2007-04-04-ATM-AC-rpt1 - Laserfiche WebLink

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APPROPRIATION COMMITTEE 1st REPORT, APRIL 4, 2007, TO 2007 ATM on the maintenance and replacement of the Town's capital assets. Last year, the Selectmen's Ad Hoc Financial Policy Committee recommended that the Town "undertake detailed analyses of the various asset classes of the Town's fixed assets to quantify the annual level of investment needed to sustain each asset class." It is not clear, without the detailed analyses of asset classes just mentioned, that the cumulative capital expenditures in FY2008 are adequate to keep the Town's overall capital asset maintenance liability from growing. In the first version of his recommended budget, the Town Manager included a preliminary list of capital projects for the schools totaling just over $2M. The School Department later revised its proposed capital budget to include projects totaling over $4.SM, but there seemed to be no way to finance more than the original $2M without having an unacceptably high level of debt service in FY2009. Some of the school projects are intended to yield reductions in energy usage and hence are expected to generate savings relative to the energy that would be used otherwise. After this Committee analyzed the tradeoff between the costs for debt service and the savings that could be generated for energy-saving projects in general, we concluded that such projects may be highly cost-effective even if the standard return-on-investment numbers seem rather long. The net financial benefit of an energy-saving project depends on the amount and term of the debt (e.g., 5, 10, or 20 years), the borrowing interest rate, the rate of escalation of energy costs, and the amount and time profile of the reduction in energy usage. Projects with return-on- investment times of even 5 years or more can have not only a good net return over time, but also generate a positive cash flow even in the first year of principal payments. These considerations suggest that the Town should be aggressive when considering investments to save energy. However, when it comes to real projects, one must be cautious about projecting energy reductions and cost savings; this is where the uncertainties of the real world are most evident and where it becomes difficult to apply the results of theoretical financial calculations. In any case, the potential for significant financial savings through energy-reducing investments is relevant to evaluation of the school capital projects (which are under Article 34) and the construction of new buildings. Road and street maintenance have, in recent years, been funded by a combination of State aid under Chapter 90 (approximately $700K per year, but not reported on the Cherry Sheets); $SOOK per year following approval of that amount as part of the 2001 override; and $7M (cumulative) of debt authorization that was approved as part of a debt exclusion referendum in 2002. It is our understanding that only a small portion of the $7M authorization remains to be expended. This year, under Article 31, there is a request for funds to support engineering design work for the reconstruction of Woburn Street. The actual construction is anticipated to cost more than $1 M. This raises the issue of how that construction might be funded, and whether the Town should put forward a debt exclusion next year or in the next few years to fund road maintenance beyond that fundable by the Chapter 90 and 2001 override funds. A debt exclusion could also be put forward that would address funding of sidewalk construction, tree planting, and possibly other items. We note that the Town has, for a number of years, attempted to follow a policy in which capital requests over $1 M are to be funded through debt exclusions although a number of projects costing over $1M have not gone that route. These issues should be jointly discussed by the major boards and committees and Town staff in the forthcoming year. This is also the appropriate place to remind everyone that major investments will need to be made to reconstruct the Barnes house (the White House) for some presently undetermined purpose, for the long term use of the old Harrington elementary school, for a larger and more functional senior center, and for the reconstruction or major renovation of three or four elementary schools. Voter approval through a Proposition 21/~ debt-exclusion referendum will be required for each of these major building projects. Page 8 of 39