METHUEN — Elected city officials are hitting back against a proposal to borrow up to $10 million to correct a budget deficit, despite warnings from the state that those funds could be necessary in the near future.
Methuen needs to borrow nearly $4 million to pay off a school budget deficit from fiscal year 2018, which ended June 30. The city must submit a home rule petition to the Legislature and then the governor to get approval to borrow the funds, which would be in the form of bonds or notes that would be paid off for up to 10 years.
The latest version of the petition would authorize Methuen to borrow up to $10 million, if necessary, though the city would start with just the amount it needs to right the school budget.
Several City Council and School Committee members expressed qualms with that plan during a joint meeting Tuesday, despite having received a letter from a state Department of Revenue official earlier that day discussing the necessity of the $10 million.
In the letter, Sean Cronin, deputy commissioner for local services within the Revenue Department and Lawrence’s fiscal overseer, breaks down the components of the home rule petition, including the additional borrowing authorization, the creation of a chief administrative and financial officer for the city and the levels of state financial oversight Methuen could receive.
“The City must recognize that it faces a multi-year financial challenge that is greater than the School Department's FY18 deficit,” Cronin wrote.
He goes on to explain the Revenue Department believes Methuen will ultimately need to borrow more than just $4 million, though less than $10 million.
Based on their analysis, state Rep. Linda Dean Campbell, D-Methuen, said Department of Revenue representatives "are certain (Methuen) will need some additional support in the next budget."
Several issues are facing Methuen's fiscal year 2019 budget, which has yet to be passed. Without full information on the costs of police salaries due to an issue with their union contracts, city councilors were unable to pass the full budget before the June 30 deadline. Instead, the city is operating on a one-month, or “1/12,” budget in which salaries are being funded at fiscal year 2018 levels.
Police superiors and city officials agreed on a compromise Tuesday to reduce the financial impact of ranking officers' salaries on the budget. According to the city, the average overall salary increase for superior officers would be about 18.7 percent this year, instead of a nearly 98 percent increase if the contracts had to be honored in full.
Those salaries are still not finalized, however, and Campbell said the state believes they could still adversely affect the city's budget.
Campbell told councilors the state is “monitoring that situation to make sure the city doesn't have to declare bankruptcy.”
Several other factors could prompt the need for more borrowing, including an essentially level-funded school budget. A $1.47 million cut to the School Department's fiscal 2018 budget contributed to its current $3,975,632 deficit, as did cost overruns in special education spending, an issue the state fears could happen again, Campbell said.
Campbell said the city currently lacks the buffer – in funds such as free cash or stabilization – to address budget issues without the possibility of more borrowing. And going back to the state for a second borrowing ask is "unprecedented" and “almost impossible,” she said.
Some councilors and School Board officials said borrowing more than $4 million was not “fiscally responsible.”
“I worry about that and I worry about the impact on the taxpayers for borrowing such a large sum of money,” said School Committee member Susan Nicholson.
Some also called for greater state financial oversight than what is currently being proposed.
Under the home rule petition, Methuen is slated to receive a fiscal stability officer, the lowest form of state oversight in a spectrum that has been established over state intervention into nearly a dozen cities and regional school districts since the 1980s, according to Cronin.
The fiscal stability officer's duties would include recommending sound fiscal policies, assisting in the development of all department budgets and validating all collective bargaining agreements.
Some officials instead favor a finance control board, which would have far more sweeping authority over the city's finances, departments and employees. Examples of that power include controlling the city's budget, having the ability to abolish entire departments, having veto power over every contract on the school and city sides, according to the petition.
Other city officials bristled at the prospect of rushing to approve a document they had no input in.
“The nine of us are going to vote on this and a few years from now people are going to look back at this vote and blame the council for signing a stupid, out-of-control document that we had no clue what it meant,” said East District Councilor Steve Saba.
At his request, the council will meet with an expert Monday to discuss the petition and borrowing process.
As councilors expressed a desire to take their time with the petition, and get public input, Campbell and the mayor's office have repeatedly warned them time is running out to file it. The Legislature only meets in regular session through the end of July, and anything filed after, in informal session, can be derailed by just one dissenting legislator, Campbell said.
The City Council will hold additional meetings on the petition beginning at 6:30 p.m. Monday, July 16, in the Great Hall of the Searles Building, City Hall, 41 Pleasant St.
Follow Lisa Kashinsky on Twitter @lisakashinsky.