The Holyoke City Council is scheduled to set the new tax rate Tuesday, if councilors balance the budget the night before.
HOLYOKE — The merits of raiding the city's rainy day fund to balance the budget spurred much of the debate Thursday among officials considering millions in proposed transfers, with time tight.
Mayor Alex B. Morse has called a special meeting of the City Council for Monday at 6:30 p.m. at City Hall in the hope the council will act on the transfers and balance the budget.
The budget must be balanced in order for the City Council to set the new tax rate on Tuesday at 7 p.m. at City Hall.
The transfers are for the wastewater treatment plant, the fire and police departments and other expenses.
Morse has recommended the council approve a one-time tapping of the $11.5 million stabilization, or rainy day, fund for $790,697 to pay for property tax abatements to Macy's department store and Verizon.
The stabilization fund is by definition used rarely. But this step would be a one-time expense and leave the city's bond rating and financial status in the eyes of Wall Street unchanged, Morse and City Treasurer Jon D. Lumbra said in a meeting of the council's Finance Committee at City Hall.
Using money from the stabilization fund for the $790,697 budget balancing instead of further exploiting free cash would let the city head into the back half of the fiscal year with about $1.5 million in free cash to deal with snowstorms, overtime for employees and other expenses, officials said.
"This request is the best financial move for the city at this time," Morse said.
But council President Kevin A. Jourdain said the issue highlights the need to reduce spending and carve the $790,697 out of the general fund instead of tapping the stabilization fund.
"If we are (using the stabilization fund), then we're not making the difficult decisions that have to be made," Jourdain said. "We need to inject fiscal austerity now and not wait. Now."
The other option is to use free cash for the $790,697. Free cash is money the city has left over from the previous fiscal year. The state Department of Revenue in September certified that Holyoke's free cash for the current fiscal year was nearly $4.5 million.
But some officials are concerned the free cash might be stretched thinner than in other years. One reason is property values have decreased – which the Board of Assessors will cover in the annual tax classification public hearing at 5:30 p.m. on Tuesday – and the lower the value a property has, the lower the taxes the city can reap in revenue unless the tax rate is increased.
If all of the proposed transfers are approved, the free cash total would drop to $727,000, City Auditor Brian G. Smith said. A few major snowstorms and the resulting overtime costs for employees would consume that, officials said.
That's why the decision was made to use the stabilization fund to cushion the city for the rest of the fiscal year by leaving free cash at about $1.5 million instead of less than half that, Morse said.
"It was not done arbitrarily," Morse said.
But Jourdain said the bind shows the need to cut general fund spending and resist using the stabilization fund.
"We need to do business in a different way," Jourdain said.