2019-03-25-AC-ATM-rpt - Laserfiche WebLink

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APPROPRIATION COMMITTEE-2019 ATM Appendix A: 3-Year Budget Projection This projection is offered to explore the financial challenges that Lexington will face in the next three years. The projection is also an opportunity to obtain a better qualitative as well as quantitative understanding of known trends and cost drivers. The creation of a revenue and expense projection differs in both method and purpose from the creation of a balanced budget. In a budget, one plans conservatively to avoid both over-spending and under-funding, either of which could necessitate harsh remedies in the middle of a fiscal year.For this projection,we make rough estimates of future revenues and expenses, regardless of how they might impact the overall fund balance. The resulting figures do not represent actual revenue or spending targets. We assume that modest economic growth continues in FY2021, FY2022, and FY2023. There is some chance that the prior period of unusually low inflation will be followed by higher levels of inflation.Interest rates have already begun to rise. These considerations suggest some reasons for economic uncertainties in the near future that could impact the accuracy of our projections. We have adopted some key assumptions as the basis for the projection presented herein using limited in- vestigations to establish their plausibility. We note below the most important aspects. Revenue Assumptions • The tax levy is assumed to grow annually by 2.5%of the previous year's base and by an added amount for "new growth". No increases in revenues from Proposition 2'/z operating overrides are included, since none are currently contemplated during the projection period. • New growth,i.e.,the increase in the tax levy from new construction and new personal property,peaked at over $3,500,000 in FY2013 and then dropped about 15% in FY2014. It continued to drop another 4%in FY2015 and again in FY2016,rising back to $3,357,000 in FY2018, and dropping in FY2019 to $3,270,000. This recent history exemplifies the volatility of this factor. In light of this, the model straight-lines new growth using the midpoints of the 10-year (FY2010-2019) and 15-year (FY2005- 2019) averages. • State aid is assumed to increase by 1.4% annually. Growth in Chapter 70 aid will continue due to increasing school enrollments, but at a lower rate than in the previous few years. • Available Funds are projected at lower levels than recent historical and present levels due to uncertainty regarding Free Cash. Available Funds for the previous five fiscal years (2015 through 2019) ranged from a low of$11 million for FY2015 to a high of$15.6 million for FY2016,yet the average of avail- able funds for fiscal years 2010 through 2013 was about$7 million. The most volatile, and largest component of Available Funds is Free Cash; monies received but not expended or encumbered. Free Cash is projected at $6 million for FY2021-2023. Negative comments by the bond rating agencies regarding the large amount of Free Cash being used to fund the operating budget has resulting in a 5-year program to reduce its use by$700,000 per year.The projected allocation to the operating budget is FY2021-$2,200,000,FY2022-$1,500,000, and FY2023-$800,000. These re- ductions would be directed to cash capital, with the balance of Free Cash being applied to the Post Employment Insurance Liability Fund(aka OPEB), cash capital, and to the Capital Stabilization Fund (see the expense section below for details). The more stable parts of Available Funds include the Parking Fund and the Cemetery Fund. They are assumed to be$385,000 and$250,000,respectively.Additionally,we've included town management's recommendation that,for FY2021—FY2023,$750,000 will be transferred out of the Health Claims Trust Fund for health insurance premiums,thereby freeing up the same amount to fund the OPEB Trust Fund. 48