2007 AC Rpt2 - Laserfiche WebLink

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APPROPRIATION COMMITTEE 2 " REPORT, April 21, 2007, TO 2007 ATM cost reductions, and to enable a more reliable cost estimate to be presented to this year's Annual Town Meeting, without significantly delaying the construction schedule. The allowable increase in property -tax revenue for FY2007 resulting from new construction ( "new growth ") was certified in December 2006 at $2,036,789, higher than the values of $1,675,000 assumed for the budget presented to the 2006 Annual Town Meeting and $1,875,000 assumed at the time of the November 2006 Special Town Meetings. State aid for FY2007, net of Cherry Sheet assessments and offsets, also came in higher than anticipated at $7,565,717, which was $708,962 more than the $6,856,755 projected in early 2006. (Note that these numbers do not reflect certain aid, e.g., for the METCO program, that is not reported on the Cherry Sheets.) The voters' approval of Questions 3 and 4 on the June 2006 override referendum resulted in about $1.8M in new tax levy revenue beyond the ordinarily allowable 2.5% increase. The success of Questions 3 and 4, the higher new growth, the increase in State aid, and increases in various types of local receipts yield a projection by the Town Manager and staff in the Fiscal Year 2008 Recommended Budget & Financing Plan, March 23, 2007 ( "Brown Book "), of FY2007 non - exempt General Fund revenue that is about $3.5M, or approximately 3 %, higher than the corresponding figure in the April 6, 2006 (Blue) Budget Book. The Schools Department has reported that it will require an additional appropriation of $50,531 to cover unpaid bills from FY2006 and that there will be an additional deficit in its FY2007 budget of about $625,000. It is anticipated that supplementary appropriations to cover the FY2006 unpaid bills and part of the FY2007 budget deficit will be requested under Articles 41 and 42, to be funded by $260K in Free Cash. It is expected that the balance of the FY2007 Schools budget deficit will be covered by a request for $300,000 from the Reserve Fund and a transfer under Article 42 of about $110,000 from the salary adjustment account. For additional information, see the discussion under Article 41 in this report and the discussion under Article 42 in our subsequent report. Finally we note that, as of April 18, 2007, the expenditures on snow removal during FY2007 are over the budgeted amount of $610K by about $50K, but are expected to be handled within the existing DPW budget. Reserves Financial reserves are an important component of the Town's financial picture. They serve multiple purposes, nearly all of which are to provide funds on a temporary basis to help solve an acute problem. Reserves do not solve the Town's dominant, long -term, financial problem— expenses growing more rapidly than revenues—although they can help to buffer a revenue shortfall in a particularly bad year. Building and /or replenishing reserves requires the appropriation of funds which otherwise might be used to address a gap between revenues and expenses in the current fiscal year. Further information on the reasons and purposes for reserve building may be found in our Report to the 2005 Annual Town Meeting and the Report of the Ad Hoc Financial Policy Committee (2006). We note here that the Ad Hoc Financial Policy Committee recommended that the Town's general - purpose reserves should be large enough to help bridge a two- or three -year downturn in revenue from State aid and local receipts. Though no precise target for the Town's reserves has been officially adopted by the Board of Selectmen or this Committee, there seems to be a sense that it should be about 10% of the Town's annual General Fund Revenue, or about $10-11 M. The Stabilization Fund has not been used to fund operating expenses or other recurring expenses on an annual basis. It is therefore generally agreed that the balance in the Fund is a genuine general - purpose reserve. On the other hand, appropriations from Free Cash have regularly been used to fund operating expenses, as well as capital and other non - recurring expenses. We include both Free Cash and the Stabilization Funds in this discussion of reserves. Any discussion of reserves should also consider the Reserve Fund, although it is generally fully depleted at the end of each fiscal year. The reader must be careful to understand that different reserve "buckets" have different characteristics, and that the dynamics of their increases and decreases must be evaluated in the context of the purposes and limitations of each type. Page 5 of 24