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Revenue and Expense Outlook, Fiscal Years 2011-2012 and Beyond As the Appropriation Committee reported to Lexington Town Meeting this past spring: While the process of defining our baseline set of assumptions always involves judgment, this year we find that the current global financial crisis and major recession has made it much more difficult. Indeed, we don’t know how deep the recession will be, how long it will last, how fast the recovery will be, what its effects on state and town revenues will be, what interest rates will be and how they will change, how the prices of goods and services will change, how the depressed job market will affect wages and salaries, etc. It should therefore be no surprise that in this environment we had trouble not only agreeing with each other on a baseline set of assumptions, but even in coming to individual opinions on what might be reasonable guesses. Notwithstanding this uncertainty, both the Appropriation Committee scenarios (see Appendix D) and more recent town staff forecasts made available to the task force during May-June 2009 (see Appendices A and B) – both of which assume the maintenance of level services and no bargained-for cost of living increases in employee compensation – suggest a budget gap of approximately $4 million. And, although the town has not yet made budgetary projections for FY 2012, the Appropriation Committee scenarios suggest an even greater gap for FY 2012 of $5 million to $7 million. As noted, all such forecasts are subject to changes in revenue (state aid, local receipts, new growth) and expenses (principally compensation costs for Lexington employees, including salaries and wages and benefits; as noted above, each percentage-point increase in employee wages adds $800,000 to the budget). None of these figures reflects actual FY 2009 results nor adjustments in FY 2010 estimates as a result of recent legislative action. Consistent with our strong conviction that short-term considerations need to be evaluated in the context of Lexington’s longer-term financial situation, we also highlight these secular issues: Health benefits. As reported at the spring Town Meeting, the sustained double-digit increase in health benefit costs for town employees and retirees has put the entire budget under increasing pressure. Total compensation costs for town employees, although currently negotiated as two separate elements (income and benefits) within a state legal framework, need to be addressed as a whole. Slowing the growth in current costs of health- benefit programs and controlling their future inflation are of the highest priority for Lexington’s near-term and long-term financial position, for the town’s ability to provide valuable services and to compensate its employees fairly, and, ultimately, for the town’s ability to fund its employee retirement-benefit obligations. Growth in and diversification of the property tax base. Lexington derives 77.9 percent of its property-tax revenue from residential taxpayers, 18.4 percent from commercial and industrial real estate, and 3.7 percent from the taxation of business personal property. In part to expand the commercial tax base and thus reduce the pressures on residential taxpayers (as well as to encourage local job growth, and for other reasons), Town Meeting this year moved to adopt new zoning standards for the Hartwell Avenue commercial-industrial area, which may over a substantial period of time yield additional revenue; and approved the Ledgemont III (Beal) proposal, which was projected to yield 12