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(DRAFT V4) APPROPRIATION COMMITTEE 2020-2 AND 2020-3 SPECIAL TOWN MEETINGS 7 OCTOBER 2020 In the run-up to the June 2020 Annual Town Meeting(ATM),there was real concern about the possibility of a major revenue shortfall in FY2021 that would require significant adjustments to the original budget. This led to the decision to defer contributions to the Capital Stabilization Fund and the Post Employment Insurance Liability(PEIL)Fund,which is dedicated to Other Post Employment Benefits(OPEB).As events have played out to date,this shortfall has not materialized in FY2021.Although revenue from local receipts, Recreation Enterprise Fund fees,hotel and motel excise taxes,etc.,has declined,the increase in the property tax levy limit due to new growth in FY2020 was higher than expected, and this has roughly offset the decreases. State aid for FY2021 has dipped only slightly, and there is now less uncertainty regarding pro- jected revenues and expenses for the current fiscal year. In response to residents' concerns around the general issue of racial inequity in law enforcement (though not citing any specific events in Lexington), spending plans for the proposed new Police Station and for a new police firing range have been deferred. The Town also received significant federal aid related to the pandemic. The result is that the Town ended FY2020 with approximately$16 million in available funds (Free Cash): • $1.5 million in FY2020 surplus revenues • $11.0 million in FY2020 expense turn-backs • $3.4 million in unappropriated Free Cash that was previously certified as of 6/30/2019 Approximately$2.9 million of that cash was originally budgeted for transfers into the Capital Stabilization Fund and the PEIL (OPEB)Fund at the 2020 ATM. Revenue from local receipts can be volatile as it directly reflects fluctuations in the local economy.A strong real estate development trend was good for FY2020, but recent declines in travel and restaurant business have lowered projections for FY2021. In the Revenue Offsets category, the Town did not incur a deficit in the snow and ice budget for FY2020 due to a mild winter, so $400,000 that is designated annually to handle a potential deficit was released and flowed to free cash. Across the state, the economic situation is dire, and this may ultimately result in further reductions in state aid. A statewide revenue shortfall of$2.4 to $3.0 billion has been predicted for FY2020, representing a drop of roughly 8-10% from budget expectations. For FY2021, the state legislature has been filing tempo- rary budgets while it grapples with this new reality. Nevertheless, the state plans to maintain Chapter 70 aid to cities and towns at the prior year's level, which represents a slight reduction in Lexington's budget projection which had anticipated a small increase. The Town was also granted a total of$4.5 million in state and federal (CARES Act) funds to assist in its Covid-19 response.It is worth noting that CARES Act funds are distributed as reimbursements for expenses directly related to Covid-19, and they cannot be used to replace lost revenue. However, these funds can offset many of the increased expenses the Town has experienced as a result of the pandemic, such as the cost of extra school buses, and police overtime for providing security at local hotels used by the state to quarantine some individuals and families. CARES Act grants are currently set to expire on December 31, 2020, so the Town is working to maximize their use in the available timeframe. The Recreation Department budget, which is largely based on a self-funding model using the Recreation Enterprise Fund, is an area of immediate concern. The near total shutdown of public recreation facilities and programs led to a collapse in revenue for the enterprise fund. The Recreation Department has numerous fixed costs that could not be avoided in spite of the decline in usage, and the result is a deficit that we must now resolve.This has also triggered a reconsideration the self-funding model for Recreation in future budg- ets. Development on the new Police Station has effectively been put on hold while the Select Board engages with residents on how best to advance racial equity in all aspects of local governance.There is the possibility 3