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AC–2015ATM
<br />PPROPRIATIONOMMITTEE
<br />proved significantly. This has enabled the Town to restore and stabilize the water and sewer enterprise
<br />fund reserve balances at a targeted amount of approximately $1,000,000 for each of the two funds, and
<br />indeed more recently to draw some of the funds down for rate relief and capital investment as shown in
<br />the table below.
<br />Retained Earnings: Appropriations and Year-End Balances
<br />Annual Town Meeting201020112012201320142015
<br />Water
<br />1
<br />Starting Balance $2,113,729$1,622,052$1,952,253$2,066,566$2,234,007$2,119,458
<br />2
<br />Approp. for Rate Relief $450,000$650,000$350,000$300,000$250,000$200,000
<br />3
<br />Approp. for Capital $25,000$145,100$25,000$750,000$873,500$1,015,500
<br />4
<br />ProjectedEnd Balance $1,638,729$826,952$1,577,253$1,016,566$1,110,507$903,958
<br />Wastewater
<br />1
<br />Starting Balance $1,831,967$1,622,052$1,168,190$1,319,000$1,990,816$2,027,941
<br />2
<br />Approp. for Rate Relief $400,000$650,000$150,000$100,000$50,000$0
<br />3
<br />Approp. for Capital $45,000$300,000$0$200,000$940,500$1,390,500
<br />4
<br />Projected End Balance $1,386,967$925,612$1,018,190$1,019,000$1,000,316$637,441
<br />1
<br /> Certified retained earnings as of the end of the prior fiscal year (as of 6/30/2014 for this year’s ATM).
<br /> 2
<br />Proposed appropriations from retained earnings to subsidize the next fiscal year’s operating budget (FY2016 at this ATM).
<br />3
<br />Proposed appropriations for capital projects for the next fiscal year (FY2016 at this ATM); this year’s proposals are found in
<br />Articles 11 (Municipal Capital), Article 14 (Water System Improvements) and Article 15 (Wastewater System Improvements).
<br />4
<br />Note that appropriations from retained earnings must be deducted as a liability from the projected retained earnings to be certi-
<br />fied as of the end of the current fiscal year, even though the funds will not be applied until the following fiscal year. The projec-
<br />tion of anticipated retained earnings assumes break-even operational results during the current fiscal year. A higher (lower)
<br />starting balance available for appropriation the following year indicates that the current year’s operating results were higher
<br />(lower) than were projected at rate-setting, resulting in an operating surplus (deficit).
<br />This year’s budget proposes a continued reduction in the annual retained earnings subsidy for rate relief –
<br />a reduction in the water subsidy from $250,000 to $200,000 and a reduction of the sewer subsidy to zero.
<br />These reductions make progress toward the goal of eliminating the use of retained earnings for short-term
<br />rate relief, which this Committee has recommended since such subsidies can be hard to eliminate abruptly
<br />and tend to introduce volatility in the rates.
<br />As indicated by the difference between the projected ending balance of retained earnings and the next
<br />year’s starting balance, the rates that were set in the fall of 2013 for FY2014 generated significant operat-
<br />ing surpluses of approximately $1 million in each of the water and sewer funds, increasing the amount of
<br />retained earnings available for appropriation this year, continuing a trend of substantial operating surplus-
<br />es that has been experienced for several years now. To some extent these surpluses were the result of un-
<br />foreseen events, such as the receipt of unanticipated bond premiums; however, they also appear to be at-
<br />tributable to a sustained upward trend in water usage, particularly at the highest rate tier by certain com-
<br />mercial users, which has not been fully recognized in the rate-setting process. Rate-setting for FY2016
<br />should take these trends into account so that rates are not set higher than necessary. While this committee
<br />has advocated the use of unanticipated retained earnings surpluses to fund capital improvements, thereby
<br />lowering long-term debt service costs and promoting rate stability, the goal of the enterprise funds should
<br />ordinarily be to break even, and any program to raise revenue in the rates for cash capital on a consistent
<br />basis should be explicitly addressed in the rate-setting process.
<br />15
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