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HomeMy WebLinkAbout2014-10-08-FY2016-SummitI-Packet Town of Lexington Financial Summit I Indicator Analysis: Fiscal Years 2000-2014 Revenue and Expenditure Projections: Fiscal Years 2016-2018 October 8, 2014 1 Table of Contents Town of Lexington Summit I – October 8th 2014 2 Introduction Town of Lexington Summit I – October 8th 2014 1 3 Town of Lexington Financial Summit I Indicator Analysis: Fiscal Years 2000-2014 4 Indicator Summary – FY2011-2014 Town of Lexington Summit I – October 8th 2014 2 5 Indicator Dashboard – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Favorable Indicators Indicator I.6: Expenditures Per Department Indicator I.5: Uncollected Property Taxes Indicator I.4: Property Tax Revenues % Change In Net Operating Revenues (constant dollars) Property Tax Revenues (constant dollars) Uncollected Taxes as % of Net Prop. Tax Levy % Change in Total Operating Expenditures 3 Indicator I.1: Revenues Indicator I.6: Expenditures Per Department % Change in Total Operating Expenditures 6 Indicator Dashboard – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Favorable Indicators 4 Indicator I.7: Personnel Costs Personnel Costs as % of Operating Expenses Indicator I.9: Participants in Retirement System Note that for Indicator 9, teacher data had not been collected prior to FY2012. 7 Indicator Dashboard – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Favorable Indicators Indicator I.12: Long Term Debt Within-Levy Debt Service as % of General Fund Revenues Indicator I.11: Debt Service Residential Share, Net Debt Service Per Household Long Term Debt as % of Assessed Valuation Long Term Debt Per Capita 5 Revised 10/17/2013 8 Indicator Dashboard – FY2011-2013 Town of Lexington Summit I – October 8th 2014 Favorable Indicators Reserves as % of Operating Revenue Indicator I.13: Reserves and Fund Balance 6 9 Dashboard Highlights – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Indicator I.8: Employee Benefits Medical and Retirement Benefits as % of Wages & Salaries 6a Indicator I.2: State Aid State Aid as % of Operating Revenue 10 Indicator Dashboard – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Marginal Indicators Indicator I.10: Pension Liability Indicator I.11(a): Projected Exempt Debt Service % Funded 7 Indicator I.3: Revenues Related To Economic Growth Econ. Growth Revenues as % of Operating Revenues Residential Share of Net Exempt Debt Service Per Household Indicator I.3: Revenues Related To Economic Growth Econ. Growth Revenues as % of Operating Revenues 11 Indicator Dashboard – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Marginal Indicators Indicator I.14: Population 8 12 Dashboard Highlights – FY2012-2014 Town of Lexington Summit I – October 8th 2014 Indicator I.13: Reserves and Fund Balance 9 This Page Left Blank Intentionally 13 Indicator I.1: Revenues Revenue growth is one measure of the Town's ability to maintain existing service levels. Lexington has witnessed some fluctuations in revenues in constant dollars during the first half of this decade; despite this growth has, for the most part, been positive. The slowdown in FY2012 was indicative of the slump in the national economy. This is also attributable to a decrease in State Aid (Indicator 2) as well as decreasing Revenues Related to Economic Growth (Indicator 3). Nevertheless Property Tax revenue (Indicator 4) remains stable despite the post-recession economic environment, and the trend overall remains steady and favorable. Town of Lexington Summit I – October 8th 2014 A decrease in net operating revenues (constant dollars) is considered a warning indicator. 10 14 Indicator I.2: State Aid While the Town does not rely significantly on State Aid, any dependence on such aid may be difficult to manage when there is a reduction in this funding. In order to protect itself in this situation, the Town has a contingency plan for reductions in State Aid. The Board of Selectmen adopted the recommendation of the 2006 Ad Hoc Financial Policy Committee to create reserves capable of offsetting cyclical downturns in state aid and local receipts. On a constant dollar basis, State Aid has steadily increased from 2004-2009, before decreasing in FY2010, FY2011, and again in FY2012 as a result of the economic downturn. However, it has increased substantially in FY13 and FY14. Town of Lexington Summit I – October 8th 2014 Reduced State Aid as a percentage of operating revenues is considered a warning indicator, particularly if the Town does not have adequate reserves to offset reductions. 1Net Operating Revenue and Cherry Sheet Revenue include $799,539 in federal stimulus funds used to offset the FY 09 fourth quarter cut in Chapter 70 aid. 11 15 Indicator I.3: Revenues Related to Economic Growth Economic growth revenues are responsive to changes in the economy. A balance between growth and other (non-economic growth) revenues mitigates the effects of economic growth or decline. During a recession, a high percentage of non-economic growth revenue is an advantage. During a slowing economy, the Town should maintain sufficient reserves to protect against slowing revenue growth. A decrease in building permit fees may also be a leading indicator of smaller future increases in the tax levy. The large increase in FY2010 building-related fees is partially a result of large one-time permits, including Shire HGT ($392,761) and Cubist ($216,000). Town of Lexington Summit I – October 8th 2014 Decreasing economic growth revenues, as a percentage of net operating revenues, is considered a warning indicator. 12 16 Indicator I.4: Property Tax Revenues Town of Lexington Summit I – October 8th 2014 A decline in property tax revenues (constant dollars) is considered a warning indicator. Property tax revenues are analyzed separately because they are the Town's primary revenue source for both operating and capital spending. Increases due to operating overrides should be noted for their impact on taxpayers' ability to pay. On a constant dollar basis, Lexington has seen consistent growth in this area since 2000. This growth continues favorably into Fiscal 2014. 13 17 Indicator I.5: Uncollected Property Taxes An increase in uncollected property taxes may indicate an inability by property owners to pay their taxes due to economic conditions. Additionally, as uncollected property taxes rise, liquidity decreases, resulting in less cash on hand for the Town to invest. Bond rating agencies generally consider uncollected taxes in excess of five percent as a warning trend. Lexington has maintained a strong position on this indicator, even during the current economic downturn. Town of Lexington Summit I – October 8th 2014 Uncollected property taxes (as a percent of the property tax levy) of 5-8 percent is considered a warning indicator by bond rating organizations. 14 18 Indicator I.6: Expenditures Per Department Increasing operating expenditures can indicate that the cost of providing services is exceeding the Town's ability to pay. Increasing expenditures may also indicate that the demographics of the Town are changing, requiring increased spending in related services. Town of Lexington Summit I – October 8th 2014 Increasing operating expenditures, in constant dollars, may be a warning indicator if increases are the result of fixed or unsustainable costs. 15 19 Indicator I.7: Personnel Costs Town of Lexington Summit I – October 8th 2014 Increasing personnel costs as a percentage of total spending is considered a warning indicator. Increasing salaries and wages as a percent of operating expenditures may be an indicator of two trends: 1) First, it may point to future pension and health insurance costs since both of these items are related to the number and compensation level of employees. 2) Second, if salaries and wages as a percent of operating expenditures are increasing, it may be an indicator of deferred maintenance of the Town's infrastructure. Wages and benefits as a percentage of total expenditures have remained relatively constant, a positive indication that the Town is not sacrificing capital and maintenance in order to fund personnel. 16 20 Indicator I.8: Employee Benefits Town of Lexington Summit I – October 8th 2014 Increasing employee benefit costs as a percentage of wages and salaries is considered a warning indicator. Fringe benefits represent a significant and increasing share of the Town's operating costs. However, this analysis excludes fringe benefits such as sick leave buy-back liabilities and vacation accruals. Regardless, benefit spending as a percentage of wages and salaries has almost doubled since 2000, though it has leveled off in recent years. Note that per the current pension funding schedule, the Lexington Retirement System's unfunded pension liability will be retired in 2030. For an explanation of the increase in the Pension Assessment, please see Indicator 10. 17 21 Indicator I.9: Retirement Participants Town of Lexington Summit I – October 8th 2014 An increase in retirement system participants, without fully funding the associated post-retirement health costs, is considered a warning trend. Lexington has an aggressive approach to funding its pension liabilities, and recently implemented a plan to begin to slowly fund its post-employment health liabilities. Nevertheless, since 2000 the town has maintained a fairly stable balance in its number of retirees versus active participants in the system. For more information on the Town's Other Post Employment Liabilities, (OPEB), please refer to Appendix C, OPEB. Note: Teachers do not belong to the Lexington Retirement System, and are instead members of the Massachusetts Teacher Retirement System (MTRS). Previous to 2012, data for the number of active and retired teachers had not been compiled for this indicator. It is for this reason that there is no data for 2000 – 2011. 18 22 Indicator I.10: Pension Liability Town of Lexington Summit I – October 8th 2014 An unfunded pension liability or increase in the unfunded liability is considered a warning indicator. As of January 1, 2014, the actuarial valuation of assets was $130.2 million and the Retirement System was 80.5% funded. The increase in total liability and reduction in percent funded is due to a decrease in the assumed rate of return from 8% to 7.75% and revised assumptions in regard to life expectancy, i.e. people are living longer and thus drawing benefits from the system longer. Also see Appendices C and F for additional information regarding the Lexington retirement system. 19 23 Indicator I.11: Debt Service Town of Lexington Summit I – October 8th 2014 Debt Service exceeding 20 percent of operating revenues is considered a warning indicator by the credit rating organizations. Over the last ten years, Lexington has invested extensively in new capital projects; five separate school reconstruction projects, new athletic fields, a street reconstruction project, a $26 million Public Services Building, and renovations to the Bridge and Bowman School as well as a new Estabrook School have been funded through the successful passage of debt exclusion votes by residents. This increase in exempt debt service has resulted in increases in the budget and consequently in taxes to Lexington citizens. Within-levy debt has fluctuated slightly throughout the last five years, dependent upon the short-term capital needs of the community. However, since FY 2004 the amount of debt per capita and per household has remained relatively steady. Debt levels were set to “spike” slightly with the approval of the Debt Exclusion for the Bridge/Bowman and Estabrook school projects, but that effect has been reduced with the $1,600,000 of debt service mitigation approved by Town Meeting in 2014. 20 24 Indicator I.11(a): Projected Exempt Debt Service Town of Lexington Summit I – October 8th 2014 This indicator shows Lexington’s history of exempt debt service, and projects its growth into Fiscal 2015 (noted in green). The graph on the left shows total Net Exempt Debt Service, but breaks out separately Commercial/Industrial/Personal Property (CIP) share and the Residential share. Like in the previous Indicator, the Residential class debt burden is isolated from the CIP classes, and it is this Residential share that is used to determine the effect of Exempt Debt on Lexington households. 21 25 Indicator I.12: Long Term Debt Town of Lexington Summit I – October 8th 2014 Overall debt exceeding 10 percent of assessed valuation is considered a warning indicator by bond rating agencies. These financial indicators are evaluated by the credit rating organizations because they are measures of both the community's debt burden as well as its level of effort in investing in its capital facilities. On both measures, Lexington has a strong profile. Note that the substantial increase from FY2012 to FY2013 shown above is the result of voter-approved exempt debt which is being used to finance the renovation of the Bridge and Bowman, and reconstruction of the Estabrook School. 22 26 Indicator I.13: Reserves and Fund Balance Town of Lexington Summit I – October 8th 2014 Declining reserves as a percent of operating revenues is a warning indicator. The Government Finance Officers Association (GFOA) recommends an undesignated fund balance between 5-15 % of operating revenues. The Town of Lexington has several types of reserves. Historically, the Town had previously relied upon Free Cash as its primary source of reserves. The Selectmen's Ad Hoc Financial Policy Committee made a series of recommendations to further strengthen the Town's reserves and create a series of small, targeted reserves for specific purposes. In recent years, the Town has strengthened its reserve position by augmenting and transferring money into the Town's Stabilization Fund. This adds financial flexibility to the Town's operations and provides a buffer against economic downturns. (See Indicator I.2) 23 1 Net Operating Revenues include $799,539 in federal stimulus funds used to offset the FY 09 fourth quarter cut in Chapter 70 aid. 2 The number for Free Cash reflects an estimate. Free Cash as of 6/30/14 and is currently pending certification by the Department of Revenue. *Denotes Fiscal Year where Proposition 2 1/2 Override was approved by voters. 27 Indicator I.14: Population Town of Lexington Summit I – October 8th 2014 Rapid changes in population which may effect service levels may be considered a warning indicator. A steady change in both population demographics and public school enrollment may signal a need for increased service delivery and programs. Since 2000, Lexington has seen an increase in its under-20 demographic of 14%, which is an indicator for increasing financial burden on the public school system, likewise reflected in the steady increase in school enrollment. Additionally, the town has also seen its 60-69 year old demographic increase by 32%, and it’s over 80 demographic by 12%. An increasing senior population is likewise indicative of an increasing financial burden on the Town’s ability to provide social services to this group. 24 28 Town of Lexington Financial Summit I Revenue and Expenditure Projections: Fiscal Years 2016-2018 29 Town of Lexington Summit I – October 8th 2014 Executive Summary- Projections FY2016 – FY2018 25 30 Town of Lexington Summit I – October 8th 2014 Revenue and Expenditure Projections FY2016 – FY2018 26 31 Town of Lexington Summit I – October 8th 2014 Revenue and Expenditure Projections FY2016 – FY2018 27 32 Town of Lexington Summit I – October 8th 2014 Revenue and Expenditure Projections FY2016 – FY2018 28 33 Town of Lexington Summit I – October 8th 2014 Revenue and Expenditure Projections FY2016 – FY2018 29 34 Town of Lexington Summit I – October 8th 2014 FY 2016 Policy Issues Financing Plan for Increasing School Population Financing Plan for School Facilities Financing Plan for Public Safety Facilities Impact of Federal Budget Reductions/Sequestration Funding for and use of the Debt Service/Building/ Capital Stabilization Fund 30 35 Town of Lexington Financial Summit I Appendices 36 Appendix A: Chapter 70 Comparative Data Town of Lexington Summit I – October 8th 2014 The Chapter 70 formula is based on a variety of factors. The table at right shows that Lexington receives slightly below the average amount of Chapter 70 aid for comparable communities. 31 37 Appendix B: Per Pupil Population Comparative Data Town of Lexington Summit I – October 8th 2014 This chart shows the ratio of pupils as a percentage of the total population of a municipality (or in the case of joint school districts, municipalities). Compared to the average for similar communities & school systems, Lexington has more students as a percentage of the population. (Also see Indicator I.15) 32 *Includes combined enrollment and population numbers for both the local and regional districts. 38 Appendix C: Other Post Employment Benefits Town of Lexington Summit I – October 8th 2014 The Government Accounting Standards Board issued GASB Statement 45, which requires governments to measure and report the liabilities associated with other (than pension) postemployment benefits (or OPEB). Reported OPEBs may include post-retirement medical, pharmacy, dental, vision, life, long-term disability and long-term care benefits that are not associated with a pension plan. Unlike pension obligations, there is no requirement that Massachusetts municipalities begin to fund this liability. Nonetheless, over the last 4 fiscal years, Town Meeting has appropriated, at a minimum, the prior year’s Medicare Part D payments made to the Town by the federal government to begin to fund the Town’s OPEB liability. The decrease in the Town’s Liability from FY2012 to FY2013 is attributable in large part to lowered health insurance costs from the GIC and an increase in the actuary’s assumed discount rate from 2.5% to 4.5%. 33 39 Appendix D: Other Reserves and Continuing Balance Accounts Town of Lexington Summit I – October 8th 2014 34 40 Appendix E: Average Residential Tax Bill Town of Lexington Summit I – October 8th 2014 35 41 Appendix F: Comparative Pension Liability Funding Town of Lexington Summit I – October 8th 2014 36 42 Appendix F(i): Comparative Pension Liability Funding Town of Lexington Summit I – October 8th 2014 37 43 Appendix F(ii): Comparative Pension Liability Funding Town of Lexington Summit I – October 8th 2014 38 44 Appendix G: History of Revenues and Expenditures Town of Lexington Summit I – October 8th 2014 39 45 Appendix H: FY 2016 Budget Process Town of Lexington Summit I – October 8th 2014 40 46