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APPROPRIATION COMMITTEE REPORT—APRIL 2006 Extract of Appendix C from DRAFT #08 3 Apr 2006 Appendix C: Financial Forecasts with Reserves Projections for FY2007–FY2008 INTRODUCTION This appendix provides: A) A description of the imbalance between revenue and expenditure increases in FY2007 and a projection of this “gap” for FY2008. B) A projection of the Town’s financial condition in terms of Reserves from June 2006 through June 2008 and two scenarios for utilizing operating overrides to close the gap in FY2007 and FY2008 while preserving reserve levels; C) A discussion of some of the issues surrounding Scenarios 1 & 2; and D) Other possible strategies for addressing the revenue/expenditure gap. Accompanying exhibits include: C-1: FY2007 – FY2008 Projections, which presents the proposed FY2007 budget and Appropriation Committee projections for FY2008 C-2: FY2008 Projected Reserve Balance – Scenarios 1 & 2 C-3: Town Manager’s February 9, 2006 Reserves Analysis A) The gap between revenue and expenditure increases: We continue to experience a number of expenditure drivers which exceed typical annual growth in revenues. These include the following level service growth factors, as estimated by the Appropriation Committee: School cost of living and step increases: 4.5% (less approximately $650K salary differential)  Municipal cost of living and step increases: 4%  Municipal expenses: 5% (6-year trend plus recent steep increases in energy costs)  School expenses: 6.5% (6-year trend plus recent steep increases in energy costs)  Medical & Dental increase: 14% (estimated for increases in cost of coverage per insured  individual) Other drivers include increases in under-funded State-mandated education expenses, like SPED  More detailed discussion of the FY2007 increases appear earlier in this report in the discussion of the operating budget in Article 17. Meanwhile, revenue growth (without a Proposition 2-1/2 override) in FY2007, which is typical of recent years, is limited to: Proposition 2 ½: 2.5% of the tax base excluding exempt debt ($2.2467M in FY2007)  Page 1