MERIDEN —The City Council, after initially considering using a $1.6 million surplus from last fiscal year on a slew of capital items and projects, voted Monday night to instead save the money for future expenses.
The council voted unanimously to put $1 million of the surplus into the city’s health insurance fund, money used to pay for employee insurance claims. The insurance fund is currently underfunded by between $2 million and $2.5 million, according to Councilor Brian Daniels, chairman of the council’s Finance Committee. Finance Director Michael Lupkas said “two or three difficult years of claims” led to the deficit.
The council put the remaining $650,000 into the city’s general fund – or so-called “rainy day fund – which is also currently underfunded. The city has a financial policy to keep the equivalent of at least 8.3 percent, or one month’s worth, of total annual operating costs in the rainy day fund, according to Lupkas.
Based on the city’s total operating budget of roughly $197 million, one month of expenses represents just over $16 million. The rainy day fund is about $1.2 million less than that amount.
The decision came after councilors and top city staff initially contemplated spending the surplus money on a number of capital items and projects after City Manager Tim Coon first reported the surplus in August. The surplus was largely created by savings from the city’s retirement incentive program, according to Coon and Lupkas.
Some councilors floated the idea of using some of the surplus on a new banquet facility at Hunter Golf Course but that project has since been put off. Department heads also suggested capital items, including a police administration vehicle, a city-wide computer replacement and a new splash pad at Hubbard Park.
It’s advantageous for the city to follow its own financial policies and replenish the rainy day fund, Daniels said Monday, because bond rating agencies take that into account when grading the city, A better bond rating, Daniels said, means the city will receive better bonding interest rates for projects down the road, saving money on interest over the life of a bond, typically around 20 years.
The city plans to complete a “$40 million to $60 million” bond sale in the next 12 to 18 months for projects approved in recent years, Daniels said Monday.
“If we want to make sure we borrow money at a very good rate, we got to keep up with our financial policies,” he said.
The council originally planned to gradually cut the $1.2 million gap in its rainy day fund by annually contributing about $450,000 over the next three years. However, the council’s Finance Committee voted last week to expedite that catch-up effort by contributing about $650,000 over the next two years.
At the Finance Committee meeting last week, Lupkas and Coon recommended completely eliminating the rainy day fund gap by moving $1.2 million of the surplus to the fund and allocating the remaining $400,000 to the health insurance fund.
Republican Dan Brunet, vice chairman of the Finance Committee, said he’d rather prioritize the city’s “immediate needs” by putting more money into the health insurance fund, rather than adding to the rainy day fund in hopes of receiving better bond interest rates.
Democratic councilor Cathy Battista agreed.
”While I’d like to see us (replenish the rainy day fund), the real deficit is the health insurance plan,” Battista said at last week’s meeting.
The committee eventually compromised on a “middle ground” by voting to increase the rainy day contribution from $450,000 to $650,000, meaning $1 million will be contributed to the health insurance fund, not $1.2 million as originally proposed.
The council did not discuss the matter before voting to adopt the Finance Committee’s recommendation Monday.