2020-03-25-AC-ATM-rpt - Laserfiche WebLink

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APPROPRIATION COMMITTEE-2.020 ATM 25 March 2020 1. Continue to set aside funds to transfer into the Capital Stabilization Fund as part of the com- prehensive long-term strategyfor funding future school and municipal projects. 2. Core services currently provided through the operating and capital budgets should be main- tained, recognizing that changes in service demands may require that additional resources be provided in certain areas. 3. Recurring revenues, not reserves or one-time revenues, should support operating expenses. 4. Debt will not be used to fund current operating expenditures. S. Adequate reserves and contingency funds will be budgeted, as appropriate, consistent with the original recommendations of the Ad Hoc Financial Policy Committee (2006) and reaffirmed in 2019. 6. Sufficient funds for building maintenance will be budgeted to properly maintain facilities and equipment as well as foster energy conservation. 7. Use ofone-time revenues should be limited to funding one-time expenses(e.g., capital projects) or used to fund reserve accounts. 8. Continue to provide funding for the Other Post-Employment Benefits (OPEB) liability. 9. New targeted revenue sources should be considered to fund specific projects. These renewed and updated policies influenced the development of the FY2021 budget in several specific ways listed below: • Continue the five-year program to phase out the use of Free Cash for the operating budget, • Continue the recently doubled budget for ongoing annual water system improvements (based on a 100-year replacement cycle), • Commence a multi-year program to phase out the use of debt for ongoing annual improvements in both the Water and Wastewater Enterprise budgets, • Prioritize and narrow the list of capital projects in the master plan within a five-year window, • Favor the use of cash capital rather than debt when feasible. As the Town transitions away from using Free Cash in the operating budget, there will be a period of adjustment.In addition,water and wastewater rates will reflect the cost of additional maintenance work and the shift away from debt funding. 5-Year Forecast This year the report brings a new approach to the 5-year budget projection in Appendix A. For the past several years,the Town Finance Department has prepared a detailed 5-year forecast,and the Committee no longer sees a need to develop a forecast independently. This year Appendix A summarizes the Finance Department's projections and discusses the implications for future Town budgets. We appreciate the chal- lenge of producing a projection that provides useful insights five years in the future, and we look forward to working with the Finance Department on refinements to these projections. Short-Term Outlook We note that growth of the Education budget(a combination of Lexington Public Schools and Minuteman Regional High School) has outpaced growth in gross revenue. This is cause for concern given the relative size of Education in the operating budget. This created pressure on the FY2021 budget,resulting in a more limited set of program improvements for LPS, and a reduction to reserves and revenue set-asides in order to balance the budget. These decisions will reduce the Town's free cash balance in the subsequent year and increase pressure on future budgets. The overwhelming concern for the Town, and the nation, at this time is the COVID-19 pandemic, and we stand at a point of great uncertainty.We could be facing a prolonged recession,which would reduce reve- nues from several sources.Although it seems less likely,the impact could be short-lived with more modest reductions in revenue,but the outlook in the short term is generally poor. 4