State borrowing plan worries towns

The announcement Thursday that the state is borrowing money to meet its obligations to municipalities has some local leaders on edge.According to State Treasurer Timothy Cahill, the state has to borrow money at an unusually high interest rate and tap into its rainy day fund to the tune of $1.3 billion in order to make scheduled quarterly payments to cities and towns in the commonwealth.By doing so, Mayor Edward J. Clancy Jr. predicted a “financial free-fall” of the city of Lynn’s economy and reductions across the board.”Fifty-six percent of the city’s budget and 7 percent of the school’s budget is dependent on grant money and federal funding,” he said. “So services would definitely have to be cut, and the most substantial amount of money would come from the schools, police and fire budgets if this happens.”Clancy said cuts and service reductions are virtually inevitable due to the state of the country’s economic downfall, but stressed that any form of reductions would have a terrible impact.”Any cut hurts,” he said. “But given everything that people are saying internationally, nationally, in the state and locally, what else can you do?”Saugus Town Manager Andrew Bisignani said the payment communities are scheduled to receive next week is a quarterly payment that is used to fund local services.”It doesn’t matter to me where they get the money,” he said. “The state has made a commitment to us on the cherry sheet and the important thing is we get that money. The interest the state pays comes out of their budget not ours. Although I suppose we all pay one way or another down the road.”Swampscott Town Administrator Andrew Maylor said this appears to be part of an “ongoing erosion of the state financial condition.””I believe it is clear the state is sending the message to communities that at some point during the year this may affect you,” he said. “We are going to begin a dialog next week on the best way to prepare for future budget reductions. We’ve received enough signals from the state the mid-year budget reductions could be possible.”According to Cahill, the problems the state is facing meeting its obligations to communities is a result of the problems on Wall Street and it could be the first of some tough financial decisions for lawmakers. On Wednesday, Cahill said expensive initiatives would need to be scaled back including some of Gov. Deval Patrick’s priorities, which include expanded pre-kindergarten, bridge repairs and health care.Maylor said he is bracing town officials and department heads to prepare for the worst.”From my perspective if state circumstances are such that it’s unable to make a significant payment to municipalities it implies fiscal circumstances are worse than we’re hearing about,” Maylor said.Bisignani added the news the state has to borrow money at a higher interest rate to meet its obligations to cities and towns is a little unnerving.”Where they get the money may have implications down the road,” he said. “Everything I’m hearing right now is making me nervous. The longer we wait in the fiscal year the more difficult it is to make cuts.”