Federal Aid Arrives as Shoreline Towns Report Budget Surpluses

Despite fears that the COVID-19 pandemic would leave towns scrambling to cover costs, Old Saybrook and East Lyme are each ending the 2020-21 fiscal year with more than $1 million of budget surplus.  

Old Saybrook finance director Lee Ann Palladino said at a Board of Selectmen meeting on Wednesday that the town’s $1.5 million surplus is the result of strong revenues and an overall drop in expenses. 

Anna Johnson, the finance director in East Lyme, described a similar situation. She said East Lyme had a $1.15 million surplus that would be placed in the town’s unassigned fund.

Westbrook will also end the 2021 fiscal year with a surplus, but Donna Castracane, the town’s finance director, wasn’t able to say yet just how much.

These surpluses come as towns are preparing for yet another round of funding from the federal government, including payments for “lost revenue,” even when revenues were stable, or higher, in comparison to fiscal year 2019.  

According to rules adopted by the federal government, towns are eligible for compensation if revenues increased by less than 4.1 percent from FY 2019 to 2020.

By this standard, Palladino said, $1.8 million of the $2.9 million that Old Saybrook will receive in federal funds will be designated as compensation for “lost revenue,” even though the town’s 2020 revenues were actually $1 million higher than the previous year.

The $1.8 million of reimbursed lost revenue allows the town more flexibility in terms of how the money is spent compared to aid that can only be used to pay for broadband, water or sewer infrastructure, as premium pay for essential workers or to respond to the public health emergency, including assistance to individuals or small businesses. 

“Lost revenue” can be used for other purposes, including additional infrastructure maintenance or even building new infrastructure.   

East Lyme will receive a total of $5.46 million in federal funds and Westbrook will receive about $2 million — but the fraction that is “lost revenue” has not yet been finalized. 

“It was because of COVID”   

Palladino said that taxes in Old Saybrook came in almost exactly as she’d expected, and that the town brought in $700,000 more than they had expected in revenue. 

Both Palladino and Johnson said that a booming housing market — which means higher conveyance taxes — contributed to the strong revenue. A larger number of people than usual were also requesting building permits. 

“We did notice quite an increase [in building permits] last fiscal year, and that’s primarily due to people investing in their homes because they weren’t traveling,” said Johnson.

Castracane said that an increase in building permits and town clerk fees, as well as reimbursements for COVID-19 expenses, left the town with just over $1 million more in revenues than expected. She said the town also collected a higher percentage of taxes than they had expected. 

Johnson said East Lyme spent about $1.2 million less than their projected expenditures, in part due to the pandemic. The town, for example, delayed hiring a program coordinator for the aging when the pandemic halted the programming. 

Palladino said that Old Saybrook saved $850,000 in expenses because of paving that wasn’t done, COVID-related closures of the library and a reorganization of the land use department.

“Even though we did have a large surplus, it was because of COVID, both in terms of revenues as well as in terms of expenditures,” said Palladino.

Old Saybrook First Selectman Carl Fortuna suggested at the meeting that $500,000 of the $1.5 million surplus be put toward capital projects, and that half of that be directed toward Parks and Recreation. An additional $460,000 would be designated for the town’s rainy day fund.

The Old Saybrook Board of Finance and the Board of Selectmen are also recommending that $250,000 be put aside for the town’s pension plan, $150,000 for paving and $200,000 for sidewalk construction. There will be an Old Saybrook town meeting on August 24 to vote on the recommendations.

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