When I ran for Mayor, a few years back I had Milford Patch put on the record that Milford was headed for some hard times, and was blissfully unprepared for the road ahead. One of the things I mentioned was the city CAFR's (Comprehensive Audited Financial Results) along with data I compiled from Meredith Whitney's forecast for the Municipal Bond Market. Now, it did not take a Genius to see that Milford was about to have 300M in bond debt according to what the CAFR trends were forecasting. Today, I am writing this blog post to announce that there are events coming that will change the face of our city in ways that are hard to comprehend. There will be sacrifices that will have to be made not by choice or fiscal prudence but rather by “force majeure.” Some will be taken by complete surprise; others will be in denial as the ‘Normalcy Bias’ will be in full effect. However, over time, and like the challenges presented by the Great Depression of 1929, reality will manifest, and blame, confusion and anger will be the new norm for daily life in our Great city of Milford if we do not embrace our last opportunity to act.
Let’s keep in mind what I am talking about here; it’s the combined Global effect of all of our money as it currently exists in banks, it’s our 401K’s, its pension plans, it’s property values, its taxes, interest rates, it’s employment, and it’s the cost of those cherished things we can’t live without such as food and energy.
So let’s get down to it and answer the WHY?
There are Four factors and each are referenced below as they are in the early stages of fruition.
FACTOR ONE: The municipal bond market is currently Imploding just as Meredith Whitney said it would. What this means for Milford is that our days of selling Municipal Bonds to pay for city projects is rapidly coming to an end. The pleasant side effect of a collapsed Bond Market is that interest rates rise making any variable rate interest obligations that much more expensive as is the cost of borrowing new money rises. Milford has 300M in debt and borrows more every year.
FACTOR TWO: The city of Milford is OVER LEVERAGED according to the most recent CAFR. Now most of my pundits will say: “the city is not over levered. Where does it say that?” Well it does not say that expressly, however, it does EXPRESSLY say it in the city balance sheet. By my estimates the city of Milford today is burning through its asset base to the tune of Millions a year. Case in point, the ratio between all Assets, and all liabilities is about 75% in favor of liabilities a number that was 50% just Seven years back. With this factor along with the first now in play, our fiscal problems begin to accelerate. When the CAFR’s balance sheet crosses the point of no return, the City of Milford will have its credit rating Downgraded making its financial problems that much more complicated.
FACTOR THREE: Obamacare kicks in come January 1st. 2014, and with it come all of the increases in the cost of healthcare premiums. Obamacare spares no one, not even Municipalities who are very heavily levered in the healthcare game. The city will be responsible for health coverage of any individual who works a minute over 29Hrs. a week. This is going to create a spike in taxpayer covered healthcare. A very large portion of taxpaying citizens are going to be also shedding their income to meet these new criteria, and thus far, there are no affordable options under the IRS offering. This, according to the economic principles of Game Theory, will result in a costly compliance mess at a time when the city will be looking to the taxpayers for additional tax increases from a public who themselves will be in a crisis of their own.
FACTOR FOUR (The Perfect Storm): As the Bond Market continues to deleverage and seek equilibrium, interest rates are going to spike, especially so without the FED intervening. Gresham’s law factually States that the “Good Money will eventually chase out the bad money”, therefore it’s safe to say that the FED intervention has exhausted itself and their influence is waning, When interest rates inevitably spike, the Stock Market will begin to stagnate and decline, as will the Real Estate Market of which depends on cheap money and interest rates to keep monthly payments affordable for new buyers. This, in Municipal terms, translates to lower property values, degradation of the Asset base as referenced on the city balance sheet, and a more dramatic shift in the Mill rate, as opposed to real property values. This also impacts the Conveyance Tax. When fewer houses sell, or when real estate in general sells at lower prices, this always results in fewer taxes to the city.
These issues are hopefully nothing that should come as a surprise to our city leaders; I would think they would have prepared for this, given all of the uncertainty in the markets, the world, and the surreal nature of eventualities like the 2008 banking crisis becoming a bitter reality.
There is still time, and there are still solutions, and courses of action that can be taken to abate these future challenges. Furthermore, these solutions can be attained without threatening the rights of individual property owners, with excessive taxation burdens, or dramatic austerity measures that go far beyond the ones we have already endured.
The time to think about Milford’s future is now. We should really think about what it is that we wish to give up more than we have done already. As many may know or remember we have given up two bulk Pickups, there is talk about rethinking the city Dog Pound, there is also talk about selling or leasing properties. All of this is certainly a start; however, it pales in comparison to the austerity that will be required. Milford may need to consider shuttering some lower level schools, combining high schools, selling off or leasing real estate, enter into discussions of early retirements, ending or reducing pension benefits or firing non-essential personnel like the “Open Space Manager” or “Energy Czar.”
Moving forward, and as a citizen of Milford, I expect that these issues be debated now, not when it’s happening, but right now in order to have some reasonable solutions carefully thought out ahead of time. Let’s be clear, NO ONE is going to like the Austerity coming right at us, and I promise many countries around the world have ongoing daily demonstrations whereby millions of people take to the streets to express their discord. To dismiss this responsibility as cavalier, or a ‘nonevent’ because there is no problem you can foresee at the moment is not only irresponsible but its terrible leadership. I hope and pray someone is listening.
Rocco J. Frank Jr.
Milford Independent Party
