With a credit crisis stalling construction projects nationwide, Mayor David Cohen expressed confidence this week that the economic downturn would not slow down city building projects, including the $200 million high school on Walnut Street.
"I don't expect the economy to affect the Newton North project," Cohen said. He added that neither would the financial crisis affect other projects the city is looking to undertake.
However, Cohen was not as confident about the city's ability to collect all of a $22.9 million in projected state aid, which could result in cuts or the need to dip into the city's saving account.
"Where the economic downturn has the biggest effect will be on the operating budget," Cohen said, referring to reports that Gov. Deval Patrick may slash aid to cities and towns.
"That is why I have held the line on spending despite the cries from numerous corners to increase spending on various items," Cohen said. "We must maintain fiscal responsibility and hold the line on the 2009 operating budget."
The city is sitting on more than $11 million in unallocated cash that the mayor has refused to spend to restore cuts. Instead, much of the money is going to underbudgeted accounts such as snow and ice removal, overtime, energy and capital projects such as Newton North.
Massachusetts Municipal Association Executive Geoff Beckwith agreed with Cohen about the financial crisis' potential impact on local aid.
"The recession is actually widening a structural budget gap for the state," he said. "If the state is facing its own fiscal crisis, it makes local aid gains difficult to achieve. There is some speculation as to whether the governor will be cutting the state budget. The last time that happened was in 2003, and many communities never recovered."
Beckwith suspects the communities that will be hit the hardest will be those that are financing capital projects.
"Nationally, the access to capital is really clamped down," he said. "For those communities who had been looking at issuing bonds, there is an upward pressure on what their cost would be."
Newton secured low interest rates for bonds issued for the Newton North High School last March and is not scheduled to issue more until March 2009.
The state has assured the city that it can still count on a promised $46.5 million grant and a low interest loan for North, even as the governor eyes other cuts.
"The (Massachusetts School Building Authority's) financial obligations to school construction projects will be met despite the current economic turmoil," said authority spokesman Carrie Sullivan.
But the mayor's office is behind schedule on collecting the $46.5 million state grant, due to a delay in processing the required paperwork. The city originally planned on receiving the money this month.
City Comptroller Dave Wilkinson said that delay could put Newton in the position of dipping into the general fund to pay for the high school.
"It's really not an option to sell more bonds or notes for the Newton North project right now," Wilkinson said.
The city has $11 million available for Newton North and, once that money runs out, Cohen would need to come up with money from other sources, until the city issues new bonds in March. "We may have to dip into cash that would otherwise be invested."
The executive department is not concerned about the timing of the $46.5 million grant.
"We have a flexible schedule for when we receive the grant money," said Jeremy Solomon, the mayor's spokesman. "(The timing of the grant) is not a big deal, as long as it comes before the next bond sale in March. The money borrowed in June for the high school will last until December." At which point, the city would dip into the general fund, which is "unlikely," according to Solomon.
Asked whether taxpayers should be concerned about the effect of Wall Street on the city of Newton, Cohen responded, "We all should be concerned. This is an unprecedented series of economic events on the state level and what it highlights is the increased importance of the surplus and reserves we have, and not spending money we don't have in the face of a very serious economic situation."
Chrissie Long can be reached at clong@cnc.com.
