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APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Table 1: Anticipated Free Cash Changes-2008 AnnnaI Town Meeting Certified Free Cash, July 1, 2007 $4,861,516 Less use for FY2008 (Article 27) ($750) Less use for operating budget (Article 4) ($2,618,766) Less use for capital (Arts. 9, 14, 15, 18, 19, 28) ($842,000) Less transfer to Post-Employment Fund (Article 22) ($400,000) Less transfer to Stabilization Fund (Article 25) ($1,000,000) Remaining balance at end of Town Meeting$0 Table 2: Anticipated Stabilization Fund Changes Balance July 1, 2007 $5,461,674 Balance December 31, 2007 $5,571,158 Transfer in (Article 25) $1,000,000 Approx. projected balance July 1, 2008* $6,655,000 *Assumes an interest rate of 3.0 %for January through June 2008 Table 3: Anticipated SPED Stabilization Fund Changes Balance July 1, 2007 $0 Transfer in (Article 24) $350,000 Pro balance July 1, 2008 $350,000 Table 4: Anticipated Post - Employment Insurance Liability Fund Changes Balance July 1, 2007 $0 Transfer in (Article 22) $400,000 Pro balance July 1, 2008 $400,000 A question has been raised about whether it would be acceptable to use a larger amount of Free Cash to support the operating budget rather than build reserves or to use more of the anticipated FY2008 school budget surplus to support the operating budget. The recommended FY2009 operating budget is to be supported by an amount of what may reasonably be considered to be nonrecurring sources of funds that borders on a level that makes this Committee uncomfortable – thus we do not recommend further increases in the operating budget. A few years ago, the Town's financial reserves policies changed following the receipt of a "negative outlook" note with respect to the Town's Aaa bond rating. In particular, the Selectmen's Ad Hoc Financial Policy Committee recommended that reserves be built up for a number of purposes. This Committee generally concurred with those recommendations and continues to support reserves growth. Therefore, we are pleased to see the recommendations for this Town Meeting in regard to reserves represented by the transfers to the Stabilization Funds and the Post - Employment Insurance Liability Fund, by the continuation and development of revolving funds, and by the increase in the appropriation for the Reserve Fund. The growth in reserves puts the Town in a better position to cope with State aid or local receipts decreases from an economic downturn, with occasional unexpected increases in SPED costs, or with other short -term financial problems. In the Brown Book, the Town Manager notes that the recommended FY2009 budget includes about $14M for capital expenditures which is about $2.5M more than was appropriated in FY2008. The proposed amount of General Fund cash is roughly double that in the FY2008 budget. The proposed total General Fund expenditures for capital, i.e., both cash and debt, exceed $7M (see page XI -3 in the Brown Book); this is more than 5% of the total General Fund revenues (about $131M; see page II -1 in the Brown Book). Page 10 of 50