The Essex Board of Selectmen set a plan in motion to cover town expenses if there is a delay in tax revenue this year. At its May 6 meeting, it unanimously adopted a resolution for up to $5 million in cash flow borrowing, or tax anticipation notes (TAN).

“Setting this facility up, doesn’t mean that we’re borrowing anything, and we will be following tax collections very closely, but I want to be prepared to not run into a deficit cash-wise, if we are in that position,” said First Selectman Norman Needleman.

The resolution would need to be approved by the Board of Finance and residents will have the opportunity to weigh in on it at a town meeting set for Wednesday, July 1.

Needleman described the measure as “prudent” in the context of offering taxpayers relief due to the economic impact many residents and businesses are facing because of the COVID-19 pandemic.

This year, Essex will offer taxpayers a reduced interest rate of 0.25 percent a month, or 3 percent a year, on delinquent taxes for a 90-day period. After the 90 days, the interest rate will revert to the customary 1.5 percent per month, or 18 percent per year.

The lower interest program was an option offered to all municipalities, per Governor Ned Lamont’s executive orders.

The time period of the lower interest program is an important one for the town. It collects 55 percent of its total revenue in July and spends 34 percent of its $24 million budget in the first quarter of the fiscal year, according to Essex Finance Director Kelly Sterner.

This means that if a significant portion of July tax payments are delayed, the town could see a shortfall in cash.

“I think the risk is small, but I think it’s enough of a risk that I think we want to be prudent,” said Needleman.

In setting up the TAN, the town has the option to borrow in increments up to $5 million. The borrowed cash would need to be paid back in the same year that the cash is expected, according to the town’s bond counsel, Joseph Fasi LLC of Hartford.

“This is totally just a safety valve,” said Selectman Bruce Glowac. “We do not anticipate [borrowing]. The risk is very small; however, you don’t just go out and bond overnight. It’s important to put the wheels in motion, so if, hopefully we don’t, but if we did need cash, we could get it through this [TAN] very quickly.”

When the meeting was opened to public comment, resident Phil Beckman raised using the fund balance as an option.

“We call it a rainy-day fund and under extraordinary circumstances that’s when we’re supposed to use it,” said Beckman. “These are definitely extraordinary circumstances. So, given that we’re asking for $5 million and from your perspective, I get it. From a taxpayer’s perspective, it’s almost a little bit like a blank check.”

Beckman also suggested waiting to “put this into action” to gain a better perspective on where the town is financially.

In his response, Needleman explained that the town is not proceeding with the borrowing by adopting the resolution.

“We will be, I can guarantee it, using some of the unassigned fund,” said Needleman. “This is not about overspending, it’s a purely cashflow issue.”

With an unassigned fund of $3.5 million, if the town does not receive 50 percent of its expected tax revenue, “literally that could all be gone by Sept. 30,” said Needleman. “So, that is why it’s important to react and be proactive and not wait until the other shoe drops.”