2009-07-10-FTF-rpt - Laserfiche WebLink

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Executive Summary The Fiscal Task Force appointed by the Board of Selectmen has met weekly since early May to gather information concerning the town’s fiscal situation and to consider what advice to offer the Board and other town decision-makers. Our major findings and recommendations are summarized as follows: Summary of Findings 1. Fiscal Context  The growth of the town’s revenues has slowed markedly in the economic downturn and will only recover over a period of years. The duration of the economic downturn is difficult to predict, but is likely to last into 2010 or beyond.  Due to steeply declining state revenues, state aid has already been cut by nearly 10 percent, may decline further, and will only recover slowly.  Property tax revenues are relatively stable, although their impact on taxpayers increases as taxpayers’ incomes and property values decline, and growth in the tax base from new construction will be substantially reduced during the economic downturn.  Local receipts and available free cash will likely be significantly below the levels of recent years for the duration of the downturn.  Expanding the town’s commercial property tax base is an important priority and will relieve pressure on residential taxpayers. Important steps have already been taken by recent Town Meeting actions, but it will take time for these actions to reap benefits.  Lexington has experienced annual revenue growth of as much as 6 % in recent years. If growth is reduced to zero, as may well occur in FY 2011, the difference is about $8 million each year.  Town operating expenses are expected to continue to rise, largely due to inflation in employee health benefit costs, along with other employee compensation costs and special education costs.  The single most important factor driving the growth in operating expenses is the continuing double-digit increase in employee and retiree health benefit costs. Slowing the growth in these costs is of highest importance for the town’s short- and long-term fiscal health.  Present estimates suggest that costs for FY 2011 will grow by about $4 million, plus an additional $800,000 for each percentage-point increase in employee wage agreements.  The town faces continuing demands for capital expenditures to maintain and replace our assets. These demands have been less than fully met by recent authorizations of about $4 to 5 million annually. In addition, the town faces several large capital projects that will need to be funded by voter approval of debt exclusions from Proposition 2 ½.  The town has been successful in setting aside financial reserves in recent years, resulting most significantly in a stabilization fund balance of $6.8 million and an additional $700,000 reserve for unbudgeted special education costs. 2