LYNN — The City Council gave Mayor Thomas M. McGee the go-ahead on Tuesday night to borrow the remaining $4.5 million available from the city’s bailout loan, which is half a million dollars more than officials anticipated needing to balance this year’s budget.
The council voted unanimously to allow McGee to use the remainder of the $14 million the city will borrow to close its budget deficit.
The consequences of not authorizing the $4.5 million, McGee said, would have been not having a balanced budget, not being able to set the tax rate and not being able to take in the revenue from those tax bills being sent out to residents in December.
“We didn’t get here overnight and our fiscal stability is not going to be solved overnight either,” McGee said. “I believe this will give us the best chance to move forward toward a stable, stronger budget in this cycle and really help us plan for our future.”
Although the loan will help the city close its budget deficit for FY18 and FY19, officials are still faced with the challenge of balancing its FY20 budget when funds from the legislation will not be available. McGee said there are some tough challenges that lie ahead for FY20.
The loan was given to the city through legislation, a home rule petition approved earlier this year by the council, state legislature, and signed off on by Gov. Charlie Baker.
The city had to borrow $9.5 million to balance its fiscal year 2018 budget, and over the summer, it was projected that officials would have to borrow $4 million for the FY19 budget.
The extra funds were needed because it became clear upon review that several budget items had changed since the city’s $319.5 million budget was approved over the summer.
The healthcare trusts deficit was double, or $400,000 more than what was budgeted, due to charges incurred in June that the city didn’t receive the bills for until late July or early August, and offsetting an increase in state aid through the state budget was the city having to pay back money through other means such as charter school tuition and school choice tuitions.
In all, the city was left about $1.1 million short.
Sean Cronin, senior deputy commissioner of local services for the Department of Revenue, attributes part of the city’s current poor financial state to it not meeting its net school spending requirement for years and debt becoming too extensive from underfunding the cost of health insurance for its employees got back several years.
He said the city will continue to see budget pressure from factors such as increasing school enrollment, which has translated to an increase of more than 3,400 students since the 2006-07 school year, and the city’s significant capital needs.
Cronin provided the council with a preliminary review of FY20, which when weighing potential increases in revenue and increased expenses, the city could be left with a budget gap of more than $5 million.
A major increase in expenses could be collective bargaining agreements, which were not funded in FY19, according to Cronin.
Other stressors include the city’s little reserve funds and only $1 million available in free cash, Cronin said.
Some strategies he said the city could explore to get some relief include seriously looking at its options on health insurance, staffing levels such as for police, current service delivery models, and fee structures.
Michael Bertino, the city’s chief financial officer, said officials are committed to helping the city turn around, but acknowledged that anytime a city accepts deficit funding or aid, it’s admitting that it’s failed. He said the city was given the opportunity to take on a state receiver to dig itself out of its financial hole, but refused.
“The state is giving us the opportunity to bail ourselves out — normally, they would send us a receiver to pay our bills,” said City Council President Darren Cyr. “They’re giving us the opportunity to do it ourselves and I think we’re going to do that.”
Cyr said officials initially talked about borrowing as much as $23 million to get themselves out of FY18, FY19 and FY20, but the ultimate feeling was that $14 million would be enough.
“Essentially, we were given a $14 million lifeline from the state of Massachusetts,” Bertino said. “This is a serious issue. We’re going to work together to get out of this fiscal situation.”
The Council also approved a $2.35 million LED bond to pay the costs of converting the city’s non-ornamental street lights to LED fixtures. Bertino said the projected savings from the conversion will pay the bond off in three years.
“Down the road, we’re going to see savings and this is what we need to do to help out with deficit savings,” said Ward 1 Councilor Wayne Lozzi.