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APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 We are gratified to see that the Schools and the Public Facilities Department are planning to conduct studies of facilities needs (see Articles 18 and 19). This is important for the accuracy of projections of future needs for capital investments. Such studies should be extended in future years to other aspects of the Town's facilities and equipment. We also note that this Committee strongly supports the use of Community Preservation Act (CPA) funds to maintain Town buildings and facilities to the extent that the proposed projects qualify for CPA funds and make sense. FY2010 and bevond Our projection of expenses and revenues in FY2010 is presented in the Appendix. It shows that the maintenance of the current level of services will likely cost some millions more than the revenues that will be available. We have not quantified the uncertainties in the growth of each of the major components of expenses and revenues. Indeed, recent experience teaches us that it is difficult to predict the size of a budget gap more than a year in advance with a precision of better than $1M or even $2M. Nonetheless, the lesson is that we should be wary of letting operating costs grow too fast. In the spirit of this lesson, concern about the sustainability of increases in the operating budget was expressed by members of this Committee during the budget development this year. We wonder whether a similar amount of Free Cash and other non - recurring sources of funds can be expected to be available to support the FY2010 operating budget as is being used for FY2009. The amount recommended to be used this year, i.e., just over $2.6M, is large enough that there are real risks that a similar amount may not be available in FY2010, especially in light of the current economic slowdown. Continuation of the street reconstruction and resurfacing program at the FY2009 level will not meet the Town's long -term needs (and possibly even the short -term needs) for street and sidewalk maintenance and new sidewalk construction. Rather, the Town will need to approve a debt exclusion or override in order to keep up; the DPW has floated a preliminary figure of $15M to cover eight years of street maintenance work. A debt exclusion for street paving could also cover the $700K General Fund debt financing proposed this year for the reconstruction of Woburn St. The precise parameters of a supplemental street maintenance program should become a topic of conversation starting late this spring or this summer. Sidewalk work should be part of the discussion. Among the other factors affecting FY2010, we need to keep in mind that the in -levy debt service for that year will be about $500K higher than it is in FY2009 (see page XI -3 in the Brown Book). The estimate for FY2010 debt service was done prior to the recent (February) issuance of about $20M in bonds wherein the Town, with the help of its Aaa rating, received a very favorable interest rate of 3.75 %. Nonetheless, the debt service in FY2010 will still increase significantly. A three year perspective here might be valuable. If one compares the FY2009 budget to FY2006, one would see that, factoring out the successful override for FY2008, the town's principal and recurring sources of revenue (tax levy, state aid, and local receipts) grew at 3.8% while general fund expenses grew at 7.8 %. Assuming that the town does not desire to see major cuts in services nor build budgets predicated on non - recurring revenues, and projecting into the future this 4% difference between expense growth and revenue growth, one inevitably is led to the conclusion that future budgets can only be balanced through (1) passing operating overrides; (2) finding significant new sources of revenue, and/or (3) finding ways to deliver services at lower cost. Initiatives such as the agreement with Shire and the new programs in our schools to reduce special education expenses are examples of the latter two methods, respectively, and should be applauded. Given the large increases in the Town's expenses for health insurance over the last ten years, initiatives in that area should be considered. However, as has been stated many times, such initiatives need to be approved by the Town's collective bargaining units in order to be put into effect. The Town will probably need to consider any and all options as we approach FY2010 and/or later fiscal years where expenses may exceed available revenues by millions of dollars. We hope that the projections in the Appendix and this discussion will promote a multi -year view as each of the specific financial articles is acted upon at this Town Meeting. Page 11 of 50