West Haven could lose grants, credit rating amid financial scandal
The financial scandal that has engulfed West Haven over the past year has cost the city access to state grant funding and is now threatening the municipality’s ability to borrow money on its own for future capital projects.
West Haven, a coastal city of roughly 55,000 residents, was hoping earlier this year to receive state assistance for a local flooding and stormwater project that would have been funded through the State Bond Commission.
But before that proposal could even be considered, Gov. Ned Lamont’s administration informed West Haven’s legislative delegation that it was reluctant to allocate any money to the city in the wake of an ongoing criminal investigation and several other serious missteps by the city’s leadership.
The state’s unwillingness to borrow money on behalf of West Haven is one of the more prominent examples to date of how the mismanagement of the city’s finances has affected local residents.
Other similarly sized municipalities received significant funding from the state as part of this year’s scheduled bond commission meetings.
East Hartford got $1 million for the town’s parks, pools and other recreational facilities. Milford got $750,000 to help build a walkway along the Wepawaug River. And Middletown got $2 million to redevelop a downtown structure into affordable housing and office space for business startups.
But the city government in West Haven has been shut off from that largess since last December, when the bond commission approved more than $4 million for West Haven.
State Rep. Dorinda Borer, D-West Haven, said members of the state bond commission told her in early spring that they could not, in good conscience, approve additional grants to the West Haven government at the moment. The events of the past year, they explained, raise too many concerns about the city’s ability to manage its finances.
Four people, including former state Democratic lawmaker Michael DiMassa, have been charged by federal prosecutors for allegedly stealing a combined $1.2 million from the city’s coffers. An audit commissioned by the state showed the city’s leadership misspent three quarters of the $1.1 million in federal pandemic relief funding they received in late 2020.
Meanwhile, the state Municipal Accountability Review Board — which has been charged with overseeing West Haven’s budget — has continued to warn the city about its inadequate financial controls and the perceived culture in city hall that allows those problems to persist.
Those circumstances, Borer said, have made it difficult for her to argue for funding for the city government, even though she serves as a chair of the legislature’s bonding subcommittee.
Borer said she agreed with the bond commission’s decision to temporarily halt the funding while West Haven officials work to put the city’s finances back in order.
“Yes, it’s frustrating. I would say the entire situation is frustrating,” she said. “It’s been a challenge to balance assisting the city that I represent — and that I care deeply about — and also recognizing that there are concerns and that there is a need for a pause.”
In recent months, Borer said, she has tried to find a workaround that will still allow her constituents to benefit from state borrowing. She has encouraged the state to allocate grants to local nonprofits and social service providers in West Haven, in place of the city.
The bond commission is prepared to approve $680,992 on Friday for the West Haven Community House, which runs after-school programs for children and provides housing for adults with mental disabilities.
‘A whole different ball game’
The state bond commission isn’t the only entity at the moment that is deliberating over whether it’s safe to invest money in West Haven.
Earlier this month, the city was also placed on a watch by Moodys, one of the three big credit rating agencies in the country.
The agency notified West Haven’s leadership on July 20 that it could withdraw the city’s bond rating if the municipality is unable to provide it with more up-to-date financial information over the next month.
If that were to happen, it could make it much more difficult, or costly, for West Haven to borrow money on its own.
Scott Jackson, West Haven’s finance director, told the members of MARB this week that he and the rest of the city’s finance department were working to avoid that outcome.
The city, Jackson added, will likely need access to the municipal bond market in the coming years in order to pay for routine municipal projects, such as roads, sidewalk repairs and West Haven’s new high school.
Jackson, who has led West Haven’s finance department since February, did not respond to emailed questions for this story. Neither did West Haven Mayor Nancy Rossi, a Democrat who was reelected to her third term last year.
The primary problem is that the city has yet to complete its annual audit for the fiscal year that ended on June 30, 2021. West Haven was supposed to have that audit finalized by the early part of this year, but with so much turmoil and turnover in city hall, that work was never completed.
The city suffered an even more serious setback this spring when CliftonLarsenAllen, its auditing firm, abruptly dropped West Haven as a client. The city has since hired a new firm, but the accountants at that company do not expect to have the city’s FY2021 audit finished until late this fall. The FY2022 audit wouldn’t be expected until early 2023.
Without the audit, the credit rating agencies and the MARB are struggling to determine what financial condition the city is actually in and whether they can trust the information that the city’s finance department is working from.
The MARB voted earlier this year to place West Haven under the highest level of oversight available to the board. But MARB members warned West Haven’s leadership this week that the state might need to go even further if West Haven has its bond rating revoked or downgraded.
Thomas Hamilton, one of the 10 current members of MARB, said if the city lost its ability to borrow money, it would be “a whole different ball game.”
Hamilton reminded everyone that West Haven’s inability to borrow money at affordable rates helped to land the city under strict state control in the early 1990s.
“That becomes, potentially, a whole different financial crisis that needs to be dealt with,” Hamilton said. “Hopefully we don’t get there. Hopefully you maintain your rating, but if not, that would certainly be a matter of most urgency.”
‘Stern legislative action’
Even without the credit watch, MARB members have openly discussed in recent weeks whether the state needs to fully take over the decision-making in West Haven, effectively stripping the city council and the mayor of the powers that currently remain to them.
In May, Rossi promised that her administration would fully cooperate with the MARB as it further inserted itself into the city’s finances. Yet many members of the oversight board have complained in recent weeks that the city continues to ignore their advice and routinely fails to provide them with documents and information that they request.
The most recent examples are the ethics forms that city employees and West Haven’s elected leaders are supposed to file annually.
Mark Waxenberg, one of the MARB members who is appointed by the governor, asked to review those records to understand the potential conflicts of interest that exist between West Haven officials and city contractors. But he said he’s yet to receive that information.
If that type of holdup persists, Waxenberg suggested the MARB may need to ask state lawmakers to pass special legislation and appoint a board or individual to run the city for the state.
“I think at some point in time, stern legislative action may be in the offing,” Waxenberg said.
Similar legislation, he pointed out, has been used in the past to correct financial problems in Waterbury, Bridgeport and Jewett City, which is a borough of Griswold.
The other members of MARB agreed with Waxenberg’s comments, even if they are not ready to pull the trigger just yet.
Christine Shaw, who represents the state Treasurer’s Office, said there was clearly an “appetite for greater oversight if the city continues to frustrate progress.”
Jeffrey Beckham, the secretary of the Office of Policy and Management, reminded the MARB members that his agency is still in the process of hiring a new financial manager to act as the state’s eyes and ears in West Haven.
But he also warned West Haven’s leaders that the city is on a short leash.
“They are before this board until we let them go,” Beckham said. “If they don’t make progress under this board, we may talk to the general assembly about something sterner.”