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

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National economic forecasters suggest that growth may resume from later in 2009 to sometime in 2010, but that employment growth will not resume immediately. The New England Economic Partnership forecasts suggest a regional recession lingering well into 2010. Whatever forecast one chooses to adopt, the current reversal in state aid could remain a drag on local finances for a protracted period. Recovery in state aid to the level prevailing at the beginning of FY09 will almost certainly take several years. Operating expenses have historically risen each year, reflecting both contractual agreements for the workforce (municipal and school) and, particularly, continued inflation in employee health-benefit costs. Debt-service costs will rise as the town pays for capital improvements (both within the regular budget for relatively minor debt-funded items and outside of it for exempt debt for the new Department of Public Works facility). And as a buyer of motor fuels and utilities for facilities, Lexington has some exposure to energy-cost increases, although the town has prudently locked in prices for electricity and natural gas through FY 2012. Town staff’s planning assumptions, as depicted in Appendix B, suggest that on the current course, expenses for FY 2011 would behave as follows: •Education costs rise approximately $2 million, reflecting increased special- education expenses and employee compensation-step increases, offset in part by retirement/turnover effects. This represents a 3.0 percent increase in education costs. •Municipal costs, including the newly created Facilities Department, increase approximately $700,000, reflecting employee compensation increases, energy costs, etc. This represents a 1.9 percent increase in municipal costs. . •“Shared expenses” comprised of debt service, employee benefits, property and liability insurance, and the operating budget reserve fund, increase approximately $2.2 million, or 6.7%. $1.9 million of this increase is driven by an estimated 9 percent growth in employee and retiree health insurance costs. In the aggregate, the town’s expenses are anticipated to rise nearly $4.6 million (a 3.3 percent increase). Any cost-of-living-increases for public employees (municipal and school) would represent an additional $800,000 for each percentage-point increase. Capital spending. The town incurs capital expenses for a range of different purposes, including maintenance of town and school buildings, roads, and facilities; recurring replacement of vehicles and equipment; land acquisition; and renovation and construction of town and school buildings and facilities. And it pays for these expenses through a variety of means, including appropriations of current funds (“cash capital”); within-levy borrowing; exempt borrowing (“debt exclusions”); use of state funds (for example, for school buildings and roads); use of enterprise funds (principally water and sanitary sewer systems, whose users are billed for such services); and use of Community Preservation Act revenues. In recent years, Lexington has authorized $4 million-$5 million of capital projects (road repair, building maintenance, drainage systems, fire and emergency equipment, public-works equipment, etc.) annually from the tax levy (including both borrowing and cash within the “general fund” budget). Appendix C, Capital Financing Summary: FY2007 to FY2010, summarizes capital spending in recent years from the various sources of funding. Note two important issues concerning capital projects: 8