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Introduction After a period of sustained economic growth and appreciation in asset values, Lexington’s government and Lexington citizens face much more challenging circumstances. We expect pressure—likely for a sustained period—on the revenues available to pay for public services (municipal and schools). It is important to note that the single most important source of local revenue, property taxes, is essentially stable and by law can grow 2.5 percent annually (plus any increment from new growth in the tax base). This is in welcome contrast to the sudden, severe reduction in Commonwealth revenues, for example, where taxes on economically sensitive bases—personal income, capital gains, retail sales, and business income—have fallen dramatically short of expectations. Likewise, in Lexington, a number of the town’s secondary sources of revenue, particularly local aid, new property growth, and local receipts from automobile excises and building permits, have been severely impacted by the current economic crisis. The Commonwealth’s experience reminds us that the relative stability of the local property tax base is not at all the same thing as robust growth or even stability in townspeople’s financial circumstances. Few of our fellow citizens (and fellow taxpayers) are receiving increases in compensation in the current circumstances; many are struggling with significant reductions in compensation or other sources of income, or prospective or outright loss of jobs. Moreover, townspeople have seen their education and retirement savings diminished. The work of this task force, and this report, focus on the challenges of financing public services on which we all depend, daily and for the long term. But both are informed by the equally challenging circumstances our fellow citizens face in the wake of the credit crisis and the current recession. We recognize as well that Lexington’s skilled, highly valued employees and their families are affected by the prevailing economic anxieties. In the most recent rating-agency assessment of Lexington’s finances, Moody’s Investors Service made note of the pressures arising from “cyclical revenue declines…without corresponding expenditure reductions,” and the expected reduction in the town’s financial flexibility, giving rise to possible “structural challenges in future fiscal years.” This report will give meaning to those generalities. We aim to suggest a policy context for discussion not only among all of Lexington’s officials—the Selectmen (who commissioned this task force), the School Committee, Town Meeting—but also among the town and school administrations, the public at large, and all of our municipal and school employees. All of these stakeholders will, in common, make the choices that steer our community through the current challenge soundly and appropriately. In the discussion that follows, we emphasize the following overlapping points: •We recognize, and emphasize, that we face a very high degree of uncertainty about how the economic and fiscal pictures (for nation, state, and town) will unfold over the next several years. All of the predictions and recommendations that follow will need to be frequently reassessed in light of new information and changing circumstances. 5