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Town Manager continued from previous page
<br />of which was used) was not perceived to be the abnormal spike
<br />that, in hindsight and in the current down economy, it seems to
<br />have been. Until FY1998 there was no formal policy to main-
<br />tain cash reserves.
<br />53,500,000 -
<br />53,000,000
<br />52,500,000
<br />52,000,000
<br />51,500,000
<br />51,000,000
<br />S500,000
<br />SO
<br />Graph 2: Free Cash Balance and Cash Reserves
<br />1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
<br />Free Cash Balance
<br />Cash Reserves Policy
<br />Beginning with the adoption of the cash reserves policy, the
<br />lines on Graph 1 still track each other, but are further apart,
<br />showing the impact of the policy.
<br />Graph 2 provides further evidence that the policy was working
<br />(even though the target was deferred twice) . The current cash
<br />reserves policy will be violated in FY2004 (target of
<br />$2,240,706) if any free cash is used for the budget.
<br />Capital and Cash Capital
<br />In addition there exists a capital policy dilemma. Higher than
<br />anticipated within -levy debt service requirements (due to
<br />increased library costs, overly optimistic hopes for State reim-
<br />bursement, and short -term borrowing in anticipation of debt
<br />service declines) have squeezed cash capital availability so the
<br />policy currently seems broken. However, the 5 -year capital
<br />planning process (which continually shows a high dollar value
<br />of capital requests) is not refined sufficiently to identify real
<br />need in any given year. Considerable deliberation is required to
<br />sort out what must be done from what would be nice to have.
<br />Furthermore, the Town faces capacity constraints in the number
<br />of projects it can implement and manage at the same time. It
<br />may be that Lexington can get through the next year or two
<br />without major new capital investment. In the long run, though,
<br />policy guidance is needed for how and when to allocate suffi-
<br />cient capital funding to meet basic needs.
<br />Some capital investment needs are recurring. Previous capital
<br />discussions in Lexington have identified the diverse character-
<br />istics of capital projects. Some aspects of capital investment
<br />feel almost like operating needs in that there is a recurring need:
<br />street resurfacing, building renewal, and large equipment
<br />replacement require some level of annual investment in order to
<br />keep assets productive for providing services and avoid major
<br />backlogs. Lexington experienced the problems that arise when
<br />such renewal needs are neglected on its streets and roads, and
<br />recently was successful in obtaining $7 million to address the
<br />backlog. A smaller backlog in Public Works equipment was
<br />addressed in FY 1995 by borrowing, the first time Lexington
<br />had borrowed for such equipment. An expanded and renovated
<br />Library is nearly completed, school building issues are being
<br />addressed through debt exclusions, and a new DPW Operations
<br />Facility and Senior Center may also be proposed in the near
<br />future. Once the backlogs are overcome, securing sufficient
<br />annual renewal funding to maintain the condition of assets is
<br />essential. Lexington successfully incorporated $500,000 for
<br />streets in the last override, so that this amount is available annu-
<br />ally in addition to Chapter 90 funding for roads . It might be
<br />appropriate to add another $500,000 in the upcoming override
<br />for capital investment in equipment replacement and building
<br />renewal.
<br />In contrast, other capital projects require large, lump -sum out-
<br />lays, needed only once in a long time. Such projects need to be
<br />financed over several years. Some might argue that the most
<br />prudent policy would be to accumulate money (in years of plen-
<br />tiful free cash, for example) in a stabilization fund for such
<br />large, infrequent investments. Lexington has had success on a
<br />small scale, for example putting half the funding for a fire
<br />engine into a stabilization fund in one year and appropriating
<br />the balance in the next year. However, for major investments
<br />such as new or renovated buildings, debt financing clearly has
<br />a role. Bonding spreads the cost of a large asset over the useful
<br />life of the asset. In one sense, debt financing also serves a pur-
<br />pose of maintaining a presence for capital in the budget, since
<br />unlike a new cash project it is not a discretionary item. Any pol-
<br />icy of "buy now, pay later" must be carefully planned to be cer-
<br />tain that future obligations can be met. Whether debt is within
<br />the levy or excluded, the impact on the taxpayer is the same,
<br />and ultimately is part of their decision on the appropriate size of
<br />the Town's budget. Lexington has authorized a significant
<br />amount of new debt in the last few years, and an analysis is
<br />needed of future debt service requirements before any new debt
<br />should be incurred. Right now rates are very low and debt may
<br />be attractive.
<br />Lexington has serious choices it has to make regarding its
<br />future. It can continue to establish policies, build them respect-
<br />fully and abandon them at the first occurrence of fiscal diffi-
<br />culties or it can use the policies as guidelines for establishing
<br />policies for the long term. These are big fiscal choices looming
<br />ahead for the community.
<br />Pay -As- You -Throw Program (PAYT)
<br />The special referendum election held on June 24 rescinded the
<br />May 15 Special Town Meeting vote to remove the word "free"
<br />from the Town bylaw and to make the PAYT program "revenue
<br />neutral." Therefore, the Town will not re- implement the PAYT
<br />program. The FY2003 appropriated budget made no provision for
<br />a refund of unused tags or barrel labels. In December, the Board
<br />of Selectmen authorized a limited refund program in which citi-
<br />zens could be reimbursed for up to $32.50 of their PAYT costs.
<br />continued on next page
<br />2002 Annual Report, Town of Lexington
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