a commercial bank.”

He said the city would also be eligible to borrow money from the U.S. Department of Agriculture via its Rural Development department.

“The USDA is able to offer financing for facility construction, and something like a police facility is right up their alley,” he said.

Mr. Vitola said he was “excited” about the prospect of borrowing from the USDA.

“The USDA financing right now seems to be the lowest rate and the most flexible terms with the least cost of issuance,” he said. “That’s just after a preliminary investigation.”

Mr. Vitola said he is not bullish on the prospect of borrowing from a local bank.

“I’m going to investigate the commercial bank, private placement debt option because it’s my duty,” he said. “(But) I really think it’s either going to be the public debt sale … or the USDA funding.”

While borrowing from a bank would likely result in low interest at first, Mr. Vitola said commercial banks can only guarantee their interest rates for 10 years at a time.

Because the city needs to borrow money over the course of several decades, this wouldn’t work well, he added.

“The annual payments would be great with the bank for the first 10 years, but we’d have to build in the knowledge that we would certainly have to refinance after 10 years,” he said.

Mr. Vitola said he assumes that because interest rates are at historic lows, they’re likely to be higher in 10 years, which means the city could end up having to pay more in interest down the road.

He said that the amortization period for the USDA loan could be as long as 40 years.

“We’ll pay more interest in total, but it will be a smaller amount each year, which would be beneficial to the taxpayers,” he said.

Mr. Vitola explained that spreading the additional tax burden out over a longer period of time would allow the city to keep the property tax increase lower for residents on an annual basis.

“If we could do USDA (for) 40 years, plus address what’s hitting the general fund, that would be the smoothest impact to the taxpayers,” Mr. Vitola said.

The finance director said the USDA loan “could be a way to squeeze (the expected increase in tax rates) down, so that the impact of the fiscal year 2022 items that are going to be on our plate, plus the police facility, could be something that’s more manageable.”