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APPROPRIATION COMMIT fEE REPORT-NOVEMBER 2005 Introduction For this Special Town Meeting, the Appropriation Committee has focused its deliberations on the financial articles, i.e., Articles 4, 5, and 6. Herein we report on a number of changes in the Town's fiscal situation since the Annual Town Meeting was adjourned last May, summarize our view of the current fiscal situation, and give our recommendations about actions under these articles. Since the dissolution of the 2005 Annual Town Meeting, there have been positive developments most notably in free cash, State aid, new growth, and local receipts, while on the negative side the snow- removal deficit has been determined and deficits have developed in the school budgets for both the past and current fiscal years. The Massachusetts Department of Revenue has certified free cash as of July 1, 2005 at a level that greatly exceeds that projected by this Committee in our forecasts last spring. Indeed, while we projected that free cash as of the close of FY1 2005 would be just under $3M, it has been certified at a level of $5.4M. This amount includes approximately $1.8M of interest received during fiscal years 2000 through 2003 from the temporary investment of funds that the Town borrowed to pay for the secondary-school-renovation project. These accumulated funds were not part of our financial discussions last spring regarding reserves or free cash since the Town had not received direction from the State Department of Revenue regarding the possible uses of such funds. (After the Special Town Meeting, this Committee will discuss the appropriate uses of these funds.) The increase in free cash also reflects a positive change in local receipts; this may be related to improvements in the economy. Table 1: Free Cash Free cash as certified on July 1,2004: $ 2,323,202 Less free cash appropriated at 2005 Annual Town Meeting $ (150,000) Interest earned on prior-year bond issuances: $ 1,852,214 Receipts above estimates*: $ 1,765,939 Expense reversions: $ 333,862 Changes in receivables and special revenue deficits: $ (715,232) Free cash as certified on July 1,2005: $ 5,409,985 *"Of this item,approximately$850,000 is attributable to new growth and state aid that came in above the forecasts used to set the FY 2005 budget;approximately$400,000 is attributable to FY 2004 Motor Vehicle Excise tax commitments that were not received from the State until FY 2005;and the balance of approximately$500,000 is attributable to apparent"structural"growth in our local receipts." ' For accounting purposes, the Town of Lexington uses a fiscal year which begins on July 1 of the prior year and runs through the following June 30. For example FY 2005 began on July 1, 2004 and ran through June 30, 2005. Page 2 of 11