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ESSEX — To prepare for a possible cash flow disruption, the Essex Board of Selectmen voted to recommend that the town apply for a $5 million tax anticipation note.
“The possibility that we use it is remote and I know some people are concerned that this is just a way to borrow money, but it is really just a very conservative approach to managing cash flow,” said First Selectman Norm Needleman at Wednesday’s selectman meeting. “It is just to smooth out cash flow, it will not impact the budget.”
Prior to applying for the tax anticipation notes, the Board of Finance will review the recommendation and residents will have to approve the measure in a town meeting currently scheduled for July 1.
“Setting this facility up doesn’t mean that we will be borrowing anything, but I want to be prepared to not run into a deficit cash wise if we are in that position,” Needleman said.
Between July and September, Essex spends about 34 percent of the town’s more than $24 million budget, according to Kelly Sterner, the finance director for Essex.
But in an effort to cushion the financial impact of state measures mandated to slow the spread of COVID-19, this year residents are able to apply for a 90-day deferment of their usual taxes due on July 1.
That means that the 55 percent of revenue that typically comes into town hall on that date could be significantly reduced.
If a significantly lower percentage of taxes are paid on July 1, then the town could face a shortfall even after accounting for its approximately $5 million rainy day fund.
“I think it’s important that we get out into the public and explain that applying for $5 million does not mean using $5 million. It’s putting the mechanism in place in case it is needed,” said Joseph Fasi, the town lawyer. “You can’t bond overnight.”
Some town residents, however, expressed concern that applying for a $5 million tax anticipation note would be like giving the town a blank check.
“I understand the board’s perspective on wanting to lay the groundwork for this, but I am concerned about setting the mechanism in place without using the rainy day fund first,” said resident Phil Beckman. “From the taxpayer perspective, it is a little bit like a blank check … maybe we could take a look at this later. It certainly doesn’t take three months to put the bonding into action.”
Residents also reminded the Board of Selectmen that this is a time of financial hardship for many residents.
“This is a time for financial prudence for everyone, including town government,” said resident Carolyn Field. “We do have to be very aware for many people that this has been a major financial blow”
According to the Board of Selectmen the bonding would not impact the current budget.