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

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Fiscal Context The task force started its work by seeking the best currently available information about the town’s likely fiscal circumstances over the next several years. In this section, we summarize our current understanding of the town’s revenues, operating expenses, capital requirements, and reserves for the next few fiscal years. Revenue growth has slowed markedly. The table in Appendix A, Historical and Projected Revenues: FY07 to FY11, depicts this trend. Gross general fund revenues increased about 6 percent in each of FY 2008 (including the effects of the June 2007 operating override) and FY 2009. Based on current estimates of FY10 revenue that reflect provisions of the recently adopted FY2010 state budget, that rate of growth has dropped to approximately 4 percent. Preliminary projections of FY2011 revenue prepared by town staff, show marginally negative growth. Prominent causes of this shift include: •The collapse in Commonwealth tax collections (sensitive to incomes, employment, and capital gains; translates into reduced state aid to local communities). Lexington’s budgeted aid declined approximately $760,000, or 7.8 percent, in FY 2010, reversing average growth of 8.5% in the preceding two years. Town staff’s preliminary projection of FY2011 state aid is that it will remain at its FY2010 level. •The likely decline in “local receipts” revenue, driven by factors such as: decline in new automobile sales (translates into reduced local excise-tax collections); lessened building activity (reduces permit fees); and prevailing low interest rates (reduces investment income on town fund balances). •The uncertain outlook for “new growth” both of buildings and of business personal property and equipment (which has provided a substantial increment to the property tax base in favorable years, averaging $2.6 million over the last 3 years, $2.3 million over the last 5 years and $2.0 million over the last ten years). Note that the substantial development at Lexington Technology Park (the Shire headquarters) approved at a special town meeting in fall of 2007 will, over a period of years, significantly expand the commercial tax base (adding an estimated $2.5 million in annual revenue); however, under the terms of the incentive agreement approved by that special town meeting, those new revenues will be gradually phased in over a 20-year period. “Unreserved fund balance,” or “free cash,” another significant source of funds available for appropriation, has tended to increase in strong economic periods (driven in part by better than predicted local receipts and new growth). That funding source is now expected to diminish as well. The difference between 6 percent and zero revenue growth is about $8 million in incremental funds. Note that Massachusetts lagged the nation in entering the recession and losing jobs. In previous recessions, Massachusetts has often lagged in recovering—and recovery in state aid to localities has lagged even further behind, as the state struggles to repair its own finances. From FY 2002 through FY 2005, state aid declined by an aggregate 18 percent, and then did not return to the nominal FY 2002 level until FY 2009 (still representing a sharp decline in real aid, since this level of assistance was not adjusted for inflation). 7