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70-42 Budget Summit #1 --- October 6, 2016 FY2018 Budget/Financial Overview Presented by Mr. Valente, this segment was a high-level evaluation of the Town’s financial condition intended to set the stage for the coming fiscal year budget. Looking at Indicator 1: Revenues (page 11 of the Financial Summit 1 document), Mr. Valente said the Town continues to experience positive revenue growth of about 3-3.5% a year. That trend is favorable. Moving to Indicator 7: Personnel Costs (page 17), the percentage of labor costs is stable at about 77-79%. This means that employee salary and benefits are not crowding out other things like capital infrastructure maintenance; there is currently a balance between capital investment and the operating budget. This is another favorable trend. Indicator 8: Employee Benefits (p.18) is favorable as well. Employee benefit costs are substantial but they are not growing as a percentage of wages. Health insurance costs are now approaching $23M dollars a year and pension costs another $5M, making benefits 26-27% of wages but this is a decrease from FY10 when benefits accounted for 33%. Mr. Valente said the drop can be attributed largely to changes in State law re: health insurance which allowed Lexington and other municipalities to join the State’s group health insurance (GIC). Indicator 10: Pension Liability (p.20) is also trending favorably with 85.3% of employee pension liability costs funded. This funding level puts Lexington among the top 5 communities in the State. The average pension liability funding level statewide is around 57%. Indicator 13: Reserves and Fund Balances (p.24) is, again, favorable and shows a strong and growing position for Free Cash and the various stabilization funds. On the less positive side of the overview, Mr. Valente identified one financial indicator in the unfavorable category and three in the marginal category: Unfavorable: Indicator9:RetirementParticipants(p.19)showsanincreaseinthenumberofretirement benefiteligibleemployeesfrom2,201(2012)to2,457(2016),anincreaseofabout250.The pensionportionofemployeebenefitsisnotofconcern;however,alooming$190Minpost retirementhealthcarecostsoverthenext30yearsisproblematic.Todate,$9Mhasbeenset asidetowardthe$190M.Asyet,therehasbeennoLegislativereliefforthehealthcaresideof OtherPostEmployeeBenefits(OPEB)astherehasbeenforthepensionside. Marginal: Indicator11:DebtService(p.21)hasbeenspokenofinpastyearsasanareatowatchclosely.If itgrowstoofast,debtserviceputspressureonotherpartsoftheoperatingbudget.Thewithin levydebtserviceiskeptatabout5%oftheGeneralFundRevenue