Deep River Readies for Shortfall in Tax Revenue
The Town of Deep River is exploring the possibility of borrowing money to cover operating expenses at the start of the next fiscal year as a result of offering taxpayers a lower interest rate on delinquent taxes and expected delays in tax payments due to the new coronavirus (COVID-19) pandemic.
The lower interest rate of 0.25 percent a month, or 3 percent a year, for 90 days only, was an option given to municipalities under Governor Ned Lamont’s Executive Orders 7s and 7w. Deep River adopted the lower-interest-rate program at a regular Board of Selectman (BOS) meeting on April 14.
The municipal bond, or tax anticipation note (TAN), was discussed at the regular meetings of the BOS and Board of Finance (BOF) held by videoconference on April 28. A TAN is a municipal bond in which payments are secured by future tax revenue.
“As a result of that [lower interest program] and the economic downturn, we are anticipating at least a 30-day gap in revenues starting in July and running through July, August, and September. Oct. 2 is when the 90 days of that low-interest-rate program ends. We’re working on how much money we might be short,” Deep River First Selectman Angus McDonald said at the meeting.
McDonald indicated at the BOS meeting that the TAN would be for a short period of time, and that it would be paid back in full once the taxes are paid in the fall.
“We anticipate that we will have a shortfall,” said McDonald. “Our reserve fund is close to where it is supposed to be, but not enough to go three months. We are hopeful we can get 90 or 180 days based on revenue [for the TAN]. It would be paid back as soon as revenue comes in. It shouldn’t cost us anything other than interest and the cost of the bond.”
Selectman Duane Gates stressed the importance of letting “our citizens know that it’s for the cash flow for the taxes that we anticipate being slow coming in [and that] we aren’t just going to go take a loan out to have a loan,” he said.
“I would hope that those in town that are able to pay their taxes on time do because it’s important for us to keep the town going,” said Selectman James Olson at the BOS meeting. “We understand if they put it off for 90 days, [but] there’s a lot of people that can pay and we hope that they do because, again, the town needs to keep financially going.”
The amount and timeline for adopting the TAN was discussed further at the BOF meeting, which followed the BOS meeting.
Deep River’s TAN, which McDonald estimated at the BOF meeting to be $4 million, or three months of the town’s operating budget, would have a line item in the town’s fiscal year 2020–’21 budget.
“I think we would borrow in July,” said McDonald. “I would like to have the resolution passed and ready so that by July 1…I don’t think we can do it before July 1.”
In order to proceed with the borrowing, the BOS would need to adopt the resolution and send it to the BOF for final approval.
The next regular BOF meeting is on Monday, May 18, to vote on the budget and set the mill rate. The following regular meeting of the BOF is Tuesday, May 26, which is when the McDonald anticipates having further details on the TAN.
“That is when I expect to have better information,” said McDonald. “I think it is important that we do this thoughtfully with as much pre-borrowing information as we can.”