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APPROPRIATION COMMITTEE REPORT TO STM1-NOVEMBER 2006
<br />This language, taken alone, would suggest that Town Meeting should now appropriate the projected
<br />sewer surplus of $212,000 to sewer reserves; and that the action already taken by the Board of Selectmen
<br />(the entity responsible for the operations of the water enterprise fund) to apply $500,000 of the water
<br />reserves to mitigate the water rates requires no further action by Town Meeting. However, the statutory
<br />language is not altogether clear and the Department of Revenue (DOR) has taken the position in its 2002
<br />Enterprise Fund Manual that the application of reserve funds to reduce user charges, as well as the
<br />application of an anticipated rate revenue surplus to reserves, must be appropriated by Town Meeting.
<br />Given the DOR's interpretation of the enterprise fund statute, and once again to increase the transparency
<br />of the water and sewer budget and rate-setting process, the Town Manager proposes that Town Meeting
<br />appropriate $500,000 from the retained earnings of the water enterprise fund to reflect the action taken by
<br />the Board of Selectmen atrate-setting to mitigate the water rate increase.
<br />This Committee unanimously (9-0) supports this adjustment. The Committee urges the Town staff to
<br />consider in the future whether, under the provisions of the enterprise fund statute as construed by the
<br />DOR, Town Meeting should also be asked to appropriate any planned revenue surplus in the enterprise
<br />funds to a reserve fund.
<br />Adjustments to Reflect Reduction in Indirect Expenses
<br />At the request of the Board of Selectmen, acting on the recommendation of the Selectmen's Ad Hoc
<br />Water and Sewer Rate Study Committee in its Final Report issued in June 2005, the Town Manager
<br />initiated a review of the level of indirect expenses that were being charged by the general fund to the
<br />enterprise funds for town services that support the operations of the enterprise funds. These include
<br />charges for engineering services, finance department services, billing services, insurance, pension benefits
<br />and other employee benefits. In a report to the Board of Selectmen this fall, the Town Manager advised
<br />that the current level of indirect expenses was significantly overstated, and recommended that the amount
<br />be reduced. However, in order to ease the impact of the reductions on the general fund, the Town
<br />Manager recommended, and the Board of Selectmen approved, a plan to begin gradually phasing in the
<br />reductions, as follows:
<br />Water and Sewer Enter rise Fund Indirect Ex enses
<br />
<br />Fund Supportable
<br />Allocation Current
<br />Allocation FY2007
<br />Reduction FY2007
<br />Revised
<br />Water $ 657,279 $ 918,613 $34,650 $ 883,963
<br />Sewer $ 383,838 $ 774,300 $20,350 $ 753,950
<br />Total $1,041,117 $1,692,913 $55,000 $1,637,913
<br />In order to implement the first phase of the recommended reductions in indirect expenses, the Town
<br />Manager has proposed that Town Meeting now amend the authorizations it made during the 2006 Annual
<br />Town Meeting this past spring for transfers from the enterprise funds (Current Allocation) to the amount
<br />shown in the right-hand column (FY2007 Revised). The expectation is that future annual reductions of
<br />$61,550 for FY2008-2013, together with inflation, will bring indirect expenses to more appropriate levels
<br />at the end of that period.
<br />Because the water and sewer rates were set this fall based on the originally authorized amounts, the effect
<br />of the proposed adjustments should be to increase the reserves of each of the enterprise funds by the
<br />amount of the reductions, assuming the rate projections otherwise prove to be accurate. The increased
<br />retained earnings could then be used to mitigate next year's rate increases, if appropriate. The adjustment
<br />will result in a corresponding reduction in income to the general fund, which will be covered by available
<br />funds.
<br />The Committee unanimously (9~) supports these adjustments.
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