BRIDGEPORT, Conn. -- The city that became famous a year ago as the largest ever to seek bankcruptcy protection this week began a push to balance its budget before its fiscal year ends June 30.
The city faces a gap of about $6.5 million, according to Jerome I. Baron, the city'a finance director.
But Mr. Baron, who was hired in late April by Mayor Joseph P. Ganim, added he had not yet ascertained the exact size of the gap.
The city's bankruptcy petition was rejected last August by a federal judge who said the city did not meet an insolvency requirement for municipal debtors. Mr. Ganim, who was elected in November after criticizing the bankcruptcy petition filed by his predecessor, has withdrawn a pending appeal by the city.
But Although the judge found Bridgeport too rich for bankruptcy, the city still faces a budget gap. State law prohibits municipalities from running unbalanced budgets.
To close the gap, the city plans to auction off liens on some 1,200 properties whose owners owe property taxes, in some cases dating back to 1979. The overdue taxes total $12 million, according to former city finance director Richard V. Robinson, who is working on the property lien sale as a consultant.
The city's past permissiveness made it an easy target, Mr. Robinson said, particularly for the delinquent owners of roughly 400 commercial properties. "They chose not to pay the city because it was the least likely of all parties that they owned money to to come after them," he said.
For the city's budget, the lien sales have become essential as time runs out. "I don't know what they need to balance the budget," Mr. Robinson said, "but without [the sales], it will go unbalanced."
The city had faced a budget gap this year of about $18 million in its $320 million budget. Mr. Robinson said most of the gap was closed through cost cuts, increased zeal in tax collections, and concessions from city workers.
The lien sale, scheduled for June 29 and 30, is authorized under state law, although Mr. Robinson said that Bridgeport's approach to the auction was unprecedented in size and complexity. Bidders will have to ante up at least an amount equal to past due taxes on the properties, plus interest, and the cost of sale.
In exhange, the city will be able to recoup the overdue taxes plus 18% interest from the delinquent property owners for up to a year. At that point, the lien holders would be able to seize the underlying property if they had not recieved payment.
Mr. Robinson said the city was working on assembling the 1,200 properties, which could attract the packages, which could attract the interest of large investors such as banks, real estate investment trusts, or other institutional investors.
Selling the properties individually is "riskier," he said. 'You don't know if somebody's going to bid on every property."
On Monday, Mr. Robinson and other city workers sent out the last batch of roughly 8,000 notices that must, under state law, be sent to property owners and lien holders four weeks before the liens can be auctioned.
Mr. Robinson said the investments will not be for the faint of heart. Together with Fleet/Norstar Securities Inc., financial consultant on the transaction, the city will be asking buyers to pay up for real estate in a city that symblizes urban economic decay.
"Given Bridgeport's reputation and fiscal plight," he said, "some see that that as a leap of faith. Others see that as just being a good investment.
"You have to have faith that the city is going to turn itself around," he added.
Mr. Barron said Monday that the lien sales are expected to raise about $6 million, or just enough to close the budget gap for the current fiscal year.
But Mr. Robinson, who said he would ultimately be paid for his services through Fleet/Norstar, estimated that the proceeds could be substantially higher, raising as much as $10 million.
"We had initially taken a very conservative approach in the amount committed for purpose of closing the gap," Mr. Robinson said, referring to an initial commitment of $4.5 million from the sales to close the budget gap.
Preparations will eat into some of the proceeds of the lien sales, Mr. Robinson said.
Costs for title searches, legal services, mailings of notices, mandatory advertisement of the lien sales in The Bridgeport Post, and the cost of the auction itself should total about $500,000, Mr. Robinson said.
Other expenses include the city's bond counsel. Updike, Kelly & Spellacy P.C., which is providing counsel for the deal, and the Florida law firm of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., which is serving as counsel to Fleet/Norstar.
Meanwhile, officials at Standard & Poor's Corp. confirmed Monday that they visited the city last week to assess its credit prospects. The rating agency has assigned a CCC rating to the city's outstanding $77 million of uninsured general obligation bonds, and Richard Marino, a vice president at Standard & Poor's, said they the agency was reviewing the rating for possible upgrade in the next several weeks.
Standard & Poor's lowered its ratings on Bridgeport bonds to CCC from BBB on June 7, shortly after then-Mayor Mary C. Moran revealed that she had filed a petition to shelter the city from its creditors under Chapter 9 of the federal Bankruptcy Code, the section reserved for municipalities.
Moody's lowered its rating for Bridgeport's uninsured GO bonds to B from Baa on June 17.
On Monday, Mr. Robinson said the bankruptcy had harmed the city.
"The bankruptcy did exactly what I said it would: It prevented the city from entering the credit markets and provided for a loss of bond rating," he said. "It damaged the city's reputation, its image, and its fiscal viability.
"If there is a positive side," he added, the historic bankruptcy "showed the distress that urban America is faced with a made Bridgeport the poster child of the cities."
The bankruptcy may continue to prevent the city from issuing new debt in the near future.
According to Standard & Poor's officials, the only new borrowing expected by the city will come from the state revolving fund for clean water projects. The city faces about $300 million in improvements to meet clean water standards, the rating agency officials said.
Any debt issuance by Bridgeport must, under the terms of a state oversight law passed in 1988, be approved by the Bridgeport Financial Review Board, which is headed by William J. Cibes Jr., the top financial official under Gov. Lowell P. Weicker Jr.
At the board's next meeting, slated for today, discussion is expected to focus on the city's proposed fiscal 1993 budget, which includes a $10 million cut in debt service spending, according to Mr. Robinson.
Under a deal under discussion with Gov. Weicker, the state could purchase the city's Beardsley Zoological Gardens Zoo for $40 million, some of which would be used to lessen the debt service burden for the coming fiscal year.
Mr. Robinson, however, said he doubted whether a sale or lease agreement for the zoo could be completed by the coming fiscal year. "They could be years away from that," he said.