2023-03-20-CEC-ATM-rpt - Laserfiche WebLink

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CAPITAL EXPENDITURES COMMITTEE REPORT TO 2023 ATM Foreword While we encourage you to read this report cover to cover, we also recognize that it's length may be prohibitive. At a minimum, we encourage you to read this section to learn what keeps us awake at night. Additionally,you can use it as a resource to: • Get details on a particular Capital or Community Preservation Act(CPA)Article. Use the Table of Contents or the Summary on the inside back cover to locate the Article in the second part of this report, and then read the description from the Town's Recommended Budget&Finance Plan(Brown Book)as well as any supplemental information we include to further explain the project'. • Get context and historical perspective on a department or a Capital project. Locate the department or project in the front section of this report to read about it and see a five-year funding history. • See what Capital spending might look like in the future. Refer to this Committee's Five–Year Capital Plan (5YCP) starting on Page 10. Last year, our report called out the uncertainty in both the Town's and our 5YCP due to an inflationary bidding environment and how that makes short– and long–term planning difficult. One year later, that's still a significant problem for the Town and it (still) implies increased project costs, the need for supplemental appropriations, and/or reduced project/program scope. Even worse, interest rates have increased borrowing costs and therefore overall debt-financed project costs. Please consider that factor as you read through the information below. Creating a balanced budget has been especially difficult this year for a number of reasons. The school budget is under particularly strong pressure from labor and Special Education costs (to name only two issues). The municipal side is under pressure from a significant increase in trash collection cost(to name only one issue). While the Town remains a particularly good free-cash position,we must bear in mind that utilizing free cash is not the basis of a sound budget—it is one-time revenue. As a general policy,free cash is used to fund cash capital (a policy with which we enthusiastically support).However,when the pressure grows on balancing a budget, the free cash used for cash capital policy is generally the first thing to be given up, and with that the amount of cash-based capital that can be accomplished in the next fiscal year. The alternatives are to either do less or borrow. In the past several budget cycles, Town Manager Malloy has made a righteous stand by stating that we should move towards a cash-based capital financing policy for all programs(see footnote).However,the less free cash he has to work with when advancing this policy, the less we can accomplish in moving towards cash-based capital program financing. Related to debt-financing,this year we will also incur additional debt in the Community Preservation Fund (CPF)to fund the Munroe Center for the Arts (MCA) renovation. Normally, introducing additional CPA debt concerns us,but this year,especially,it concerns us because next year the Cary Memorial Library will request CPA and tax-levy funds for part of their projected renovation. This is not meant to throw any of Community Preservation Committee(CPC),the MCA,or the Cary Memorial Library(CML)under the bus. But it does call attention to the CPC's policy of only considering those requests put before them in the current fiscal year cycle rather than taking a longer-range view. It seems likely that in order to finance the CML renovation, additional debt will need to be taken on,which implies higher overall total project costs. To his credit, Mr. Malloy has taken a 10-year look at big ticket capital projects, largely in the context of sequencing program swing-space usage at 173 Bedford Street. His presentation to the Select Bard called ' Within the development of budgets and other financial actions, "program" is used for already on-going needs while "project" is used for what is considered to be a one-off endeavor, such as a new building or specific renovation effort, during the five-year scope of financial planning. 1