2007-10-10 Appropriation Committee Report

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APPROPRIATION COMMITTEE REPORT, OCTOBER 9, 2007 TO STM are proposed in the amounts set forth below. The revised debt service costs will be taken into account when the FY08 water and sewer rates are set by the Board of Selectmen this fall. Adjustments to Reserve Funds Under the state statute governing enterprise funds, G.L. c. 44, § 53F1/2, accumulated surpluses resulting from the operations of an enterprise fund, referred to as retuned earnings or the reserve fund, may be used either "for capital expenditures of the enterprise, subject to appropriation, or to reduce user charges." For purposes of this fall's water and sewer rate - setting, the Town Manager has proposed to the Board of Selectmen (acting in its capacity as Water and Sewer Commissioners) the use of $362,570 in water enterprise retuned earnings to mitigate the FY08 water rates. The effect would be to lower the projected reserves from the current amount of about $2.5 million to a little over $2 million. With this draw on retained earnings (down from $500,000 applied last year), no increase in the water rates will be required this year. Last year, the Town Manager proposed, and the Board of Selectmen approved, the setting of sewer rates somewhat higher than was projected to be necessary to meet costs in order to augment the sewer enterprise fund retained earnings, which were then considered inadequate at about $450,000. This year, due to favorable operating results and a significant non - recurring increase in cash resulting from a lien program that increased collections, the retained earnings in the sewer fund increased by nearly $1.7 million to a total of over $2 million, an amount now considered to be adequate. Accordingly, the Town Manager has proposed to the Board of Selectmen that they neither add to, nor draw from, reserves when setting the FY08 sewer rates. Even without a draw on retuned earnings, no increase in the sewer rates will be required this year. Data provided to the Board of Selectmen in connection with this year's rate - setting indicates that the Town's ability to forecast water usage, and thereby to anticipate revenues and reserve levels, has improved substantially. Following up on a recommendation of the Water and Sewer Rate Study Committee, the town staff plans to develop a policy that defines the appropriate level of retuned earnings to be maintained for emergency purposes for both funds. The policy would provide that any amounts in excess of those levels be used to mitigate future rate increases or finance capital projects. In order to reconcile the FY2008 enterprise fund appropriations for tax - rate - setting purposes, and to promote transparency in the setting of the water and sewer enterprise fund budgets, the Special Town Meeting will be asked to appropriate $362,570 from the water enterprise fund retuned earnings in order to mitigate FY2008 water rates. The projected changes in water and sewer retained earnings (if the usage and other assumptions employed to set the rates are home out) are as follows: Orig. Approp. Rev'd Approp. Change Water $490,833 $504,246 $13,413 Sewer $473,256 $482,424 $ 9,168 Adjustments to Reserve Funds Under the state statute governing enterprise funds, G.L. c. 44, § 53F1/2, accumulated surpluses resulting from the operations of an enterprise fund, referred to as retuned earnings or the reserve fund, may be used either "for capital expenditures of the enterprise, subject to appropriation, or to reduce user charges." For purposes of this fall's water and sewer rate - setting, the Town Manager has proposed to the Board of Selectmen (acting in its capacity as Water and Sewer Commissioners) the use of $362,570 in water enterprise retuned earnings to mitigate the FY08 water rates. The effect would be to lower the projected reserves from the current amount of about $2.5 million to a little over $2 million. With this draw on retained earnings (down from $500,000 applied last year), no increase in the water rates will be required this year. Last year, the Town Manager proposed, and the Board of Selectmen approved, the setting of sewer rates somewhat higher than was projected to be necessary to meet costs in order to augment the sewer enterprise fund retained earnings, which were then considered inadequate at about $450,000. This year, due to favorable operating results and a significant non - recurring increase in cash resulting from a lien program that increased collections, the retained earnings in the sewer fund increased by nearly $1.7 million to a total of over $2 million, an amount now considered to be adequate. Accordingly, the Town Manager has proposed to the Board of Selectmen that they neither add to, nor draw from, reserves when setting the FY08 sewer rates. Even without a draw on retuned earnings, no increase in the sewer rates will be required this year. Data provided to the Board of Selectmen in connection with this year's rate - setting indicates that the Town's ability to forecast water usage, and thereby to anticipate revenues and reserve levels, has improved substantially. Following up on a recommendation of the Water and Sewer Rate Study Committee, the town staff plans to develop a policy that defines the appropriate level of retuned earnings to be maintained for emergency purposes for both funds. The policy would provide that any amounts in excess of those levels be used to mitigate future rate increases or finance capital projects. In order to reconcile the FY2008 enterprise fund appropriations for tax - rate - setting purposes, and to promote transparency in the setting of the water and sewer enterprise fund budgets, the Special Town Meeting will be asked to appropriate $362,570 from the water enterprise fund retuned earnings in order to mitigate FY2008 water rates. The projected changes in water and sewer retained earnings (if the usage and other assumptions employed to set the rates are home out) are as follows: The Committee unanimously supports this article. Page 10 of 18 6/30/06 6 /30 /07(est.) Change Projected 6/30/08 Water $2 $2 $(362 2 134 085 Sewer 447 $2 0 $2 Total $2 $4 $(362 4 271 625 The Committee unanimously supports this article. Page 10 of 18