Don’t imperil municipal nest eggs

Just as with the rest of us, the lower a municipality’s — or state’s — credit rating, the higher the interest rate on borrowed money.

You can get only so much blood from a stone, and Connecticut’s struggling cities need protection from those who would keep testing that limit.

Like the rest of us, municipalities try to keep a little something tucked away to prevent calamity from an unexpected expense.

Beyond the pot of income needed to pay expenses during a fiscal year, they try to squirrel money away in what’s called the “fund balance,” money that’s not specifically earmarked.

Some are more successful than others. For the sake of discussion, we’ll say the “others” are troubled Connecticut cities like Bridgeport and Hartford.

In any state community, the preponderance of annual costs is fixed, including salaries and benefits.

Those are matters that municipalities periodically have to negotiate with their labor unions. When parties fail to agree at the bargaining table, the matter moves into a process that ultimately could involve the binding decision of an arbitrator. Among the factors an arbitrator will consider before issuing a decision, is a municipality’s financial ability, including its fund balance.

A bill — Senate Bill 421 — that would protect cities’ fund balances — up to a point — is pending in the state legislature.

It is eminently reasonable and forward thinking. Essentially, if a city’s fund balance is 15 percent, or less, of that year’s operating budget, an arbitrator could not include that balance in calculating a municipality’s ability to fund a labor agreement.

This was one of the recommendations proposed in the 67-page report by the legislatively appointed Connecticut Commission on Fiscal Stability and Economic Growth, along with a provision that would change the arbitration system. As it stands, arbitrators choose one of the “last best offers” put forward by the parties. The commission recommended giving the arbitrator the right to go somewhere in between.

In addition to fairness, there is another compelling reason to let municipalities keep their fund balances as healthy as possible: credit-rating agencies, like Moody’s and Standard and Poor’s, prefer to see robust fund balances.

Credit ratings are important. Just as with the rest of us, the lower a municipality’s — or state’s — credit rating, the higher the interest rate on borrowed money. In some circumstances, the higher interest rate may force the delay or cancellation of a project in the public’s interest.

The Connecticut Conference of Municipalities, the advocacy group for the state’s 169 municipalities, is pushing passage of the bill.

“Connecticut faces an unprecedented credit rating crisis, with Moody’s questioning the ratings of 26 additional cities and towns, adding to 25 already with negative outlooks,” said Joe DeLong, CCM executive director.

We hope the legislature will recognize that the purpose of a fund balance is to leave a community prepared to deal with an unanticipated expense or calamitous development.

It should not be part of the equation in contract negotiations, particularly those arbitrated by people who don’t live in the community.