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2022 ATM,2022-1 STM APPROPRIATION COXMTTEE 21 MARCH 2022
<br /> Retained Earnings: Appropriations and Year-End Balances
<br /> Annual Town Meeting 2019 2020 2021 2022
<br /> Water
<br /> Starting Balance $ 1,612,998 $ 1,346,448 $ 1,737,914 $ 3,537,851
<br /> Appropriation for Rate Relief 77 — — — —
<br /> Appropriation for Capital(3) $ 775,000 $ 130,000 $ 520,000 $ 1,820,000
<br /> Projected End Balance $ 837,998 $ 1,216,448 $ 1,217,914 $ 1,717,851
<br /> Wastewater
<br /> Starting Balance(I) $ 1,521,373 $ 998,736 $ 1,297,665 $ 2,565,157
<br /> Appropriation for Rate Relief — — — —
<br /> Appropriation for Capital $ 700,000 — $ 110,000 $ 1,365,000
<br /> Projected End Balance --T 821,373 $ 998,736 $ 1,187,665 $ 1,200,157
<br /> (1) Certified retained earnings as of the end of the prior fiscal year (for this year, 613012021) and available for
<br /> appropriation at this annual town meeting
<br /> (2) The Town's formerpractice of appropriating from retained earnings to subsidize the next fiscal year's operating
<br /> budget has been discontinued since FY2015(see discussion below).
<br /> (3) Proposed appropriations for capital projects for the next fiscal year (FY2023 at this ATM). Note that such
<br /> appropriations must be deducted as a liability from the projected retained earnings to be certified as of the end of
<br /> the current fiscal year even though the funds appropriated will not be spent until the following year.
<br /> (4) The projection of the retained earnings balance available at the end of the fiscal year assumes break-even
<br /> operational results, i.e., no surplus or deficit. A higher (lower) starting balance available for appropriation the
<br /> following year indicates that the current year's operating results were higher(lower) than were projected at rate-
<br /> setting,resulting in an operating surplus(deficit).
<br /> As can be seen from the table, the water and wastewater retained earnings balances as of the end of FY2021 and
<br /> available for appropriation at this annual town meeting are unusually high, roughly double the amounts available
<br /> for appropriation in prior years. In the case of the water fund, the reason for the large balance is an FY2021
<br /> operating surplus of nearly $2.5 million, attributable primarily to extraordinarily high irrigation usage during the
<br /> very dry summer of 2020. In the case of the wastewater fund, the large balance is attributable to an FY2021
<br /> operating surplus of about $500,000 and the recent reallocation to retained earnings of about $800,000 from a
<br /> reserve account no longer needed.
<br /> The exclusive use in recent years of retained earnings in excess of the "buffer" of$1,000,000 per fund has been for
<br /> capital projects. From roughly 2009 to 2014, such "excess" retained earnings were appropriated on a regular basis
<br /> to mitigate water and sewer rate increases in the next fiscal year. That practice was discontinued in 2015, however,
<br /> as it provided only temporary rate relief and added to the rate increase required the following year unless the
<br /> retained earnings subsidy was repeated. Since that time, consistent with recommendations made by this Committee,
<br /> excess retained earnings,the availability of which cannot be guaranteed,have been used primarily for non-recurring
<br /> capital investments of the enterprises, thereby lowering debt service costs and required future rate increases over a
<br /> more extended period of time, as well as saving interest cost.
<br /> Consistent with this practice, substantial excess water and wastewater retained earnings available this year are
<br /> proposed for appropriation under other articles to fund, or help fund, the following FY2022 capital projects: under
<br /> Article 12 (Municipal Capital), $145,000 each from the water and wastewater funds for maintenance equipment,
<br /> and $75,000 from the water fund for the hydrant replacement program; under Article 13 (Water System
<br /> Improvements), $1,600,000 from the water fund for the annual water system investment program; and under Article
<br /> 14 (Wastewater System Improvements), $720,000 from the wastewater fund for system improvements and
<br /> $500,000 for pump station replacements. See Brown Book, pp. XI-16, XI-18. An unusually large amount of excess
<br /> retained earnings is being maintained in reserve due to uncertainties about FY2022 operating results.
<br /> Recreation Enterprise Fund
<br /> The Recreation Enterprise Fund, or Recreation Fund for short, has for many years been the principal source of
<br /> funding for the Town-sponsored recreational programs for residents, most of which are fee-generating. Prior to
<br /> 2015, recreation activities were managed by the Recreation Department and both the Department and the activities
<br /> were financed through the enterprise fund. In 2015, following the inauguration of the Lexington Community Center
<br /> (LCC),the Recreation Department was reorganized to include responsibility for the community center and renamed
<br /> the Department of Recreation and Community Programs (the Department, or DRCP). The Department now
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