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APPROPRIATION COMMITTEE REPORT TO STMI NOVEMBER 2006
<br />While these goals are unobjectionable, this Committee has some hesitation about the precedent of using a
<br />Special Town Meeting for a non - essential housekeeping practice such as this. A similar need will recur
<br />each year, but there is no assurance that fall Special Town Meetings will routinely be held in the future,
<br />and it would not make sense to call a Special Town Meeting just for this purpose.
<br />An additional concern is that the MWRA assessments issued in June may not, in fact, be final. The
<br />Governor recently exercised his authority to cut from the FY2007 State budget $25 million in statewide
<br />Debt Service Assistance that had been approved by the legislature (over his earlier veto) as part of an
<br />annual program to relieve MWRA rate - payers from the full cost of debt service on projects that have
<br />statewide benefit in particular the Deer Island harbor cleanup. If this cut is not reversed, it could
<br />translate to an increase in Lexington's final FY2007 MWRA sewer assessment of $69,690, rendering the
<br />adjusted appropriation now proposed for the sewer enterprise budget obsolete.'
<br />However, given that the matter is already on this year's warrant, and recognizing that other methods may
<br />have to be used to accomplish similar housekeeping needs in future years where no Special Town
<br />Meeting is held in the fall, this Committee believes there is no compelling reason not to make the
<br />requested adjustments this year.
<br />This Committee unanimously (9 -0) supports these adjustments.
<br />Adjustment to Retained Earnings
<br />At the water and sewer rate - setting that occurred this past October, the Town Manager proposed, and the
<br />Board of Selectmen (acting in its capacity as Water and Sewer Commissioners) approved, the planned use
<br />of $500,000 in water enterprise retained earnings to mitigate the FY2007 water rates. Given the existing
<br />retained earnings in the water fund (see below), the Town Manager advised that this would be a prudent
<br />use of the reserves. The effect was to lower the water rate increase from 17% to 6.6 %.
<br />At the same time, the Town Manager proposed, and the Board of Selectmen approved, the setting of
<br />sewer rates somewhat higher than was projected to be necessary to meet costs in order to augment the
<br />sewer enterprise retained earnings by a planned amount of approximately $212,000. The Town Manager
<br />advised that the existing sewer fund retained earnings (see below) were inadequate. The effect was to
<br />raise the sewer rate increase from 3.5% to 6.5 %. The net effect of the two adjustments was to lower the
<br />combined water and sewer rate increase from 7.6% to 6.5 %.
<br />The projected effect of the rate adjustments on the existing water and sewer retained earnings (if the
<br />usage and other assumptions employed to set the rates are borne out) is as follows:
<br />Water and Sewer Enterprise Funds Retained Earnings
<br />Fund
<br />6/30/05
<br />6/30/06 estimated
<br />Chan a
<br />6/30/07 (projected
<br />Water
<br />$1,556,429
<br />$2,000,000
<br />$ 500,000
<br />$1,500,000
<br />Sewer
<br />$ 614,601
<br />$ 475,000
<br />$ 212,000
<br />$ 687,000
<br />Total
<br />$2,171,030
<br />$2,475,000
<br />$ 288,000
<br />$2,187,000
<br />The statute governing enterprise funds, G.L. c. 44, § 53171/2, provides in relevant part as follows:
<br />If the estimated income [from the operations of an enterprise fund] is more than the total
<br />appropriation, the difference shall be appropriated to a separate reserve fund and used for
<br />capital expenditures of the enterprise, subject to appropriation, or to reduce user charges
<br />if authorized by the appropriate entity responsible for the operations of the enterprise.
<br />If the Town does lose the benefit of the Debt Service Assistance, the Town Manager will make a recommendation
<br />to the Board of Selectmen as to how to make up this additional MWRA charge. Since the rates have already been
<br />set, and it would be impractical to change them now, any sewer fund operating deficit that results from an after -the-
<br />fact increase in the MWRA's sewer assessment would most likely be funded (as it has in the past under similar
<br />circumstances) from the sewer enterprise fund reserves without further appropriation. If necessary, the sewer rates
<br />would be increased the following year by an amount sufficient to restore the reserves.
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