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Home My WebLink About2015-03-AC-ATM-rpt AC PPROPRIATIONOMMITTEE TL OWN OF EXINGTON R EPORT TO THE 2015ATM NNUALOWNEETING Released March 23, 2015 ACM PPROPRIATION OMMITTEEEMBERS Glenn P. Parker, Chair • John Bartenstein, Vice Chair/Secretary Robert N. Addelson (ex-officio; non-voting) • Mollie Garberg • Alan Levine • Beth Masterman Susan McLeish • Eric Michelson • Richard Neumeier • Andrei Radulescu-Banu AC–2015ATM PPROPRIATIONOMMITTEE Contents Summary of Warrant Article Recommendations ................................................................................................ iii Preface ........................................................................................................................................................................... 1 Introduction ................................................................................................................................................................. 2 Warrant Article Analysis and Recommendations ................................................................................................ 6 Article 4: Appropriate FY2016 Operating Budget ............................................................................... 6 Article 5: Appropriate FY2016 Enterprise Funds Budgets ................................................................ 12 Article 6: Appropriate for Senior Service Program ............................................................................ 17 Article 7: Establish and Continue Departmental Revolving Funds .................................................... 18 Article 8: Appropriate the FY16 Community Preservation Committee Budget and CPA Projects ... 19 Article 9: Property Purchase – 241 Grove Street ............................................................................... 25 Article 10: Appropriate for Recreation Capital Projects .................................................................... 26 Article 11: Appropriate for Municipal Capital Projects and Equipment ............................................ 26 Article 12: Pleasant Street Sidewalk .................................................................................................. 28 Article 13: Prospect Hill Sidewalk ..................................................................................................... 28 Article 14: Appropriate for Water System Improvements ................................................................. 28 Article 15: Appropriate for Wastewater System Improvements ........................................................ 30 Article 16: Appropriate for School Capital Projects and Equipment ................................................. 31 Article 17: Technical Correction to the Borrowing Authorization Under Article 13b of the 2014 Annual Town Meeting ..................................................................................................... 31 Article 18: Appropriate for Public Facilities Capital Projects ............................................................ 32 Article 21: Appropriate to Post Employment Insurance Liability Fund ............................................ 32 Article 22: Adjust Retirement COLA Base for Retirees .................................................................... 33 Article 23: Accept Chapter 235 of the Acts of 1994 .......................................................................... 34 Article 24: Appropriate Bonds and Notes Premiums ......................................................................... 34 Article 25: Rescind Prior Borrowing Authorizations ......................................................................... 34 Article 26: Establish and Appropriate To and From Specified Stabilization Funds .......................... 35 Article 27: Appropriate to Stabilization Fund .................................................................................... 36 Article 28: Appropriate from Debt Service Stabilization Fund .......................................................... 36 Article 29: Appropriate for Prior Years’ Unpaid Bills ....................................................................... 37 Article 30: Amend FY2015 Operating, Enterprise and CPA Budgets ............................................... 37 Article 31: Appropriate for Authorized Capital Improvements ......................................................... 37 Article 32: Establish Qualifications for Tax Deferrals ....................................................................... 38 Article 33: Authorize Home Rule Petition for Tax Relief .................................................................. 38 Article 34: Accept MGL c. 59, § 5, Clause 54 and Set Personal Property Minimum Tax ................ 38 Article 35: Accept MGL Chapter 90-I, Section 1 (Complete Streets Program) ................................. 39 Article 36: Authorize Community Electrical Aggregation Program .................................................. 39 Article 41: Amend General Bylaws – Contracts and Deeds .............................................................. 40 Article 42: Commission on Disability Request .................................................................................. 40 Article 44: Resolution on Fossil Fuel Divestment .............................................................................. 40 Article 46: Acquisition of Land Shown on Assessors’ Property Map 22, Lot 51B ........................... 45 Appendix A: 3-Year Budget Projection ................................................................................................................ 46 Appendix B: Enterprise Funds ............................................................................................................................... 50 Appendix C: Revolving Funds ............................................................................................................................... 51 Appendix D: Tax Relief Programs ........................................................................................................................ 52 i AC–2015ATM PPROPRIATIONOMMITTEE Appendix E: Specified Stabilization Funds .......................................................................................................... 55 Appendix F: Other Post Employment Benefits ................................................................................................... 57 ii AC–2015ATM PPROPRIATIONOMMITTEE Summary of Warrant Article Recommendations Abbreviations EFEnterprise FundCPACommunity Preservation Act GFGeneral FundDSSFDebt Service Stabilization Fund RERetained EarningsIPA motion to Indefinitely Postponeis expected RFRevolving FundTDMTraffic DemandManagement Ar-FundsFundingCommittee Title ticleRequestedSourceRecommendation 4Approve (8-0) Appropriate FY2016Operating Budget$193,549,110See Below $9,195,731Water EF $8,624,962Wastewater EF Appropriate FY2016Enterprise Funds 5Approve (8-0) Recreation EF $2,623,267 Budgets Tax Levy $216,836 $20,660,796 6Approve (9-0) Appropriate for Senior Service Program$20,000GF Establish and Continue Departmental 7Approve (8-0) See belowRF Revolving Funds $1,222,813CPA Approve (8-0) Appropriate the FY2016 Community $336,500GFDebt 8exc.8(c) (3-3-2), Preservation CommitteeOperating $193,000Rec.EF 8(g)IP Budget and CPA Projects $1,752,313 9Approve (8-0) Property Purchase –241Grove Street$618,000CPA Appropriate for Recreation Capital 10Approve (8-0) $68,000Rec. EF Projects Approve (8-0) Appropriate for Municipal Capital 11 $15,539,150See below exc.11(k) (2-5-1) Projects and Equipment 12IP Pleasant Street Sidewalk$20,000GF 13IP Prospect Hill Road Sidewalk$100,000GF Appropriate for Water System 14Approve (8-0) $900,000Water RE Improvements $1,200,000W astewater EF (Debt) Appropriate for Wastewater System 15Approve (8-0) $600,000Wastewater RE Improvements $1,800,000 Appropriate for School Capital Projects 16Approve (8-0) $1,986,000See below and Equipment iii AC–2015ATM PPROPRIATIONOMMITTEE Ar-FundsFundingCommittee Title ticleRequestedSourceRecommendation Technical Correction to the Borrowing 17Approve (9-0) Authorization Under Article 13b of the $10,000GF 2014 Annual Town Meeting Approve (9-0) Appropriate for Public Facilities Capital 18 $2,731,885See below exc.18(e)IP Projects Approve (9-0) Appropriate to Post Employment 21 $1,862,194GF $1,200,000 Insurance Liability Fund Adjust Retirement COLA Base for 22Disapprove (3-6) NoneN/A Retirees 23Approve (9-0) Accept Chapter 235 of the Acts of 1994NoneN/A 24Approve (9-0) Appropriate Bonds and Notes Premiums$149,140Bond Premium 25Pending Rescind Prior Borrowing AuthorizationNoneN/A $6,405,035 FreeCash $3,042,797 Tax Levy Establish and Appropriate To and From 26Approve (8-0) $18,175 TM revenue Specified Stabilization Funds $20,339 TDM revenue $9,486,346 27IP Appropriate to Stabilization FundNoneN/A Appropriate from Debt Service 28Approve (8-0) $124,057DSSF Stabilization Fund Appropriate for Prior Years’ Unpaid 29Pending UnknownUnknown Bills Amend FY2015Operating,Enterprise 30Pending UnknownUnknown and CPA Budgets Appropriate for Authorized Capital 31Pending UnknownUnknown Improvements Establish Qualifications for Tax 32IP NoneN/A Deferrals Authorize Home Rule Petition for Tax 33IP NoneN/A Relief Accept MGL c.59,§5,Clause54 and 34Approve (8-0) NoneN/A Set Personal Property Minimum Tax Accept MGL Chapter 90-I, Section 1 35Approve (8-0) NoneN/A (Complete Streets Program) Authorize Community Electrical 36Approve (8-0) NoneN/A Aggregation Program iv AC–2015ATM PPROPRIATIONOMMITTEE Ar-FundsFundingCommittee Title ticleRequestedSourceRecommendation Refer To Amend General Bylaws –Contracts and 41 NoneN/A Committee (8-0) Deeds 42Approve (9-0) Commission on Disability RequestNoneN/A 44Disapprove(2-5-1) Resolution on Fossil Fuel DivestmentNoneN/A Acquisition of Land Shown on 46Approve (8-0) NoneN/A Assessors’ Property Map 22, Lot 51B v AC–2015ATM PPROPRIATIONOMMITTEE Preface This Preface describes the structure and stylistic conventions used in this report. It is followed by an In- troduction discussing changes in the Town’s financial status since the most recent Annual Town Meeting in March 2013, along with issues pertinent to the Town’s general financial situation. The main body of this report contains article-by-article discussions and recommendations on those articles that, in our opin- ion, have substantial financial relevance. The report references several appendices at the end of this doc- ument that provide a deeper explanation of particular financial issues. The discussion for each article presents the prevailing view of the Committee, as well as any other con- siderations or cautions that we feel Town Meeting should be informed of. If one or more Committee members are strongly opposed to the majority position, we summarize the opposing perspective. Each article discussion concludes with the most recent vote of the Committee prior to publication. The vote is summarized by the number of members in favor, followed by the number of members opposed, and lastly (when applicable) the number of members abstaining, e.g. “(6-2-1)” indicates six members in favor, two opposed, and one abstaining. It is not always possible to collect a complete vote for every article from nine voting members. In such instances, the total number of votes and abstentions published will be less than nine. For convenience, Committee votes are also summarized on the preceding pages. This report does not replicate information readily available to Town Meeting members elsewhere. Key documents that inform our analysis and provide a more thorough picture of the Town finances are: The Town Manager’s Fiscal Year 2016 Recommended Budget & Financing Plan, dated February 27, 2015, commonly known as the “Brown Book”, fully describes the annual budget of the Town. The Brown Book also summarizes budget laws and bylaws (Appendix B) and includes a glossary of financial terms (Appendix D). http://www.lexingtonma.gov/budget.cfm School Committee Fiscal Year 2016 Superintendent of School’s Level Service and Recommended Budget(the “Gray Book”), dated January 6, 2015, which details the budget plans for the Lexing- ton Public School System. http://lps.lexingtonma.org/Page/5278 Capital Expenditures Committee (CEC) Report to the 2015 Annual Town Meeting, which pro- vides a detailed report on appropriation requests for capital projects. Community Preservation Committee (CPC) Report to the 2015 Annual Town Meeting. TMMA Warrant Information Report (March 2015), published by the Town Meeting Members Association. http://www.lexingtontmma.org/ Acknowledgements The content of this report, except where otherwise noted, was researched, written and edited by members of the Committee with support from Town staff. Our Committee has the pleasure and the privilege of working with Town Manager, Carl Valente; Assistant Town Manager for Finance, Rob Addelson; our Budget Officer, Patricia Moore; the Board of Selectmen; the Capital Expenditures Committee; the School Committee; the Superintendent of Schools, Dr. Paul Ash; the Assistant Superintendent for Finance and Operations, Mary Ellen Dunn; the Community Preservation Committee; and the Permanent Building Committee. We thank the municipal and school staff, Town officials, boards and volunteers who have contributed time and expertise to help us prepare this report. Last but not least, we thank Sara Arnold, who records and prepares the minutes of our public meetings. 1 AC–2015ATM PPROPRIATIONOMMITTEE Introduction The Appropriation Committee is required to create a report with a review of the budget as adopted by the Board of Selectmen, including an assessment of the budget plan and a projection for future years' reve- nues and expenses. This report includes the Committee's advice and recommendations regarding all ap- propriations of Town funds that are anticipated in the Town Warrant, and other municipal matters that may come before Town Meeting. This report is published and distributed to the members of Town Meet- ing as a printed document and as an electronic document via the Town website. The Committee also makes presentations during Town Meeting, including recommendations on appropriations and other mat- ters for which the Committee’s formal position was pending at the time of publication. Committee Membership Jonina Schonfeld and Robert Cohen resigned from the Committee at the end of FY2015. We are grateful to them for their service. We welcome two new members, Beth Masterman, who joined us after serving on the Capital Expenditures Committee, and Andrei Radulescu-Banu. Reserve Fund The Committee has approved the following Reserve Fund transfers so far during FY2015: DateAmountDescription 9/4/2014$69,120Route 128Business CouncilAlewife Shuttle 9/23/2014$35,000Visitor’s Center transition to Town management 10/8/2014$11,500Alleviatepublic health nuisance at a private residence 2/12/2015$150,000High School modulars Phase 2 $265,620TotalTransfers As of publication, the balance in the FY2015 Reserve Fund is $634,380. The Reserve Fund transfers highlight two financial changes in September 2014. The Route 128 Business Council operates a regular shuttle (the REV bus) between the Alewife MBTA station and Hartwell Avenue. The shuttle operations have been funded by contributions from businesses in the Route 128 area, and also partly by a federal grant. That grant was not renewed, putting the opera- tion of the shuttle in jeopardy. Given the clear benefits of the shuttle, the Town agreed to temporarily cover the lost funding, while encouraging the Route 128 Business Council to recruit significantly more support from the businesses that benefit from it. The Lexington Chamber of Commerce handed over the operation of the Visitor’s Center to the Town in September 2014. The transition was unexpected, but the Town acted promptly to maintain the services, amenities, and retail operations that the Visitor’s Center provides for tourists and those passing through Lexington Center. A new Revolving Fund was created and then seeded with funds to bootstrap the opera- tions. These funds covered initial salary and inventory costs, with the goal of restoring the Visitor’s Cen- ter into a mostly self-sustaining business. The Visitor’s Center is now managed under the Director of Economic Development. Developments Since Adoption of the FY2015 Budget The Town endured a harsh winter with historic snowfall totals. Expenditures in FY2015 for snow and ice removal as of publication are $1,935,512. The FY2015 budget for snow and ice removal was $1,127,716, leaving a deficit of $807,796. The School Department has been notified of a total of $137,560 in 9C cuts impacting the METCO and Full-Day Kindergarten grants during FY2015. The FY2016 budget includes a set-aside of $200,000 for unanticipated fiscal needs during FY2015. 2 AC–2015ATM PPROPRIATIONOMMITTEE At the June 16, 2014 Special Town Meeting, the following appropriations were approved: $220,000 to purchase a land-locked parcel behind 430 Concord Ave. for conservation purposes. $250,000 to revise and expand the School Master Plan, in response to current enrollment issues in the Lexington Public School system. $500,000 to supplement the renovation of the Community Center, expected to open in May 2015. March 23, 2015 Special Town Meeting #1 and #2 Two Special Town Meetings have been scheduled concurrently with the 2015 Annual Town Meeting. The Committee has already published a report covering the Articles in these Special Town Meetings. The Warrant for the first Special Town Meeting contains a single request for an appropriation of $4.08 million to fund initial work on a collection of school capital projects with a preliminary estimated cost of $111.5 million. As participants in the development of this request, the Committee maintained a liaison with the Ad hoc School Master Planning Committee, participated in deliberations during joint meetings of the Budget Summit, and worked independently with the chairs of the Board of Selectmen, the School Committee, and the Capital Expenditures Committee to forge a consensus position on the plan to add capacity and flexibility to the Town’s public school system (see School Master Plan, below). The Warrant for the second Special Town Meeting comprises five requests for capital projects that re- quire prompt action by the Town prior to the end of FY2015. The total of the requested appropriations on the Warrant for Special Town Meeting #2 is $1.83 million, but funding for most of the projects comes from the Wastewater Enterprise Fund, CPA Fund, and a legal settlement. A request for $350,000 to com- plete the High School Modulars Phase 2 will be funded from the General Fund. School Master Plan The Town has seen persistent growth in school enrollment since 2010, contrary to the predictions derived using industry-standard enrollment models. The fundamental change likely began as early as 2007 when annual enrollments began to level out instead of slowly falling as predicted. The School Department has indicated that the Town must expand its school facilities to address widespread overcrowding in the ele- mentary schools, and to limit the number of out-of-district placements that will be required due to inade- quate facilities in Town. As students advance in years, the crowding in the six elementary schools is ex- pected to carry forward into the two middle schools and then the high school. After the June 16, 2014 Special Town Meeting, the Town formed the Ad hoc School Master Planning Committee. That committee hired Symmes, Maini & McKee Associates (SMMA) to determine the base- line capacities for existing buildings, and to research a variety of alternatives for expanding the capacity of the school system. SMMA had to contend with a number of complex factors: Existing overcrowding in five out of six elementary schools Student population distribution strongly biased towards the eastern side of the Town An elementary school building with significant and long-standing problems (Hastings) Wide variation in predictions for enrollment growth Proper timing as enrollment growth advance to higher grades Particular needs of special education programs at each school Lack of readily available swing space A dearth of land suitable for certain kinds of construction at several locations The results are described in the final report from the AhSMPC, and further refined in the School Building Project Consensus Plan published by the Board of Selectmen. The Committee supports this consensus. We are at the start of a multi-year endeavor to address the enrollment problems with a series of construc- tion projects. We expect the projects to include pre-fabricated modular classrooms, brick and mortar addi- tions, and the construction of an entirely new elementary school. 3 AC–2015ATM PPROPRIATIONOMMITTEE The Committee anticipates that the Town will call a Special Town Meeting in the fall of 2015 to consider a debt exclusion to fund the first round of these projects. The FY2016 Budget The Town Manager has proposed a balanced, level-service budget that is not contingent on an operating override. The table and chart below comprise the General Fund budget totaling $193,549,110. This does not include enterprise funds, revolving funds, Community Preservation Act funds, grants, or exempt debt service. FY2016 Municipal Budget Summary Budget% of Recommended Description CategoryTotalBudget ($) 1000Education48.2%93,263,130 2100Benefits16.8%32,423,749 Expenses Shared 2200Debt Service3.5%6,755,562 2300Reserve0.5%900,000 2400Facilities5.1%9,899,631 3000Public Works4.5%8,749,573 4000Public Safety6.7%12,880,489 5000-7000Misc.Depts.*2.9%5,689,025 8000General Gov.3.2%6,259,183 Cash Capital2.5%4,871,905 Other**6.1%11,856,862 * Culture & Recreation, Human Services, Office of LU/IS/ED ** Budgetary set-asides, stabilization fund, Senior Service Program, PEIL Fund (OPEB) 4 AC–2015ATM PPROPRIATIONOMMITTEE FY2015 Appro-FY2016 Recom- ProgramChange $Change% priated Budgetmended Budget Education$87,868,313$93,263,130$5,394,8176.1% Shared Expenses $47,352,943$49,978,942$2,625,9995.5% Municipal Departments $31,957,312$33,578,271$1,620,9595.1% Subtotal Operating Budget $167,178,568$176,820,343$9,641,7755.8% Cash Capital $5,958,117 $4,871,905$(1,086,212)-18.2% Other (Approp. to reserves, misc.)$7,049,726$11,856,862 $4,807,13668.2% Total General Fund $180,186,411 $193,549,110$13,362,7017.4% Projected Revenue $181,102,361$193,549,110 $12,446,7496.9% Surplus/(Deficit) $915,951$0$(915,951) As always, the Town crafts its budget using assumptions about State funding to expect, primarily in the form of aid under Chapter 70 (schools) and Chapter 90 (roads). This year the Governor has indicated his intent to reduce or eliminate some state aid programs. This could impact the School Department budget beyond the capacity of the $110,000 set-aside in the FY2016 budget for potential reductions in state aid (see the discussion under Article 4, Program 1100). As usual, the Committee may choose to update its recommendation on the floor of Town Meeting if new information is presented. 5 AC–2015ATM PPROPRIATIONOMMITTEE Warrant Article Analysis and Recommendations FundsFundingCommittee Article 4: Appropriate FY2016 RequestedSourceRecommendation Operating Budget Approve (8-0) $193,549,110See Motion The operating budget consists of Education (1000), Shared Expenses (2000), and Municipal (3000-8000) programs. Major components of the operating budget are discussed below. Each major section of this request is discussed separately below. FundsFunding RequestedSource Program 1100: Lexington Public Schools $92,060,316See Motion Overview The School Committee has voted to recommend a FY2016 appropriation of $92,060,316 for school oper- ating expenses. The request represents an increase of $5,436,387 or 6.28% above the FY2015 appropria- tion. The primary drivers of the FY2016 request include contractual requirements such as collective bar- gaining agreements; legal requirements for special education and transportation services; enrollments in- creases; and programmatic improvements including improved social and emotional well-being support for students. In the FY2016 request, there are increases above “level service” amounts for contractual increases, and for the addition of 46.61 FTE (a 4.71% increase) in staff to address legal requirements, enrollment in- creases and programmatic improvements. The increased staffing under this request resulted in $623,783 added to the Shared Expenses budget for the benefits associated with the new positions. The additional 46.61 FTE positions address a variety of needs. Based on projected enrollment increases, the budget includes funds for 12.1 general education teachers, 3.0 additional K-5 teachers and 0.45 spe- cialists. The staff increase allows for the implementation of the second phase of the Intensive Learning Program to address the needs of special needs students from grade 9 through age 22, with 9.36 educators and support staff, and a 0.75 transition coordinator. An additional 12.46 pre-K to grade 12 support posi- tions are required by projections of the number of students with Individualized Education Programs (IEPs). Other increases in staff include: 1.0 guidance counselor at Lexington High School (LHS), 0.5 guidance counselor at Bridge Elementary, 0.4 social worker at LHS and 3.0 social workers across all six elementary schools to promote social and emotional wellness, as well as 0.7 nurse district-wide and a 0.2 nurse at Clarke. There is a significant decline in this year’s request for special education out-of-district tuition. Relative to FY2015, the School Committee has reduced by 50% the amount held in reserve for students at risk of needing out-of-district placement. In the recent past, the reserve was calculated as 100% funding for an annual increase of 20 to 25 students requiring selected placements. During every school year, the school system handles the addition of new students, terminations of out-of-district placements of other students, along with changes in existing placements. This budget reserve has been reduced by 50% based on past experience during fiscal years 2011-2014 when significant amounts were returned to the Town from this line item. 6 AC–2015ATM PPROPRIATIONOMMITTEE The Committee recognizes that there is an increased risk of an overrun because of this change. However, the Special Education Stabilization Fund is available to mitigate an unexpectedly large increase in these expenses. Funding Sources Not Subject to Appropriation The annual appropriation from the Town supports the majority of the school budget. However, the com- plete school budget includes additional funds from state, federal and other sources that are not subject to appropriation by Town Meeting, thus these funds are not included in this request. The amounts of these funds vary year to year. A brief listing of some of these follows: Federal Grants – For FY2016, the School Department projects that it will receive $1,890,632 in federal grants, the same amount that was received in FY2015. State Grants – The Town receives grants from the state to support METCO, School Health, Ac- ademic Support, Full-Day Kindergarten, and Special Education Program Improvement. State grants do not include cherry-sheet local aid for education, because local aid is considered to be General Fund revenue. “Circuit Breaker” Reimbursements – Reimbursements are received from the state when the tu- ition costs of special education services for an individual student, whether in-district or out-of- district, exceeds a multiple of four times the statewide foundation budget. In the past, reimburse- ment rates have varied between 35% and 75% of the tuition cost. Circuit breaker reimbursement funds are treated as an offset with regard to this budget request. State grants for FY2016 are as yet uncertain (see below), and the School Department budget initially as- sumed the total aid from grants would be $1,571,550, the same as in FY2015. The School Department also projected the FY2016 circuit breaker reimbursement rate would be the same as the FY2015 reim- bursement rate of 72%. With a base of 126 students, the total reimbursement for FY2016 was estimated to be $3,018,304. The actual reimbursement for FY2015 was $3,028,763. The Governor’s proposed budget contains two significant cuts in state aid for FY2016. The Kindergarten Expansion grant that pays the cost of Kindergarten Assistant positions would be eliminated, for a loss in state aid of $227,000. The reimbursement rate for the Special Education Circuit Breaker would be re- duced from 72% to 66%-68%, lowering the Town’s special education reimbursements by approximately $250,000. These cuts are still preliminary, and subject to change until the state budget is finalized. We note that the recommended Town Manager’s budget reserves $110,000 in anticipation of reductions in federal and state aid, but this would be insufficient to cover a possible $477,000 in cuts. These cuts could necessitate an increase in the School Department FY2016 budget request, an appropriation at a fu- ture Town Meeting (possibly using the Special Education Stabilization Fund), or reductions in service. Fee Programs Fees for participants in certain programs support those programs in whole or in part. No changes in the fee schedules for preschool are anticipated in FY2016. No fee changes are anticipated for athletic fees in FY2016. The only significant change in fees for FY2016 is the increase in the School Lunch price from $3.25 to $3.50 to cover the cost of the LHS dishwasher, eliminate the use of styrofoam trays from the program, and cover rising food costs. The lunch price was last increased in the 2005-2006 school year. Transportation Special education transportation is required to provide access for some students to educational services. This budget request includes an increase of $132,574 due to contractual increases and an increase in the number of both in-district and out-of-district students receiving transportation services. The McKinney- Vento Act requires that the district provide transportation for homeless students residing in Town. In FY2015, the Town saw a decrease in the number of homeless students it serves. It is estimated that 11 homeless children will require transport in FY2016. 7 AC–2015ATM PPROPRIATIONOMMITTEE For the first time since 2007, FY2015 school bus ridership exceeded 3100 riders. The three-tier on-line registration process achieved its goal. The School Committee continues to support a 44% fee subsidy to- wards the total cost per seat. More detailed information about the School Committee recommended budget is available at: http://lps.lexingtonma.org/Page/5278 FundsFunding RequestedSource Program 1200: RegionalSchools $1,202,814GF The Minuteman Regional High School (MRHS) Committee has accepted an FY2016 budget of $19,831,003, an $185,938 increase (0.95%) over FY2015. This increase consists of a 0.48% decrease in the costs of operations and a 9.5% increase in capital and debt costs. This budget will begin the school’s transition to a reduced high school enrollment of 628 students as well as begin a four-year educational plan conversion to a Career Academy model of education. The goal is to create a smaller school with a higher percentage of in-district students that can still offer a diverse and high quality selection of relevant education and training opportunities, preparing the district to occupy a new or renovated school. Due to a lack of consensus among the District member towns, the school still remains unable to initiate their Massachusetts School Building Authority (MSBA) approved renovations program. This project pro- cess is in its seventh year and the delays have prompted the New England Association of Schools and Colleges to keep MRHS on “Warning Status” for having failed to make progress under the Facilities Standard. MSBA has signaled that unless the project begins to progress towards construction, the funding will be lost. The disagreement amongst the member towns has also created a situation where the District is being forced to reinvest in building systems that are approaching their end-of-life. A serious roadblock for the school renovation is the number of out-of-district students (almost 45% of the school population) and the fact that their tuition (set by the State) covers operating expenses only. New regulations adopted by the Massachusetts Board of Education will enable the school to incorporate a new facilities fee for out-of-district students to fund a portion of the capital renovation program. Last year member communities were asked to accept a new Regional Agreement to address some of these concerns. Although accepted by Lexington’s Town Meeting, it was not accepted district-wide and it will be on the Town Meeting agendas of those towns. However since last year’s votes, the MRHS School Committee voted to reduce the size of the District to 628 students, more closely aligning it with in-district enrollment needs. This budget assumes a smaller high school population, a decline due to the large size of the 2015 graduat- ing class. Staffing changes include reductions in administration positions which net out to a 0.5 FTE, a transfer of a net 2.5 FTE teaching staff from a grant program, a reduction of 1.0 FTE teaching staff, a 0.5 FTE reduction in guidance, and the elimination of 6 coaching positions. The school also anticipates fur- ther enrollment dependent staff changes. Salaries, which make up 62% of the operating budget, increased $101,891 (0.9%). The $1,367,226 transportation contract expires on 6/30/15 and a 3% increase is being budgeted for FY2016. Health insurance premiums are increasing 3% and a $50,000 payment will be made against the District’s $21,900,000 Other Post-Employment Benefits (OPEB) liability. Infrastructure renewal contin- ues with an annual capital budget of $590,000, which includes a $100,000 contribution to their stabiliza- tion fund. As of October 1, 2014, 683 full-time students were enrolled. Roughly 57% of these students are from in- district towns and 43% are from out-of-district towns. The District School Committee has maintained its earlier position not to accept school choice students at MRHS. Total full-time enrollment decreased by 42 students (6%) consisting of an in-district enrollment decrease of 25 students (6%) and out-of-district en- 8 AC–2015ATM PPROPRIATIONOMMITTEE rollment decrease of 17 students (5.4%). Special education (SPED) students comprise 49.9% of the school’s FTE enrollment. The FY2015 out-of-district tuition set by the Massachusetts Department of Elementary and Secondary Education (DESE), increased slightly to $18,467 per student from $18,309 in FY2014, and is expected to decrease in FY2016. Despite lobbying efforts by MRHS, the state-imposed tuition is determined by a formula which continues to underfund the district. In addition, out-of-district towns will continue to be assessed for non-resident SPED tuition at $4,500 per student and all transportation costs will continue to be assumed by the sending community. Revenues and expenses related to Post Graduate (PG) programs, including tuitions charged to in-district students and those assessed to towns, continue to be managed through a revolving account. This financial- ly isolates these programs from the rest of the school’s operating budget. PG enrollments have continued to drop after temporarily rising due to the down economy, partially due to the additional matching tuition charged to in-district students. Member towns are assessed for the upcoming year based on their student enrollment in the current year. These assessments are used to fund the portion of this budget that is not funded by the combination of: (1) all other projected revenues, and (2) member towns’ State Required Minimum (SRM) per-student payments. This year’s assessments are based on an MRHS budget funded with a projected $2,176,952 of Chapter 70 funds and $846,202 in transportation aid. These estimates are based on the Governor’s H-1 budget, which indicates modest increases in funding of Chapter 70 aid and transportation aid compared with FY2015. These amounts are preliminary until final approval of the State’s FY2016 budget. Total assessments are increasing 6%. One significant change in the calculation of member town’s assessment is the elimination of the per- student SPED Assessment. The DESE recently ruled the District must include SPED costs as part of its regular operating costs and is required to spread the costs to member towns using the District Assessment formula. However the District is still allowed to charge a SPED surcharge to out-of-district tuition stu- dents. Lexington’s Projected Minuteman Assessment –based on unapproved House-1budget FTE BASISAVG.PER-PUPIL ASSESSMENT ENROLLMENT*CHARGE PROGRAM FY15FY16FY15FY16FY15FY16 Grades 9-12: Regular Day Students41.5 47.0$6,151$10,719$289,096$444,841 Special Education Assessment26.0**$4,500**$117,000** State Minimums for Lexington49.043.0$14,449$14,667$707,981$630,671 Totals, grades 9-12(inc. SPED)47.041.5$23,704$25,916$1,114,077$1,075,512 Post Graduate Programs: 5.03.0$3,000$3,375$15,000$10,125 TOTAL OPERATING 44.5$24,396$1,085,637 52.0$21,713$1,129,077 Capital Assessment $2,453$2,824$115,308$117,176 TOTAL ASSESSMENT $27,030$1,202,813 $23,930$1,244,385 %increase (decrease) over prior year(-2.61%)12.95%(-15.59%)(-3.34%) *-prior year's enrollment as of October 1 **-SPED Assessment discontinued A breakdown of the full assessment is shown above. Lexington’s FY2015 enrollment (as of October 1, 2014) was 41.5 full-time regular students in grades 9-12. This “basis enrollment” is used to calculate the per-student assessment for Regular Day Students and the Capital Assessment in FY2015. This is a drop in enrollment of 5.5 Regular Day students and 9 Post Graduate students. 9 AC–2015ATM PPROPRIATIONOMMITTEE Due to the Town’s lower enrollment, and a 15% increase in the per-student capital assessment, the pre- liminary FY2016 assessment for Lexington is $41,572 (3.34%) less than the FY2015 actual assessment. FundsFunding RequestedSource Program 2000: Shared Expenses $49,978,942See Motion The Shared Expenses section of the budget is comprised of four different pieces. Each section is listed below with respective budget totals: FY2015FY2016 $ Change% Change RecapRecommended Benefits & Insurance$29,824,628$32,423,749$2,599,1218.71% Debt Service$6,730,641$6,755,562$24,9210.37% Reserve Fund$900,000$900,000$00.00% Public Facilities$9,897,675$9,899,631$1,9560.02% Total Shared Expenses$49,978,942 $47,352,943$2,625,9995.55% The recommended total Shared Expenses line represents an increase over the FY2015 recap amount by 5.55% and is almost entirely driven by an 8.71% increase in employee benefits and insurance. Employee Benefits and Insurance Nine specific increases are cited in the Brown Book that together make up the increase in this line item. Here we comment on the two largest. The Retirement Board recently decided to increase the amount for Contributory Retirement by approxi- mately $250,000 in order to move up the date that the Retirement Fund will reach 100% of full funding to the year 2025, which is 15 years in advance of the State mandate that full funding of the Retirement Fund be achieved by 2040. Our understanding is that the Retirement Board feels a potential downturn in the investment market could jeopardize the Town’s ability to reach full funding by the 2040 deadline, and adopting an earlier deadline improves the Town’s chances of meeting the legal requirement without a need for extraordinary steps during the years shortly before 2040. The Committee feels the 2025 target adopted by the Retirement Board represents an unnecessarily con- servative position, given that (1) the Town’s progress toward full funding is already superior to most oth- er Massachusetts communities, (2) excluded debt service for school and municipal projects will likely peak between 2017 and 2025, putting significant pressure on the Town budget, and (3) a statewide finan- cial downturn large enough to prevent the Town from reaching its funding target for five or more years would dramatically affect every municipality in the state. This would likely lead to a postponement of the legal deadline. While the legally mandated year for full funding remains at 2040, the Committee suggests that a self-imposed deadline of 2030 or 2035 would be prudent. An increase of $1,981,965, or 9.54%, for health insurance is driven by Group Insurance Commission (GIC) rate increases of about 7.5% on average for the Town’s active and retired employees, and by the projection that 103 new enrollees could be added to the Town’s plan in FY2016. Debt Service The increase of $24,921 in this line item is the net increase for within-levy debt service. The recommend- ed budget proposes the appropriation of $620,567 from the Capital Projects Stabilization Fund to pay down some of this line. The Town typically makes payments on exempt debt service without an appropriation from Town Meet- ing, and exempt debt service is not a part of the operating budget. Article 26 proposes an appropriation of 10 AC–2015ATM PPROPRIATIONOMMITTEE $215,000 from the Capital Projects Stabilization Fund to pay down the exempt debt service for FY2016. This will mitigate the annual increase in property tax bills attributable to exempt debt service. Reserve Fund The Reserve Fund is intended for extraordinary and unforeseen expenses. Transfers out of the Fund are done with the approval of the Appropriation Committee. This Fund is level-funded for the coming fiscal year. FundsFunding RequestedSource Programs 3000-8000: Municipal $33,614,349See Motion The municipal budget comprises all line items from 3000 to 8999. Adoption of the recommended munici- pal budget would result in an overall increase from FY2015 to FY2016 of $1,657,037 or 5.19%. The re- quest includes a limited number of program improvement requests; they are listed below with brief com- ments. Changes proposed in the FY2016 municipal department budgets include recommendations: 1.Fund the newly expanded Department of Recreation and Community Programs, with general and enterprise (fee-based) funding for the operations of the new Community Center (appropriated un- der Article 5). Line 4100: 2. Increase the Police Department budget, due in part to a program improvement ($46,000) for a half a year to support costs for the Traffic Bureau division for a new parking me- ter system proposed in the FY2016 capital budget, and two program improvements for the Patrol Division of $10,400 for high visibility uniform polo shirts for traffic officers and $3,818 for driv- er license scanners for police cruisers. Line 4200: 3. Funding to add four Firefighters, two of whom were funded through a federal grant that ended January, 2015, for the staffing of Medic 2, ambulance housed at the East Lexington fire station, on a 24/5 basis, funded through an increase in ambulance fees. The funds include sal- aries, uniforms, and benefits ($339,137). Line 5100: 4. Funding for supplies and materials to offset by 50% the cost of compliance to retain certification by the Massachusetts Board of Library Commissioners ($94,145). Line 7100: 5. Funds primarily for town wide boardwalk and bridge maintenance in conservation ar- eas, Meagherville Bridge renovation, improvements at Daisy Wilson Meadow, and rodent control survey and baiting services ($10,600) and $11,600 increase to fund additional hours for alternate building inspectors. Line 7300: 6. a.Add a staff person to the Economic Development Office, to oversee visitor and tourism programs ($58,641). b.Continue the Town’s operation and management of the Visitor Center, largely funded from revenues at the Gift Shop but also including some general fund/tax levy support ($18,800). Line 8200: 7.Replace the Assistant to the Town Manager position, which had been reassigned to Information Services in FY2015, with another senior management position; ($117,820). Line 8300: 8.Funds one time cost of consulting services to the 20/20 Vision Committee for study of community models of multicultural integration ($15,000). Line 8400: 9.Fund part time Clerical Staff in Assessors’ Office ($18,726). Line 8600: 10. Add three positions to Information Services, one of which is contingent on proceed- ing with the capital project to replace the police/fire dispatching and records software ($267,528). 11 AC–2015ATM PPROPRIATIONOMMITTEE FY 2015FY2016 Municipal Budgets$Change% Change Restated Recommended 3000Public Works $8,721,486$8,749,573$28,0870.3% 4100Police$6,313,553$6,497,856$184,3032.9% 4200 Fire$5,773,938$6,378,634$604,69610.5% 5000 Library$2,180,569$2,324,182$143,6136.6% 6000 Human Services$1,220,133$1,203,663($16,470)-1.3% 7000 Community Development$1,332,104$1,359,989$27,8852.1% 7200 Planning$340,697$359,145$18,4485.4% 7300Economic Development$160,022$289,434$129,41280.9% Selectmen $650,990$665,512$14,5222.2% Town Manager$862,859$863,754$8940.1% Salary Adjustment Account$878,000$910,507$32,5073.7% Town Committees$53,000$69,000$16,00030.2% Finance$1,769,396$1,803,933$34,5372.0% Town Clerk$484,067$436,604($47,463)-9.8% Information Technology$1,216,497$1,702,563$486,06640.0% Total$31,957,312$33,614,349$1,657,0375.2% The Committee recommends approval of this request (8-0). FundsFunding Committee Article 5: Appropriate FY2016 RequestedSourceRecommendation Enterprise Funds Budgets $9,195,731WaterEF $8,624,962 Wastewater EF Approve (8-0) Recreation EF $2,623,267 Tax Levy $216,836 $20,660,796 This Article governs the appropriation of funds for the operation of the Town’s three enterprise funds: the Water Enterprise Fund, the Wastewater Enterprise Fund, and the Recreation and Community Programs 1 Enterprise Fund. For an overview of the legal framework and accounting concepts that apply to the oper- ation of an enterprise fund, please refer to Appendix B. The appropriations addressed in this article cover the complete operating costs of the respective enterpris- es with the exception of indirect costs, which are appropriated under Article 4. The following discussion will focus on the anticipated expenses and revenues of the enterprise funds for FY2016 and issues they raise. Capital appropriations are addressed in Articles 10 (Recreation Capital), 14 (Water System Im- provements) and 15 (Wastewater System Improvements). 1 The mission of the Recreation Enterprise Fund has been expanded to include the recreational operations and programs for the New Community Center, and it has accordingly been renamed the Recreation and Community Programs Enterprise Fund. 2 Final MWRA assessments issued in June, typically a bit smaller than the preliminary assessments, are used to set water and sewer rates during the Town’s annual rate-setting process in the fall. Appropriations for MWRA expenses 12 AC–2015ATM PPROPRIATIONOMMITTEE Water and Wastewater Enterprise Funds A breakdown of the funding request for this portion of the article is shown in the following tables. FY2014FY2015FY2016% Water Enterprise Fund ActualAppropriatedRequestedChange Compensation$626,677$674,611$695,6793.12% Expenses$395,016$389,400$389,4000.00% Debt Service$1,258,627$1,379,622$1,415,5082.60% MWRA Assessment$5,555,065$6,037,972$6,695,14410.88% Total Requested in Article 5$7,835,385$8,481,605$9,195,7318.42% Indirect Expenses$665,848$789,725$898,61413.85% $8,501,233$9,270,880$10,094,3458.88% Total Water Enterprise Budget FY2014FY2015FY2016% Wastewater Enterprise Fund ActualAppropriatedRequestedChange Compensation$174,223$302,360$296,917-1.80% Expenses$336,397$345,650$345,6500.00% Debt Service$1,112,818$1,220,843$940,679-22.95% MWRA Assessment$7,014,300$7,183,375$7,041,716-1.98% Total Requested in Article 5$8,637,738$9,052,588$8,624,962-4.72% Indirect Expenses$450,116$465,030$478,3542.87% $9,087,854$9,517,618$9,103,316-4.35% Total Wastewater Enterprise Budget Note that this table differs from that contained in the warrant in three respects: (1) the MWRA assess- ments for water and wastewater reflect the MWRA’s preliminary assessments issued in February (see table below) rather than placeholders assumed in the warrant, which assumed a 10% increase over the prior year’s assessments; (2) the debt service amounts have been changed to reflect those contained in the Brown Book; and (3) indirect expenses that will be charged to the enterprise funds, although appropriated separately under Article 4, have been included for completeness. MWRA Assessments. The largest expense components of both the Water and Wastewater Enterprise Fund budgets are the assessments charged by the Massachusetts Water Resources Authority (MWRA), which now represent 70-75% of the total budget for each fund. The Town will be assessed a share of the MWRA’s total FY2016 water and sewer budgets based on the Town’s proportionate water and sewer us- age in the prior calendar year (CY2014), compared with other towns in the MWRA community. Based on 2 the MWRA’s preliminary assessments, the MWRA rate increases for FY2016 will be as follows 2 Final MWRA assessments issued in June, typically a bit smaller than the preliminary assessments, are used to set water and sewer rates during the Town’s annual rate-setting process in the fall. Appropriations for MWRA expenses may be adjusted to reflect the final assessments if a special town meeting is held in the fall. 13 AC–2015ATM PPROPRIATIONOMMITTEE MWRA Assessments FY2014FY2015% Fund 3 AppropriatedPrelim. Assmt.Change Water $6,037,972$6,695,14410.88% Sewer $7,183,735$7,041,716-1.98% Combined $13,221,707$13,736,8603.90% The combined MWRA assessment increase of 3.9% is roughly in line with MWRA’s system-wide rate increase of 4.1%. This suggests that a recent trend of substantial increases in Lexington water usage com- pared with the rest of the MWRA community, attributable in part to an extraordinary remedial flushing program undertaken by the Town of Bedford in 2012 and 2013 to remove contamination in certain parts 4 of its water system, has now stabilized. Direct Town Costs. In addition to the MWRA assessments, the expenses of the Water and Wastewater Fund budgets include direct costs incurred by the Town, primarily for: (1) the wages and salaries of the employees in the DPW’s Water and Sewer Divisions, (2) the expenses of the water and sewer mainte- nance activities and equipment, and (3) debt service on prior borrowings for water and sewer enterprise capital improvements. All of these direct costs are increasing at moderate levels or decreasing (see Brown Book, pp. V-26, V-30). This year, as noted in the discussion of Articles 14 and 15, it is proposed to finance the entire $900,000 program of water system improvements and $1,350,000 of a total $2,550,000 in sewer improvements, from retained earnings. This is reasonable because retained earnings are presently above their target lev- els, and, as noted below, the use of surplus retained earnings for capital projects mitigates future debt ser- vice costs and promotes rate stability. Indirect Town Costs. The Water and Sewer Enterprise Fund budgets also include indirect costs for ser- vices provided by other Town departments to support water and sewer operations, such as insurance costs (health and liability), retirement funding, engineering costs, and the cost of services provided by the Comptroller, the Management Information Systems (MIS) Department, and the Revenue Department. Since 2006, the Town has conducted periodic studies of the appropriate level of indirect costs and has adjusted the charges to the enterprise funds accordingly. This year, indirect costs paid by the water fund are increasing by 13.85% to reflect an increase in construction-related services performed by the DPW Highway Division and indirect costs of the sewer fund are increasing at a more modest level of 2.87%. Rate-Setting and Reserves As discussed in Appendix B, the state statute governing enterprise funds, G.L. c. 44, § 53F½, requires that accumulated surpluses resulting from the operations of an enterprise fund, referred to as retained earnings, remain with the fund as a reserve, and that they be used only for capital expenditures of the enterprise, subject to appropriation, or to reduce user charges. Deficits must be funded with existing reserves or, in the absence of such reserves, made up in the following year’s rates. During the early 2000s, difficulties in forecasting usage and other accounting issues resulted in rates be- ing set at less than adequate levels in several rate years. This, in turn, reduced the retained earnings in the Water and Sewer Enterprise Funds to levels that caused concern. Since 2005, the Town’s ability to meas- ure and forecast water and sewer usage, and thereby to anticipate revenues and reserve levels, has im- 3 Last year’s final MWRA assessments came in slightly below the appropriated amounts at $6,035,866 (water) and $7,177,414 (wastewater) but as there was no fall special town meeting in 2014, the budget was not adjusted. 4 Lexington re-sells MWRA water to the Town of Bedford on a pass-through basis. Extra revenue received from the Town of Bedford in 2013 and 2014 as a result of the flushing program was set aside as a reserve to mitigate the resulting rate increases for FY2014 and FY2015. 14 AC–2015ATM PPROPRIATIONOMMITTEE proved significantly. This has enabled the Town to restore and stabilize the water and sewer enterprise fund reserve balances at a targeted amount of approximately $1,000,000 for each of the two funds, and indeed more recently to draw some of the funds down for rate relief and capital investment as shown in the table below. Retained Earnings: Appropriations and Year-End Balances Annual Town Meeting201020112012201320142015 Water 1 Starting Balance $2,113,729$1,622,052$1,952,253$2,066,566$2,234,007$2,119,458 2 Approp. for Rate Relief $450,000$650,000$350,000$300,000$250,000$200,000 3 Approp. for Capital $25,000$145,100$25,000$750,000$873,500$1,015,500 4 ProjectedEnd Balance $1,638,729$826,952$1,577,253$1,016,566$1,110,507$903,958 Wastewater 1 Starting Balance $1,831,967$1,622,052$1,168,190$1,319,000$1,990,816$2,027,941 2 Approp. for Rate Relief $400,000$650,000$150,000$100,000$50,000$0 3 Approp. for Capital $45,000$300,000$0$200,000$940,500$1,390,500 4 Projected End Balance $1,386,967$925,612$1,018,190$1,019,000$1,000,316$637,441 1 Certified retained earnings as of the end of the prior fiscal year (as of 6/30/2014 for this year’s ATM). 2 Proposed appropriations from retained earnings to subsidize the next fiscal year’s operating budget (FY2016 at this ATM). 3 Proposed appropriations for capital projects for the next fiscal year (FY2016 at this ATM); this year’s proposals are found in Articles 11 (Municipal Capital), Article 14 (Water System Improvements) and Article 15 (Wastewater System Improvements). 4 Note that appropriations from retained earnings must be deducted as a liability from the projected retained earnings to be certi- fied as of the end of the current fiscal year, even though the funds will not be applied until the following fiscal year. The projec- tion of anticipated retained earnings assumes break-even operational results during the current fiscal year. A higher (lower) starting balance available for appropriation the following year indicates that the current year’s operating results were higher (lower) than were projected at rate-setting, resulting in an operating surplus (deficit). This year’s budget proposes a continued reduction in the annual retained earnings subsidy for rate relief – a reduction in the water subsidy from $250,000 to $200,000 and a reduction of the sewer subsidy to zero. These reductions make progress toward the goal of eliminating the use of retained earnings for short-term rate relief, which this Committee has recommended since such subsidies can be hard to eliminate abruptly and tend to introduce volatility in the rates. As indicated by the difference between the projected ending balance of retained earnings and the next year’s starting balance, the rates that were set in the fall of 2013 for FY2014 generated significant operat- ing surpluses of approximately $1 million in each of the water and sewer funds, increasing the amount of retained earnings available for appropriation this year, continuing a trend of substantial operating surplus- es that has been experienced for several years now. To some extent these surpluses were the result of un- foreseen events, such as the receipt of unanticipated bond premiums; however, they also appear to be at- tributable to a sustained upward trend in water usage, particularly at the highest rate tier by certain com- mercial users, which has not been fully recognized in the rate-setting process. Rate-setting for FY2016 should take these trends into account so that rates are not set higher than necessary. While this committee has advocated the use of unanticipated retained earnings surpluses to fund capital improvements, thereby lowering long-term debt service costs and promoting rate stability, the goal of the enterprise funds should ordinarily be to break even, and any program to raise revenue in the rates for cash capital on a consistent basis should be explicitly addressed in the rate-setting process. 15 AC–2015ATM PPROPRIATIONOMMITTEE Recreation Enterprise Fund RecreationFY2014FY2015FY2016Dollar % Enterprise FundActualApprop.RequestedIncreaseChange $1,127,630 Compensation$648,607$704,615$423,01560% $1,374,201 Expenses$963,274$1,036,319$337,88232% $100,000 Debt Service$100,000$100,000$00% $2,601,831 Total Requested in Article 5$1,711,881$1,840,934$760,89735% $238,272 Indirect Expenses$228,600$233,600$4,6722% (transferto GeneralFund) Total$1,940,481$2,074,534$2,840,103$765,56937% Early in 2015, the Recreation Department was reorganized and renamed the Department of Recreation and Community Programs resulting in increased costs for operations and programs. The Director of Rec- reation and Community Programs, through the Recreation Committee, will continue to set fees with the approval of the Board of Selectmen. This budget represents an increase of $765,569 (36.9%) from last year is driven primarily by the inaugu- ration of the Lexington Community Center (LCC), see Brown Book pp. VII-9 – VII-10. In FY2016, The LCC budget includes $383,073 to fund 5.5 full time and seasonal staff who will plan, manage, and deliver community programs, along with the supplies needed. The operational costs of all programs offered by the Recreation Department are designed to be revenue neutral with charges to users matching the program’s operating costs. However, to supplement the overall increases in cost of operation and programming of the LCC, it is proposed that the in FY2016 the tax levy contribute an additional $217,000 in funding. Debt service cost are unchanged at $100,000. Other factors contributing to the increase: Management of active recreation construction projects pending approval for FY2016 funding (see Brown book pg. VII-10), Increases in compensation driven by cost of prospective step increases, cost-of-living increases and an increases in the minimum wage for seasonal employees, Increases in compensation for the Department Director to reflect additional responsibility in over- seeing the operation of the Community Center, A $3,000 increase in the annual cost of the contract for the management of the golf course, A 2% increase on indirect payments to the General Fund to support costs incurred in the General Fund that support the Recreation Department. Sources of revenue include user fees for fields and registration fees for programs (estimated to total $1,009,079 in FY2016). The revenue estimate for Pine Meadows Golf Course was reduced in response to actual usage figures. The estimate was reduced by 2.6% ($16,800) to $800,000. The Recreation Fund contributes to the debt service on some recreation capital projects (in particular, the Lincoln Field restoration project). Most recreation capital costs, however, are subsidized by the General Fund through a combination of within-levy borrowing, Community Preservation Act (CPA) funding, and excluded debt. The certified retained earnings for the Recreation Enterprise Fund as of the end of FY2014 were $998,471. Withdrawals from the Recreation Enterprise Fund retained earnings are proposed for capital purposes under Article 8 ($193,500 for Lincoln Park Field #3; $68,000, Article 10 for Pine Meadows Equipment). The Committee recommends approval of this request (8-0). 16 AC–2015ATM PPROPRIATIONOMMITTEE FundsFunding Committee Article 6: Appropriate for Senior RequestedSourceRecommendation Service Program Approve (9-0) $20,000GF This article proposes an appropriation for the Town's Senior Service Program of $20,000. This amount, together with an anticipated carryover balance from prior years of approximately $15,000 is expected to be sufficient to meet the needs of the program in FY2016. The Senior Service Program Since 2006, the Town has operated its own Senior Service Program, which allows low- to moderate in- come seniors (age 60 and over) to perform volunteer work for the Town in exchange for a reduction in their property tax. The Town adopted this program, in substitution for a similar program previously oper- ated under G.L. c. 59, § 5K, to allow it more flexibility in setting the age criteria for participation, the wage rate, and the total amount of credit allowed. For more information on the Senior Service Program and other property tax relief options available to seniors, including exemptions and opportunities for deferral, please refer to Appendix D. Benefits and Criteria for Participation The maximum amount of the tax reduction that may be earned, under guidelines established by the Se- lectmen and amended in July 2014, is $1,045/year (110 hours at $9.50 per hour) for an individual and $1,330/year (140 hours at $9.50 per hour) for a couple. Participants may receive property tax reductions under this program in addition to any other exemption for which they qualify, such as the $1,000 Clause 41C exemption, and may also defer the balance of their taxes under Clause 41A if they are eligible to do so. Current income eligibility criteria are set forth in Appendix D. Funding Requirements and Requested Appropriation The program operates as a continuing balance account, and unexpended funds carryover from year to year. When first established in FY2007, the program was funded at $25,000, an amount slightly higher than the average annual amount that had been expended from an overlay account under the pre-existing state program during the 2004-2006 fiscal years. In anticipation of higher usage, the annual appropriation was subsequently increased over time from $36,000 in FY2007 to $45,000 in FY2010. This level of funding, however, proved to be more than was required to allow the Town to admit all eligi- ble applicants who wished to participate in the program. Despite efforts to expand participation, including increases in the income threshold, the numbers have been stable at around 28 to 30 persons from FY2007 through FY2014, and annual expenditures have ranged from $23,642 to $28,046. Accordingly, appropria- tion requests since FY2010 have been scaled back to reflect realistic funding requirements and the amount of carryover funds available. The appropriation requested this year is $20,000. Going forward, however, the Selectmen may wish again to consider steps to enhance interest in this worthy program. The Committee recommends approval of this request (9-0). 17 AC–2015ATM PPROPRIATIONOMMITTEE FundsFundingCommittee Article 7: Establish and Continue RequestedSourceRecommendation Departmental Revolving Funds Approve (8-0) See belowRF Authorized FundDepartmental FY2015FY2016 Program or PurposeRepresentative or #ReceiptsApprovedRequested Board $850,000 1100School Bus TransportationSchool CommitteeSchool Bus Fees$830,000 Building Rental RevolvingBuilding Rental $425,000 2400Public Facilities Dir.$410,000 FundFees Regional Cache -Hartwell $20,000 3100Public Works Dir.User Fees$20,000 Avenue $45,000 3320Tree FundBoard of SelectmenGifts and Fees$25,000 $40,000 3330DPW Burial ContainersPublic Works Dir.Sales$40,000 $534,922 3420DPW Compost OperationsPublic Works Dir.Sales and Permits$490,000 Minuteman Household Fees Paid by $180,000 3420Public Works Dir.$180,000 Hazardous Waste ProgramConsortium Towns Council on Aging $100,000 6120Human Services Dir.Fees and Gifts$100,000 Programs Medicare $14,000 7140Health ProgramsHealth Dir.$14,000 Reimbursements Town ManagerandLiberty Ride $280,000 7320Tourism/Liberty Ride$275,000 Tourism CommitteeReceipts Economic Devel.Sales, Program $117,000 7340Visitor Center– Dir.Fees and Donations Board of Selectmen License Fees from $565,000 8140PEG Access$671,000 and Town ManagerCable TV Providers Reauthorization of all existing municipal revolving funds is requested for FY2016 as shown in the table above. Information regarding the nature of revolving funds can be found in Appendix C of this report. A summary of the revolving fund balances can be found on page C-2 in the Brown Book. The spending lim- it proposed for each of the funds is based on a reasonable estimate of the fees and charges likely to be re- ceived, as well as of the expenditures likely to be required. Changes in Authorization Levels from FY2015 The Tree Fund budget is recommended to increase by $20,000 to accelerate tree planting throughout Town pursuant to a joint initiative of the Tree Committee and the Department of Public Works. The Compost Operations Revolving Fund increased by $39,942, or 8.07%, which reflects a $5,311 in- crease in compensation, and a $10,400 increase in operating expenses driven primarily by the cost of screening compost. In addition, debt service is increasing by $23,694 to cover the purchase of a loader and windrow turner. The PEG Access Revolving Fund is driven by an escalator in the Town’s contract with LexMedia, how- ever this year the overall request is $137,000, or 20.42% lower than FY2015. Last year, $200,820 was approved to install communications infrastructure needed for public access programming in Cary Memo- rial Building. This year only $57,000 is requested to install wireless communications in Cary Memorial Building. 18 AC–2015ATM PPROPRIATIONOMMITTEE A new Revolving Fund was created for the Visitor’s Center by action of the Selectmen and this Commit- tee. In September 2014, the Town’s Economic Development Office assumed the operation of the Lexing- ton Visitors Center and Gift Shop, formerly run by the Lexington Chamber of Commerce. FY2016 will be the first full year of operation of the Visitor Center under the Town’s jurisdiction. The Committee recommends approval of this request (8-0). FundsFunding Committee Article 8: Appropriate the FY16 RequestedSourceRecommendation Community Preservation $1,222,813CPA Committee Budget and CPA Approve (8-0) $336,500GF Debt except8(c) (3-3-2), Projects $193,000Rec. EF 8(g)IP $1,752,313 The Community Preservation Act (CPA) is a state statute that allows municipalities to raise a surcharge on property taxes for local use for purposes related to historic preservation, open space (including recrea- tion), and affordable housing. The State provides matching funds (the amount depending on monies available and demand from adopting communities) from fees imposed on real estate transactions, includ- ing mortgage refinancing. While the CPA provides broad guidance on the appropriate use of funds, it allows for a considerable measure of local control by 1) establishing a local Community Preservation Committee (CPC) to review and make recommendations on candidate CPA projects to Town Meeting and 2) authorizing Town Meet- ing to approve CPC-recommended projects. Town Meeting may not increasea CPC-recommended ap- propriation, nor may it alter the stated purpose of an appropriation, but it may amend to decreasean ap- propriation. Communities adopting the CPA have each implemented the statute in a way that reflects local opportuni- ties, priorities and needs. One of Lexington’s opportunities lies in the inventory of municipal and school buildings that qualify as historic buildings and which are therefore eligible for CPA funding. These pro- jects can be funded through a combination of Lexington taxpayers’ CPA surcharges and State matching funds. Since Lexington’s adoption of the Community Preservation Act in 2006, the CPC has recommended and Town Meeting has approved a total of $59,915,893 for CPA projects. These funds have supported 40 his- toric preservation projects, preserved 78 acres of open space, created or preserved 15 recreational facili- ties, and created or supported 249 units of affordable housing. Of this total, $11,380,622 or 19% of the Town’s total project costs (exclusive of Administrative expenses) has been received from the State as matching funds. Funding Sources and CPA Categories The requests recommended by the CPC are listed below. The funding source for each request is entirely CPA-based unless otherwise noted. All CPA projects must qualify for CPA funding under one (or more) of the following categories: Open Space, Historic Resources, Affordable Housing, or Outdoor Recreation. The CPA fund has a restricted account for each category, along with an Unallocated Reserve that can be used for any qualifying project. CPA funds are appropriated from an eligible restricted account when fea- sible, or from the Unallocated Reserve. Article 8(a) Conservation Meadow Preservation Program - $26,400 This represents the first of a multi-year project to preserve and protect Lexington’s conservation mead- ows, for their historical landscape significance, including historic stonewalls and vistas, for passive recre- ation, and for enhanced wildlife and habitat. In year one of the project, Hennessey Field and Joyce Mil- ler’s Meadow will be preserved, for a total of approx. 8 acres. The project entails extensive woody vege- 19 AC–2015ATM PPROPRIATIONOMMITTEE tation removal, clearing heavily overgrown shrubs, trees and vines, preserving views of historic stone walls, managing invasive species encroachment on field edges and throughout meadows. The Conservation Commission owns and maintains 1,400 acres of conservation land. Of this total, ap- proximately 75 acres represent upland meadows, and these are estimated to take about 7 years to com- plete conservation work, with two meadows being completed per year. Eligible for CPA funding as Open Space and Historic Resources. Article 8(b) Parker’s Revenge Site Restoration - $36,790 This project proposes to restore the Parker’s Revenge battle site for the educational enjoyment of visitors, at the initiative of the Friends of the Minuteman National Park. The project includes archeological analy- sis, site restoration, and implementation of an interpretative plan. The site is owned by the Minuteman National Historic Park. The total cost of the project is estimated to be $152,930, with the balance from private funds. Eligible for CPA funding as Historic Resources. Article 8(c) First Parish Church Restoration Historic Structure Report - $40,000 NOTE: The Committee is strongly divided on this request. As of publication, the Committee’s vote of (3- 3-2) means we do not recommend approval of 8(c). Members have expressed concerns about the appro- priation of public funds for a building that does not serve a primarily public purpose, government support for a religious organization, the comparatively small amount of privately raised funding, and the possibil- ity that approving this request would encourage a larger follow-up request to address problems identified in the Historic Structure Report. This request would be used for a historic structure assessment and report documenting the condition of First Parish building. Architectural and structural elements will be investigated, along with mechanical systems, code compliance, analysis of hazardous materials, building accessibility, etc. Specifications for cost estimates will be prepared, along with a phased project plan. The total cost of the report is $52,660, with the balance being raised from private funds by First Parish. Eligible for CPA funding as Historic Resources. Article 8(d) Cary Memorial Building Records Center Shelving - $75,398 This project seeks to remove undersized shelving at the Cary Memorial Building, and replace it with sta- tionary shelving. These shelves are used for storage of long-term and some permanent records of signifi- cant and historical value. Eligible for CPA funding as Historic Resources. Article 8(e) Battle Green Streetscape Improvements Funding Amount Source CPA$140,000 Free Cash$60,000 Total$200,000 At the 2012 Annual Town Meeting $143,845 was approved for a study of a Battle Green area which has reviewed pedestrian and vehicular safety and flow in and around the Battle Green, its relation to the Cen- ter Streetscape Project, and ways to enhance access and visibility of the historical sites. The FY2016 funding request will allow the town to hire an architect/engineering firm to take the conceptual ideas to a 100% design, providing a plan and cost estimates for any recommended improvements to the area. 20 AC–2015ATM PPROPRIATIONOMMITTEE $140,000 of the funds requested are eligible for CPA funding as Historic Resources. The Harrington Road intersection portion will be funded by Free Cash ($60,000). FY2017 estimated design, engineering and construction costs are $900,000, of which $630,000 will be CPA eligible. Article 8(f) Community Center Sidewalk Design - $50,000 The Nov 2013 Special Town Meeting approved $20,000 in design funds for adding pedestrian access to the Community Center located at 39 Marrett Rd. Lexington’s Department of Public Works, Engineering Division, developed two sidewalk concepts, both of which would have required obtaining an easement from the Scottish Rite. Neither concept was, however, approved. The Community Center, which is cur- rently undergoing renovations, will be open to the public opening in the spring of 2015. An additional $50,000 appropriation is now requested to determine appropriate sidewalk design alterna- tives. The proposed sidewalk will run adjacent to Marrett Rd, then entering the Community Center prop- erty to connect with existing sidewalks within the property. The design of the sidewalk is complex in that it needs to overcome the steep grades of the property and still comply with accessibility regulations, while also not conflicting with the land that remains under the ownership of the Scottish Rite. Eligible for CPA funding as CPA Historic Resources. An estimate of the total construction cost of the sidewalk was not available prior to publication. Article 8(g) Cary Memorial Building Sidewalk Enhancement – $194,200 This article is a duplicate of the 2015 Special Town Meeting #2 Article 4, to be taken up prior to the An- nual Town Meeting. We anticipate that action on this item will be indefinitely postponed. Article 8(h) Community Center Preservation Restriction Endowment - $25,000 The Community Preservation Act requires that any property purchased using CPA Historic Resources funding be subject to a preservation restriction, deeded in perpetuity and approved by the Massachusetts Historical Commission. The current appropriation would fund such a preservation restriction for the Community Center at 39 Marrett Rd. The preservation restriction is deeded in perpetuity to the Lexington Historical Society, which has requested that an endowment fund be established to compensate the Society for its administrative ex- penses in maintaining the preservation restriction. The preservation restriction will ensure that the archi- tecturally and historically significant elements of the property be preserved and maintained to appropriate standards. Under the terms of the contract to be signed between the Society and the Town, once the fund is depleted, estimated in 5-10 years, the Town and the Society will negotiate a replenishment of the fund. Eligible for CPA funding as Historic Resources. Article 8(i) Park and Playground Improvements - $68,000 This project is part of a multi-year effort to renovate and update Lexington playgrounds. The current appropriation will fund the replacement of the playground and play equipment at Marvin Park, locat- ed on Morris St near the Bedford border. The park equipment is outdated, and does not meet current safety standards. The improvements will include new construction of a play structure, new swing set, installation of appropriate safety surfacing under and around the playground structure and swings, park benches signage and trash barrels. The completion timeframe is fall 2015, and the expected life of the new structure is 20 years. Recreation. Eligible for CPA funding as Article 8(j) Park Improvements - Athletic Fields - $85,000 This appropriation will fund the renovation of the natural grass Softball field at Lincoln Park. Reno- vation will include new irrigation, laser grading of the skinned infield, grading the field for proper 21 AC–2015ATM PPROPRIATIONOMMITTEE drainage, a new backstop, benches, and trash barrels. Initially, this project was planned for FY2017, but it was pushed to start a year earlier due to the poor current condition of the field. The improved field condition will reduce the need for DPW and Recreation staff hours and equip- ment, since it will require only routine maintenance and not emergency repairs. Recurring cost will continue to be irrigation water. The expected life of this field, after renovation, is 10 years. Recreation. Eligible for CPA funding as Article 8(k) Park and Playgrounds ADA Accessibility Study - $78,000 This appropriation will fund a Lexington Recreation Facilities and ADA Compliance Study of Lex- ington recreation areas, which will determine need for accessibility improvements. The study will include a facilities compliance assessment, recommendations and options for probable costs for play equipment, facilities access, signage, handicapped parking, accessibility pathways, accessible and non-compliant seating, bleachers, picnic facilities and golf course buildings. As a result of the study, a written Transition Plan will be developed and incorporated in future capital plans. Recreation. Eligible for CPA funding as Article 8(l) Park Improvements - Hard Court Resurfacing - $55,000 This request is to rehabilitate the basketball courts at Sutherland Park and Marvin Park by recon- structing the courts and installing new backboards/poles. The current structures have extensive cracks and frost heaves, which will require reconstruction. The expected replacement frequency after repairs is 12 years. Recreation. Eligible for CPA funding as Article 8(m) Lincoln Park Field Improvements - Phase 3 Funding Amount Source GFDebt$236,500 CPA$220,000 Recreation EF$193,000 Total$650,000 This is the third phase of a three phase capital project addressing safely and playability on the syn- thetic fields at Lincoln Park. In this phase, the Lincoln Park #3 synthetic field will be removed, partially recycled, and replaced with a similar synthetic carpet and fill-in. Drainage will be inspected and repaired if needed, and the subsurface will be laser graded prior to synthetic surface installation. Walkways around the field will be rehabilitated. The walkway edging near the bathroom will be replaced, and a guardrail will be added to prevent vehicles from driving on the synthetic turf. The Lincoln Park synthetic fields were installed in 2003, and had a life expectancy and warranty of 10 years. In the high use areas, the fibers are beginning to show wear and tear, start falling off the carpet, or are split/broken giving the appearance of a scouring pad. Synthetic surface replacement is necessary, but the underlayment and drainage system can be used for two or three turf replacements. The improved field condition will reduce the need for DPW and Recreation staff hours and equip- ment for emergency repairs. 22 AC–2015ATM PPROPRIATIONOMMITTEE Phase one of the project (Lincoln Park Field #1) had funds approved in 2013, initial installation com- pleted by Spring of 2014, but problems were found with the synthetic blades of grass and seams in between panels after installation. An agreement was reached in Nov 2014 with the installation con- tractor, who is removing the turf and having another turf installed at no cost to Lexington by Spring 2015. For phase two (Lincoln Park Field #2), $620,000 in funding was approved in 2014, the bid was put out in winter and work should start in June of 2015. If phase three is approved under this request (Lincoln Park Field #3), specifications will be devel- oped and renovations will be completed in the summer/fall of 2015. Eligible for CPA funding as Recreation. Article 8(n) Minuteman Bikeway Culvert Rehabilitation Funding Amount Source GFDebt $100,000 CPA $290,000 Total $390,000 This project will replace a culvert along the Minuteman Bikeway, just north of Camellia Place at the headwaters of the North Lexington Brook. The replacement frequency for this culvert is 50 years. Project will cover design/engineering ($65,000 General Fund debt), construction ($250,000 in CPA Recreation funds) and contingency ($75,000, also General Fund debt). Eligible for CPA funding as Recreation. Article 8(o) Grain Mill Alley Additional Design - $18,000 This is a request to fund additional design development of a pocket park in the alley between 1775 and 1778 Massachusetts Avenue in Lexington center. The alley is a pedestrian connection between the Min- uteman Bikeway and the Center’s retail corridor along Massachusetts Avenue, roughly 27 by 233 feet, (or roughly 6,300 sq. ft.). This public space project is designed to enliven the Center by improving underuti- lized areas and create a sense of place that attracts activity, improves pedestrian access and generated business for the Center. In 2013, the CPC approved $24,000 for preliminary schematic design, which includes site analysis, de- sign development, an analysis of cost estimates, as well as legal services to develop a contract with the adjacent property owners. The additional $18,000 in design development will allow for public outreach, for schematic design, and will cover $2,000 in anticipated legal expenses. Funding source is CPA Open Space funds. The additional $18,000 in design development will allow for public outreach, for schematic design, and will cover $2,000 in anticipated legal expenses. The anticipated FY2017 cost of design development, final design and construction is $325,000. Eligible for CPA funding as Open Space. Article 8(p) Minuteman Bikeway Wayfinding - $39,000 This request would fund an initial design phase of the project to install signage along Minuteman Bikeway, adjacent roads and connection points. The signage will provide directional information to bikeway users, will indicate nearby points of interests (e.g. businesses, shops, tourist attractions), and will describe bikeway etiquette. 23 AC–2015ATM PPROPRIATIONOMMITTEE In this article, $39,000 in CPA recreation funds are requested for developing alternative options for wayfinding and etiquette signs, to be reviewed with the Bicycle Advisory Committee and other stakeholders. Upon approval of a final set of designs, full bidding documents will be developed that include cost estimates, specifications, stamped plan sets, and bid documents. Eligible for CPA funding as Recreation. Article 8(q) Reconstruction of the Lower Vine Brook Paved Recreational Path - $369,813 Lower Vine Brook Park consists of 110 acres of conserva- tion land, with 4.5 miles of trails, 1.1 miles of which is a paved pathway, running along Vine Brook from Fairfield Drive through East Street to North Street. The paved pathway has been degrading over the years. It is now cracked, uneven, and buckled, and will require full reconstruction. This request would fund the reconstruction of the subsur- face and surface of the paved pathway. The cost breakdown is $3,500 for design/engineering, $305,761 for construction, and $60,552 in contingency. The cost estimate is based on costs for the 2014 Lincoln Park path replacement, assuming a 20% increase in mate- rials cost due to inflation. Work on this project will be divided in two phases. The first phase will occur during the 2015/16 construction sea- son, including wetlands permitting (wetlands delineation and permitting fees), tree pruning (to allow truck access on the Fairfield Drive end of the path), and path reconstruc- tion (Fairfield Drive to East Street and to East Emerson Road). A second phase in 2016/2017 will cover the seg- ment from Emerson Road to North Street. The expected life of the reconstructed path is 25 years. Eligible for CPA funding as Open Space. Article 8(r) Community Preservation Fund Debt Service - $2,417,200 Debt service on the CPA projects is outlined in the following table. Two different types of debt are used: Bond Anticipation Notes (BANs), and multi-year municipal bonds. BANs allow interest-only short-term borrowing for a term of up to one year. They are issued for individual projects prior to bundling the debt from several projects to create a single multi-year bond. 24 AC–2015ATM PPROPRIATIONOMMITTEE TotalDebtDebtBAN Project / Approval AppropriationFinancingServiceInterest Wright Farm Purchase$3,072,000$2,090,000$424,800 ATM 2012 2ndpayment of a 10-year bond Community Center Acquisition$10,950,000$7,652,500$1,065,100 STM 3/2013 2ndpayment of a 10-year bond Community Center Renovation$6,320,000$451,000$11,178 STM 11/2013, Amended STM 3/2014 Convert to bond Feb 2015 Cary Memorial Building Upgrades$8,677,400$8,241,350$899,459$16,664 STM 3/2014 Convert to bond Feb 2015 Totals$2,389,359$27,842 The practice of the Town, based on recommendations from the Appropriation Committee and Capital Ex- penditures Committee, is to limit the size and duration of debt funded by the CPA to the practical mini- mum, usually below the maximum that would be allowed by statute. This reduces the potential for long- term financial commitments that would linger should the residents vote to rescind the CPA surcharge in the future. That said, this practice should not be allowed to consign too much of the CPA annual revenue for debt service, which would stifle the ability of the CPC to fund new projects directly with cash. Article 8(s) Administrative Budget - $150,000 The Community Preservation Act permits up to 5% of annual CPA funds to be spent on the operating and administrative costs of the Community Preservation Committee. The Committee is allowed to use this money to pay for staff salaries, mailings, public notices, overhead, legal fees, membership dues, and other miscellaneous expenses related to CPA projects. Five percent of the anticipated FY2016 revenue from the surcharge and the State supplemental match is $252,400. However, as in past years, the CPC is requesting an appropriation of $150,000. This money will be used to fund the Committee’s part-time Administrative Assistant, membership dues to the non-profit Community Preservation Coalition, administrative expens- es, legal and miscellaneous expenses, and land planning, appraisals and legal fees for open space pro- posed to be acquired using CPA funds. The Committee is deadlocked on 8(c) (3-3-2). The Committee expects action on 8(g) will be indefinitely postponed. The Committee recommends approval (8-0) of items 8(a,b,d,e,f,h,i,j,k,l,m,n,o,p,q,r,s). FundsFunding Committee Article 9: Property Purchase – 241 RequestedSourceRecommendation Grove Street Approve (8-0) $618,000CPA This is a request to use Community Preservation Act funds to purchase an approximately 1-acre property on Grove Street adjacent to Town-owned conservation land. In 2012 the Town purchased, for Conserva- tion purposes, the 12.6 acre Wright Farm parcel on the northeast side of Grove Street for $2,950,000. At the time of that purchase, Kathleen Wright retained a 43,446 sq. ft. parcel that included the house she was living in, a detached garage and a barn; the parties granted to the Town a right of first refusal for the pur- chase of the property. The pre-negotiated price for this remaining portion of the Wright Farm was approx- imately $520,000. 25 AC–2015ATM PPROPRIATIONOMMITTEE With the passing of Ms. Wright in January, the Board of Selectmen and Conservation Commission recommended to the Community Preservation Committee (CPC) that the Town exercise its right to purchase the property. The funding source would be the CPA Undesignated Reserve. The Selectmen propose to turn the house over to the Lexington Housing Assistance Board (LexHAB) to create an affordable housing unit, and for the barn and the remaining portion of the land to be used for conservation purposes. There is another $95,000 re- quested for ancillary costs including a land manage- ment plan, survey, deed restriction, legal, and other closing costs, and the remaining $3,000 will be used to maintain and secure building(s) while the property is unoccupied. If the property is not acquired within the Town’s 180-day option period, the Town could lose the opportunity to secure the property for affordable housing and conservation purposes. The Committee recommends approval of this request (8-0). FundsFundingCommittee Article 10: Appropriate for RequestedSourceRecommendation Recreation Capital Projects Approve (8-0) $68,000Rec. EF “This request is to purchase a Toro Grounds Master 4500D mower to replace the existing 2007 Toro Grounds Master. The life expectancy of golf course mowers average 7 years. New emission regulations increased the cost of the mower by over $10,000 from the FY2014 capital plan. The 4500D is approxi- mately 9 feet wide and has five floating decks. It will be used almost daily in maintaining the rough at Pine Meadows that covers approximately fifteen acres of turf .” \[Brown Book, Page XI-24\] The Committee recommends approval of this request (8-0). FundsFundingCommittee Article 11: Appropriate for Municipal RequestedSourceRecommendation Capital Projects and Equipment Approve(8-0) $15,539,150See below exc.11(k) (2-5-1) Financial details of the request are summarized below. For a discussion of the items in this request, please see the Report of the Capital Expenditures Committee. FundsCommittee Project DescriptionFunding Source RequestedRecommendation (a)Center Streetscape Improvements and $2,700,000GF (Debt)Approve (8-0) Easements –Phase1 26 AC–2015ATM PPROPRIATIONOMMITTEE FundsCommittee Project DescriptionFunding Source RequestedRecommendation GF (Debt) $399,000 Free Cash $100,000 Water EF (RE) $40,500 (b)DPW EquipmentApprove (8-0) Wastewater EF (RE) $40,500 Compost RF (Debt) $690,000 $1,270,000 $114,425GF(Debt) (c)Storm Drainage Improvements and NPDES $225,575Free CashApprove (8-0) Compliance $340,000 (d)Comprehensive Watershed Storm Water $390,000GF (Debt)Approve (8-0) Management Study and Implementation (e)Sidewalk Improvements, Additions, Design $600,000GF (Debt)Approve (8-0) and Easements (f)Town-wide Culvert Replacement$100,000GF (Debt)Approve (8-0) (g)Town-wide Signalization Improvements$125,000GF (Debt)Approve (8-0) (h)Hartwell Avenue Infrastructure $4,750,000GF (Debt)Approve (8-0) Improvements and Easements $2,270,145FreeCash (i)Street Improvements and Easements$961,105Chapter 90Approve (8-0) $3,231,250 (j)Bikeway Bridge Repairs and Engineering$10,000Free CashApprove (8-0) (k)Hastings Park Undergrounding Wires$300,000Free CashDisapprove(2-5-1) $75,000Free Cash (l)Hydrant Replacement Program$75,000Water EF (RE)Approve (8-0) $150,000 Cemetery (m)Westview Cemetery Building Assessment $35,000Approve (8-0) Trust Fund (n)Replace Town Wide Phone Systems –Phase $52,000Free CashApprove (8-0) IV (o)Municipal Technology Improvement Program $140,000Free CashApprove (8-0) –Phase III $398,400GF (Debt) (p)Police/Fire Dispatching and Records $307,500Free CashApprove (8-0) Software $705,900 GF (Debt) Debt service to be (q)Parking Meter Replacement$500,000Approve (8-0) funded from Parking Meter Fund (r)Public Safety Radio Stabilization –Phase I$90,000Free CashApprove (8-0) (s)Design/Engineering–Firing Range at $50,000Free CashApprove (8-0) Hartwell Avenue Compost Site 27 AC–2015ATM PPROPRIATIONOMMITTEE A majority Committee does not feel that 11(k) (Hastings Park Undergrounding Wires) is a prudent use of funds at this time. The Committee recommends disapproval of 11(k) (2-5-1) The Committee recommends approval of 11(a,b,c,d,e,f,g,h,i,j,l,m,n,o,p,q,r,s) (8-0). FundsFundingCommittee Article 12: Pleasant Street Sidewalk RequestedSourceRecommendation IP $20,000GF This request is to appropriate funds for a feasibility study for a new sidewalk connecting an existing, in- terrupted segment on Pleasant Street. The area in question is not far from Wilson Farm and Sacred Heart Church and was confirmed by the 2014 Pedestrian Accessibility Report to be an area with high pedestrian volume. At press time, the Town Manager had proposed that the FY2016 capital budget for sidewalks, under Arti- cle 11(e), be increased to $600,000, a $200,000 increase from FY2015 and that the projects under Articles 12 and 13 be covered under Article 11(e). If Article 11(e) passes, Article 12 and 13 will be indefinitely postponed. However, the Committee has voted to recommend approval of this request if necessary. The Committee anticipates action on this request will be indefinitely postponed. FundsFundingCommittee Article 13: Prospect Hill Sidewalk RequestedSourceRecommendation IP $100,000GF This request is to appropriate funds for construction of a new sidewalk Prospect Hill Road. The area in question is not far from The Bridge School and was confirmed by the 2014 Pedestrian Accessibility Re- port to be an area with high pedestrian volume. At press time, the Town Manager had proposed that the FY2016 capital budget for sidewalks, under Arti- cle 11(e), be increased to $600,000, a $200,000 increase from FY2015 and that the projects under Articles 12 and 13 be covered under Article 11(e). If Article 11(e) passes, Article 12 and 13 will be indefinitely postponed. However, the Committee has voted to recommend approval of this request if necessary. The Committee anticipates action on this request will be indefinitely postponed. FundsFundingCommittee Article 14: Appropriate for Water RequestedSourceRecommendation System Improvements Approve (8-0) $900,000Water RE This Article addresses proposed capital expenditures to be made during FY2016 as part of a continuing program to upgrade and maintain the assets of the Water Enterprise Fund. For general background on the enterprise funds, and the relationship between the budget process and the water rate setting process, please see Appendix B and the discussion under Article 5. A total of $900,000 is requested this year to replace unlined or inadequate water mains and deteriorated service connections and to eliminate dead ends in water mains. The details of the projects, including the locations where work is expected to be done, can be found in the Brown Book (p. XI-23). The costs of 28 AC–2015ATM PPROPRIATIONOMMITTEE this year’s system improvements will be funded entirely from retained earnings of the Water Enterprise Fund. Capital appropriations for similar purposes have been made in most years over the last decade (except for FY2006 and FY2012, when engineering studies were not ready). The goal is to assure dependable service with high water quality, pressure, and volume for domestic needs, commercial needs, and fire protection, as well as minimization of water main breaks. Prior to FY2006, capital expenditures for water distribution and related improvements were funded by a combination of enterprise fund cash capital, which was raised in the rates, and borrowing. Subsequently, there was a transition to funding these ongoing improvements exclusively with debt. While the transition to debt financing in the enterprise funds mitigated the need for rate increases early on, that change, to- gether with the fund’s allocated contribution to the debt service for the new DPW facility, steadily in- creased the annual debt service costs of the Water Enterprise Fund, both in dollar and percentage terms, as illustrated below. Growth in Water Fund Debt Service Costs Fiscal YearWater Debt ServiceTotal BudgetDebt Service Ratio 2006 $213,150$6,237,2353.4% 2007 $358,301$6,514,5025.5% 2008 $425,565$6,469,3886.6% 2009 $757,247$7,190,80010.5% 2010 $1,074,551$7,241,30414.8% 2011 $1,137,075$7,619,91914.9% 2012 $1,258,968$8,039,41315.7% 2013 $1,299,091$8,124,84616.0% 2014 $1,260,655$8,707,21914.5% 2015 $1,379,622$9,270,88014.9% 2016 $1,415,508$10,094,34414.0% The Committee has previously noted that judicious use of some of the fund’s accumulated retained earn- ings could help defray the impact of these growing capital costs and help to maintain long-term rate sta- bility. We are pleased that this recommendation has been adopted for a third year, with a substantial cash contribution from retained earnings funding the entire annual water distribution system improvements cost and, as noted below, also funding the acquisition of equipment replacements. Even if this level of cash contribution from retained earnings cannot be sustained in future years, it can be seen from the table above that it has moderated the growth in debt service costs that would otherwise have to be included in rate requests going forward, and is a productive use of excess reserves. Note that two additional capital appropriations will be funded by Water Enterprise Fund retained earnings under Article 11. Under Article 11(b), $40,500 will be requested to cover 45% of the cost to replace a Ford F350 pick-up truck (an additional 45% will be covered by the Wastewater Enterprise Fund and the balance of 10% will be covered by the General Fund). Under Article 11(l), $75,000 from the Water Fund’s retained earnings will be requested to fund half the cost of an ongoing hydrant replacement pro- gram shared 50-50 with the General Fund. For a more complete discussion of the status and use of water and sewer enterprise fund retained earnings, see the discussion of enterprise funds under Article 5. The Committee recommends approval of this request (8-0). 29 AC–2015ATM PPROPRIATIONOMMITTEE FundsFundingCommittee Article 15: Appropriate for RequestedSourceRecommendation Wastewater System Improvements $1,200,000 Wastewater EF (Debt) Wastewater RE Approve (8-0) $600,000 $1,800,000 This Article addresses proposed capital expenditures to be made during FY2016 as part of a continuing program to upgrade and keep current the assets of the Wastewater Enterprise Fund. For general back- ground on the enterprise funds, and the relationship between the budget process and the water rate-setting process, please see Appendix B and the discussion under Article 5. A total of $1,800,000 is requested this year: $1,200,000 as part of a multi-year plan to rehabilitate sanitary sewer infrastructure, particularly in remote areas, including brook channels, where poor soil conditions lead to storm water infiltration; and $600,000 as part of an ongoing program to upgrade Lexington’s ten sewer pumping stations. (An additional $750,000 is requested under Article 2 of STM #2 for extraordi- nary repairs to the pumping station on Bedford Street, bringing this year’s total requested appropriation for pumping station upgrades to $1,350,000.) The details of the projects, including the locations where work is expected to be done, can be found in the Brown Book (p. XI-23). Capital appropriations for simi- lar purposes have been made in most years (except for FY2006, when engineering studies were not ready, and FY2011, when only pump station upgrades were performed). The costs of this year’s wastewater system improvements will be funded by a combination of borrowing ($1,200,000) and retained earnings of the Water Enterprise Fund ($600,000). The resulting debt service costs for the portion borrowed will be borne by the operating budget for the Water Enterprise Fund in FY2014 and in future years until the debt is retired (see Brown Book, p. XI-14, Table III), and will be included each year as a component of the wastewater rates. Part of the funding may come from MWRA grants or loans. Prior to FY2006, capital expenditures for sewer distribution improvements were funded primarily by en- terprise-fund cash capital, which was raised in the rates. Subsequently, there was a transition to funding these ongoing improvements primarily with debt. While the transition to debt financing mitigated the need for rate increases early on, that change, together with the fund’s allocated contribution to the debt service for the new DPW facility, has steadily increased the annual debt-service costs of the sewer enter- prise fund, both in dollar and percentage terms, as illustrated below. Growth in Wastewater Fund Debt Service Fiscal WastewaterTotal BudgetDebt Service YearDebt ServiceRatio 2006 $275,950$7,084,8023.9% 2007 $333,899$7,440,9204.5% 2008 $439,792$7,355,4796.0% 2009 $488,135$7,643,6496.4% 2010 $575,357$8,083,4787.1% 2011 $791,777$8,315,5569.5% 2012 $879,713$8,934,6249.8% 2013 $956,855$9,282,07710.3% 2014 $1,131,673$9,257,35412.2% 2015 $1,220,843$9,517,61812.8% 2016 $940,679$9,103,31610.3% 30 AC–2015ATM PPROPRIATIONOMMITTEE The Committee has previously noted that judicious use of some of the fund’s accumulated retained earn- ings could help defray the impact of these growing capital costs and help to maintain long-term rate sta- bility. A contribution of $300,000 from retained earnings was made in FY2012; a contribution of $200,000 was made in FY2014; and a contribution of $900,000 was made in FY2015. An even more sub- stantial contribution of $1,350,000 from the wastewater fund’s retained earnings is proposed this year, made possible by recent growth of the retained earnings to a level well above the approximately $1,000,000 recommended to be held in reserve. Even if this level of cash contribution from retained earn- ings cannot be sustained in future years, it has moderated the growth in debt service costs that would oth- erwise have to be included in rate requests going forward, and is a productive use of excess reserves. Note that an additional appropriation of $40,500 in wastewater fund retained earnings will be requested under Article 11(b) (Municipal Capital) to cover 45% of the cost to replace a Ford F350 pick-up truck that has reached its end of life. For a more complete discussion of the status and use of water and sewer enter- prise fund retained earnings, see the discussion of the enterprise fund operating budgets in Article 5. The Committee recommends approval of this request (8-0). FundsFunding Committee Article 16: Appropriate for School RequestedSourceRecommendation Capital Projects and Equipment Approve (8-0) $1,986,000See below Financial details of the request are summarized below. For a discussion of the items in this request, please see the Report of the Capital Expenditures Committee. FundsCommittee Project DescriptionFunding Source RequestedRecommendation $117,500GF (debt) (a)System Wide School Furniture, Equipment $200,000Free CashApprove (9-0) and Systems $317,500 (b)School Technology Capital Request$1,378,000GF (Debt)Approve (9-0) (c)Additional Time Clock System Funds$208,000GF (Debt)Approve (9-0) (d)Food Service LHS Dishwasher & Installation$82,500Food Service RFApprove (9-0) The Committee recommends approval of this request (8-0). FundsFunding Committee Article 17: Technical Correction to RequestedSourceRecommendation the Borrowing Authorization Under Article 13b of the 2014 Annual Approve (9-0) $10,000GF Town Meeting This request corrects a technical error in the borrowing authorization approved under Article 13(b) of the Warrant for the 2014 Annual Town Meeting. The request, as approved, was $10,000 lower than intended. The Committee recommends approval of this request (9-0). 31 AC–2015ATM PPROPRIATIONOMMITTEE FundsFundingCommittee Article 18: Appropriate for Public RequestedSourceRecommendation Facilities Capital Projects Approve (9-0) $2,731,885See below exc.18(e)IP The request under Article 18(e) was a duplicate of Article 2 in the March 2015 Special Town Meeting #1, and will be indefinitely postponed. Financial details of the request are summarized below. For a discussion of the items in this request, please see the Report of the Capital Expenditures Committee. FundsCommittee Project DescriptionFunding Source RequestedRecommendation (a)Middle School Space Mining$674,000GF (Debt)Approve (9-0) (b)Clarke Middle School Circulation and Parking $363,000GF (Debt)Approve (9-0) Improvements, Design (c)Lexington High School Phase 2 Overcrowding/ $90,200GF (Debt)Approve (9-0) Completion (d) Public Facilities –Major Mechanical/Electrical $463,000GF (Debt)Approve (9-0) Systems’ Replacement (e)LPSEducational Capacity IncreaseNoneN/AIP (f)LHS Heating Systems Upgrade–Phases 2 & 3– $150,000GF (Debt)Approve (9-0) Design (g)School Building Envelope and Systems$210,000Free CashApprove (9-0) (h)Municipal Building Envelope and Systems$182,760GF (Cash)Approve (9-0) (i) Extraordinary Repairs/Replacements/Upgrades$335,425GF (Free Cash)Approve (9-0) (j)School Paving Program$150,000GF (Free Cash)Approve (9-0) (k)Public Facilities Bid Documents$75,000GF (Free Cash)Approve (9-0) (l)Security Cameras Upgrade$38,500GF (Free Cash)Approve (9-0) The Committee anticipates action on 18(e) will be indefinitely postponed. The Committee recommends approval of 18(a,b,c,d,f,g,h,i,j,k,l) (9-0). FundsFundingCommittee Article 21: Appropriate to Post RequestedSourceRecommendation Employment Insurance Liability Approve (9-0) Fund $1,862,194GF $1,200,000 The Post Employment Insurance Liability (PEIL) Fund holds funds dedicated to health care benefits for retirees. These benefits are also known as Other Post Employment Benefits (OPEB). For a detailed dis- cussion of OPEB and related issues, please see Appendix F. Based on the actuarial report, Other Post-Retirement Employee Benefits Analysis For Fiscal Year July 1, 2012 – June 30, 2013, dated February 21, 2014, the “Unfunded Actuarially Accrued Liability” for OPEB was approximately $87 million as of June 30, 2013, and the “Normal Cost” for FY2014 was approximate- ly $1.7 million. These amounts were derived assuming a 7.75% rate of return on investments, the same rate currently used for the Town’s pension trust fund. 32 AC–2015ATM PPROPRIATIONOMMITTEE The Normal Cost is the present value of the expected post-retirement benefit obligation attributable to employee service during the fiscal year. The Unfunded Liability is the sum of obligations earned during prior fiscal years that have not been funded. Every year, the Unfunded Liability grows by the amount of future benefits earned during the current year, less any contribution to the PEIL Fund, and less the cost of benefits provided to retirees during the current year. The request is approximately 100% of the FY2016 Normal Cost, which is the maximum amount recom- mended by the Selectmen’s policy for the annual appropriation to the PEIL Fund. If approved, this appro- priation would increase the balance of the PEIL Fund from the current balance, $5,778,635 as of February 1, 2015, to approximately $7,641,000, raising the OPEB funding ratio from approximately 6.6% to ap- proximately 8.7%. The bulk of the funding for the request is based on a one-time use of $1,858,947 from the Health Insur- ance Claims Fund to pay for annual health insurance costs. This frees up a matching amount in the Gen- eral Fund for this request, or other potential uses. The remaining $3,247 reflects the amount the Town received in Medicare Part D reimbursements from the federal government, which has been directed into the PEIL Fund for the past several years. Last year’s appropriation to the PEIL Fund was approximately $1.2 million, or roughly 66% of the FY2015 Normal Cost. Given the uncertainty around the school capital projects and the current plan to hold a special town meeting in the fall, the Committee recommends that this appropriation be reduced to $1.2 million with the remainder of the $1,858,947 left unallocated. In the fall, Town Meeting will have an opportunity to appropriate the remainder to the PEIL Fund, or to some other purpose as needed. The Committee recommends an appropriation of $1,200,000 (9-0). FundsFunding Committee Article 22: Adjust Retirement COLA RequestedSourceRecommendation Base for Retirees Disapprove(3-6) NoneN/A Section 103(j) of Chapter 32 of the Massachusetts General Laws indicates that the maximum base amount on which the cost-of-living adjustment (COLA) is calculated may be increased in multiples of $1,000 and should be accepted by a majority of the Board of the system, and is subject to approval of Town Meeting. The Retirement Board has accepted an increase in the COLA base for retirees from $12,000 to $13,000 effective July 1, 2015 to match the base for Lexington Teacher retirees. The last COLA base increase was from $9,000 to $12,000, effective July 1, 1998. There is no direct appropriation in this request, but there is a financial impact on the operating budget. Currently there are 274 retirees who would be impacted by this change (an increase of $30/year) for an annual cost to the Town this year of $8,220. This change would also apply to all future retirees, and would increase the current unfunded accrued liability of the pension trust fund by approximately $786,500. The Committee asserts that key factors affecting pension payments, such as the COLA base, must be con- sidered as part of the total compensation package for retirees (pension plus benefits), which is a matter of negotiation with the Town. There are a variety of other factors that comprise the total value of the pack- age. For example, that Lexington covers 80% of the cost of the health care premiums, versus an average of 66.4% in comparable communities. The Committee does recommends disapproval of this request (3-6). 33 AC–2015ATM PPROPRIATIONOMMITTEE FundsFundingCommittee Article 23: Accept Chapter 235 of the RequestedSourceRecommendation Acts of 1994 Approve (9-0) NoneN/A Acceptance of this statute would allow certain police officers and firefighters who were previously termi- nated due to a reduction-in-force, and then reinstated, to be credited with active service for such period of unemployment. The employee would be required to pay into the retirement system an amount equal to what would have been paid, plus interest, had he or she remained an active member in service during said period of unemployment. The maximum qualifying duration between reduction-in-force and reinstatement is three years, and em- ployees are responsible for interest on these contributions, therefore the Committee believes the net im- pact of this change on the Town’s retirement system will be negligible. The Committee recommends approval of this request (9-0). FundsFundingCommittee Article 24: Appropriate Bonds and RequestedSourceRecommendation Notes Premiums Approve (9-0) $149,140Bond Premium The Town received a premium of $149,140 on the February 19, 2015 sale of general obligation bonds related to construction financing of the Bridge/Bowman ($32,858) and Estabrook ($116,282) projects. This action will appropriate the premiums for project costs and will also rescind the bonding authorization for the same amounts. It does not increase or decrease costs for either project. The Committee recommends approval of this request (9-0). FundsFundingCommittee Article 25: Rescind Prior Borrowing RequestedSourceRecommendation Authorizations Pending NoneN/A State law requires that Town Meeting vote to rescind the unissued portions of borrowing authorizations that are no longer required for the purpose stated in the authorization. As of publication, the Committee was not informed of any prior borrowing authorizations that are ready to be rescinded. This Committee will report further when the Article is taken up. The Committee has taken no position on this request. 34 AC–2015ATM PPROPRIATIONOMMITTEE FundsFunding Committee Article 26: Establish and Appropriate RequestedSourceRecommendation To and From Specified Stabilization $6,405,035Free Cash Funds $3,042,797Tax Levy Approve (8-0) $18,175TM revenue $20,339TDM revenue $9,486,346 The State statute authorizing towns to create and maintain a stabilization fund (G.L. c. 40, § 5B) was amended in 2003 to permit the creation of multiple, separate stabilization funds for specified purposes. Creating these funds, altering their specified purpose and appropriating into or out of them requires a two- thirds vote of Town Meeting. Lexington first specified stabilization funds were established at the 2007 Annual Town Meeting. A history and description of these funds can be found in Appendix E. Each “specified stabilization fund” holds monies for one or more purposes that were specified when the fund was created. This Article is now routinely included on the Warrant to give Town Meeting the oppor- tunity to create new specified stabilization funds, and to appropriate monies into, or out of, such funds. Appropriations into specified stabilization funds are not normal expenditures, but rather transfers of funds into accounts for specified future uses. Once transferred into a fund, these monies can only be appropriat- ed out of the fund in accordance with the purposes specified at the creation of the fund. Appropriations into our out of a stabilization fund require approval by a two-thirds majority of Town Meeting. Status of Funds and Appropriation Requests The current balance of each fund, the amount currently available for appropriation into each fund, and the amounts proposed to be withdrawn from each fund, are as follows: Current Amount AmountWarrant Specified Stabilization Fund BalanceDepositedWithdrawnArticle Avalon Bay School Enrollment Mitigation S.F.$45$0$0– Center Improvement District S.F.$86,429$0$0– SchoolBus Transportation S.F.$18$0$0– Section135Zoning S.F.$0$0$0– Special Education S.F.$1,072,499$0$0– Traffic Mitigation S.F.$69,129$18,175$0– Transportation Demand Management / Public $301,772$20,339$137,000Art. 4 Transportation S.F. Transportation Management Overlay District S.F.$10,764$0$0– $620,567Art. 4 Capital Projects/Debt Service Reserve/Building $8,039,928$9,447,832$215,000Art. 26 Renewal S.F. $835,567 All deposits into specified stabilization funds are covered under this article. Withdrawals from these funds are covered under the indicated article. Under Article 4, the Transportation Demand Management/Public Transportation Stabilization Fundis being used to fund both LexPress ($91,600) and the REV Bus($45,400). The REV bus is a shuttle between Hartwell Ave. and the Alewife MBTA station. The balance of the cost of the shuttle is raised from fares charged to riders and amounts contributed by Hartwell Ave. businesses. As discussed in the Introduction to this report, in the fall of 2014, this Committee approved a request for a Reserve Fund transfer of $69,120 to cover the anticipated FY2015 shortfall resulting from the loss of a 35 AC–2015ATM PPROPRIATIONOMMITTEE federal grant. This amount represented 40% of the operating budget and the goal was to reduce the amount of subsidy as the ridership developed. The amount proposed for FY2016 represents 20% of the operating budget. This Article proposes to appropriate $9,447,832 into the Capital Projects/Debt Service Reserve/Building Renewal Stabilization Fund. The motion under Article 4 would appropriate $620,567 out of this fund to offset within-levy debt service for the High School modular classrooms. The motion under the current Article would appropriate another $215,000 out of this fund to mitigate excluded debt service for the Bridge/Bowman and Estabrook construction projects. The monies to be transferred into the Traffic Mitigation Stabilization Fund and Transportation Demand Management/Public Transportation Stabilization Fund come from corresponding special revenue ac- counts. The Committee recommends approval of this request (8-0). FundsFundingCommittee Article 27: Appropriate to RequestedSourceRecommendation Stabilization Fund IP NoneN/A As of publication the Selectmen had made no recommendation for appropriation to the Stabilization Fund. We support this decision as a part of the recommended budget and therefore we support the antici- pated indefinite postponement of this article. A fund history can be found in the appendices of the Town Manager’s FY2016 Recommended Budget & Financing Plan. The Committee anticipates action on this request will be indefinitely postponed. FundsFundingCommittee Article 28: Appropriate from Debt RequestedSourceRecommendation Service Stabilization Fund Approve (8-0) $124,057DSSF In August 2006, the Town received a lump-sum reimbursement of approximately $14 million from the Massachusetts School Building Authority (MSBA) to cover its remaining obligation for construction pro- jects previously completed at Clarke and Diamond Middle Schools and Lexington High School. The Massachusetts Department of Revenue (DOR) required the Town to set aside the excess funds from up- front reimbursements for those public school construction projects, and to apportion those funds over the life of the bonds related to the projects to help fund the debt service obligations. The 2009 Annual Town meeting voted to establish a specified stabilization fund under G.L. c. 40 Section 5B called the Debt Service Stabilization Fund (DSSF). The $1,739,894 remaining from the FY2007 set- aside was then appropriated into the DSSF. This fund allows the Town to invest the set-aside bond pro- ceeds beyond the one-year arbitrage limit that would otherwise apply. The required annual appropriations from the DSSF will be completed in 2023. The current balance of the DSSF is $1,014,881. The Committee recommends approval of this request (8-0). 36 AC–2015ATM PPROPRIATIONOMMITTEE FundsFunding Committee Article 29: Appropriate for Prior RequestedSourceRecommendation Years’ Unpaid Bills Pending UnknownUnknown As of publication, the Committee was not aware of any unpaid bills from prior years. This Committee will report further when the Article is taken up. The Committee has taken no position on this request. FundsFunding Committee Article 30: Amend FY2015 RequestedSourceRecommendation Operating, Enterprise and CPA Budgets Pending UnknownUnknown A recommendation from the Town Manager, Town staff, and the Board of Selectmen regarding actions, if any, under this Article is not expected to be available until after the Annual Town Meeting commences. Consideration of this Article, which is included in every Annual Town Meeting Warrant, is normally de- ferred until the end of town meeting to allow Town staff to coordinate the final adjustments to the prior year’s budget into a single motion. This Committee will report further when the Article is taken up. Retire $1,000,000 of debt for Cary Memorial Building Renovations Under Article 2 of the March 2014 Special Town Meeting, $8,677,400 was appropriated to fund renova- tions to the Cary Memorial Building. Of this amount, $8,241,350 was requested in CPA funding to be financed through the issuance of debt. A Bond Anticipation Note (BAN) in the amount of $3,286,000 was issued in June 2014. The BAN came due in February 2015, at which time a bond of $6,569,000 was is- sued comprised of two components: the conversion of $2,286,000 from the June 2014 BAN to long-term debt ($1,000,000 less than the original amount), and new financing of the project in the amount of $4,283,000. In February 2015, the residual $1,000,000 of the June 2014 note was refinanced as a BAN with a term of 4 months. When this note comes due, it is proposed that it be retired with cash from the CPA fund. This change requires an amendment to the FY2015 CPA budget. This Committee will report further when the Article is taken up. The Committee has taken no position on this request. FundsFunding Committee Article 31: Appropriate for RequestedSourceRecommendation Authorized Capital Improvements Pending UnknownUnknown As of publication, no action was planned under this Article. A related appropriation will be requested un- der Article 6 of the March 2015 Special Town Meeting #2. This Committee will report further when the Article is taken up. The Committee has taken no position on this request. 37 AC–2015ATM PPROPRIATIONOMMITTEE FundsFundingCommittee Article 32: Establish Qualifications RequestedSourceRecommendation for Tax Deferrals IP NoneN/A This Article is routinely included in the Warrant to give Town Meeting an opportunity to adjust the quali- fications for tax deferrals (see Appendix D). As of publication, the committee was not aware of any proposed changes. If the Article is indefinitely postponed, the previously established qualifications will remain in effect. The Committee expects action on this Article will be indefinitely postponed. FundsFundingCommittee Article 33: Authorize Home Rule RequestedSourceRecommendation Petition for Tax Relief IP NoneN/A This article proposes to authorize the Board of Selectmen to petition the General Court for an act to pro- vide Lexington with a locally controlled means-tested senior citizen property tax exemption similar to the program in Sudbury, Massachusetts. At Sudbury's request, the General Court enacted Chapter 169 of the Acts of 2012 which permitted Sud- bury to cap property taxes at 10% of household incomes for qualifying seniors. To qualify, a senior Sud- bury resident must (a) live in the property they own and have resided in Sudbury for 10 years, and (b) the value of the home must not exceed 110% of the previous year's average assessed value of a single family home. In 2012 the average was roughly $621,000. The cost of this is borne by the remaining taxpayers. The Board of Selectmen voted to defer this request. The Committee expects action on this Article will be indefinitely postponed. FundsFundingCommittee Article 34: Accept MGL c. 59, § 5, RequestedSourceRecommendation Clause 54 and Set Personal Property Minimum Tax Approve (8-0) NoneN/A If approved, this request would accept Massachusetts General Law Chapter 59, § 5, Clause 54, which ex- empts Personal Property (a component of the tax on businesses) from taxation if it is below a minimum value established by the City or Town. The law requires that minimum be set at $10,000 or less. The Board of Selectmen requests that the Personal Property minimum value be set at $2,000. This action is being sought due the increasing cost required to service smaller Personal Property accounts, and their accordingly small yields, both individually and as a group. The Town has 862 active Personal Property Tax accounts, with a total assessed value of $180 million, which generate $5,238,814 in taxes. The cost to administer each account is estimated at $50, which consists of assessing the property, creating and distributing tax bills and enforcing payment. Out of the 862 Personal Property accounts, 241 have an assessed value of $2,000 or less. The average tax bill from this group is $30, and the total group tax contribution is $7,219, with an estimated collection cost of $9,640. The Committee recommends approval of this request (8-0). 38 AC–2015ATM PPROPRIATIONOMMITTEE FundsFunding Committee Article 35: Accept MGL Chapter 90- RequestedSourceRecommendation I, Section 1 (Complete Streets Program) Approve (8-0) NoneN/A This article proposes that the town accept Massachusetts General Laws Chapter 90-I, § 1, as amended, the “Complete Streets Program”, to allow the Town to participate in, apply for and receive funding from said section and Section 6121-1318 of sessions law, Chapter 79 of the Acts of 2014. Section 6121-1318 pro- vides “for complete street certification program established pursuant to Chapter 90-I of the General Laws to be disbursed in the form of grants to certified cities and towns for infrastructure and planning; provided that not less than 33 percent of the grants awarded shall be issued to cities and towns with a median household income below the average of the Commonwealth.” The Committee recommends approval of this request (8-0). FundsFunding Committee Article 36: Authorize Community RequestedSourceRecommendation Electrical Aggregation Program Approve (8-0) NoneN/A At the request of the Sustainable Lexington Committee, Town Meeting is requested to vote to authorize the Board of Selectmen to enter into a Community Choice Electrical Aggregation Program and contract Chap- for electric supply for Lexington residents and businesses pursuant to Massachusetts General Laws ter 164, § 247, as amended, part of t he 1997 “Act Relative to Restructuring the Electric Utility Indus- try in the Commonwealth”. The Act created a competitive power generation market in Massachusetts and allows all Massachusetts’ consumers to choose among power suppliers. It was believed that some consumers would choose a sup- plier based upon cost of power alone, while others might choose based upon resource mix (solar, wind versus coal, oil etc.). It was predicted that consumer choice would create competition among electricity suppliers sufficient to drive down the overall cost of electricity. In practice, only large commercial customers have been able to secure the benefits of cheaper power be- cause of economies of scale. Individual consumers have been left behind; they have not chosen competi- tive suppliers and so have not benefitted from the lower price of power available in the competitive elec- tricity marketplace. It has proven too expensive for electricity companies to go door-to-door to secure residential customers. And, it has proven to be both complicated and time consuming for most individuals to research and choose the right supplier for their households. In Lexington, only 10% of residential cus- tomers have switched to competitive suppliers whereas 86% of the electricity consumed by Lexington’s commercial customers is from purchases through competitive electricity suppliers. These large commer- cial customers have secured lower rates by switching. The Act established a municipal aggregation (“Community Choice”) option as an efficient and cost effec- tive way to enable residential customers to benefit from bulk purchasing of power. If this request is ap- proved, Lexington residents and businesses will be able to consolidate their demand and seek proposals for cheaper and/or cleaner sources of power. To do this, the Town’s electricity broker would develop an aggregation plan that would be reviewed and approved by the Board of Selectmen, the Massachusetts De- partment of Energy Resources, and the Department of Public Utilities. Once the plan is approved, the broker would solicit bids to supply power for participants in the municipal aggregation program, all at the broker’s own cost and risk (at no cost to the Town). Once the Town chooses its competitive supplier, there is no obligation to proceed, and no cost to the town, if none of the proposals are acceptable. 39 AC–2015ATM PPROPRIATIONOMMITTEE Lexington residents and businesses can opt out of the Community Electrical Aggregation program at any time without penalty, choose their own competitive supplier, or return to Eversource Energy (formerly NStar) Basic Service. They can also opt back in to the program at any time. In all cases, customers would continue to receive one bill from Eversource Energy, and Eversource Energy would continue to provide electricity delivery, emergency services, and customer support. The Committee recommends approval of this request (8-0). FundsFundingCommittee Article 41: Amend General Bylaws – RequestedSourceRecommendation Contracts and Deeds Refer To NoneN/A Committee(8-0) Passage of this article would amend Section 32-4 of Chapter 34 (Contracts and Deeds) of the Code of the Town of Lexington. There are two distinct changes being asked for. The first change reflects recent action of the state legislature which increases the allowable term of the lease of public buildings to 30 years. The second change clarifies the Bylaw in regards to the many contracts engaged in by the Town, which it has the legal authority to enter into, but which should fall outside the narrow bounds of the current wording. The Committee believes the Bylaw would benefit from a more comprehensive rewrite, and understands that the Town has no urgent need to amend the Bylaw at this time. The Committee recommends that this Article be referred to committee (8-0). FundsFundingCommittee Article 42: Commission on Disability RequestedSourceRecommendation Request Approve (9-0) NoneN/A The Commission on Disability has proposed a non-binding resolution which, if passed, would serve as guidance for the choice and use of materials in Town pathways (sidewalks, crosswalks and other paths of travel). The request is that sidewalks be installed to create the smoothest surface possible, and that bricks or other discrete pavers be used only as decorative edge treatments. Cost was not a motivating factor for this request, but for reference we note that the cost of sidewalk re- construction using all brick is $20/sq. ft., while using concrete the cost is $11.50/sq. ft., and using asphalt the cost is $8/sq. ft. The site preparation costs are similar for all three materials. The useful life of the ma- terials varies. For concrete it is approximately 30 years, asphalt is approximately 20-25 years and brick typically requires maintenance sooner but also on a smaller scale than with concrete or asphalt. The Committee recommends approval of this request (9-0). FundsFundingCommittee Article 44: Resolution on Fossil Fuel RequestedSourceRecommendation Divestment Disapprove NoneN/A (2-5-1) This non-binding resolution seeks divestment from coal, oil and natural gas companies for the Lexington Trust Funds and the Massachusetts Pension Reserve Investment Trust Fund (PRIT). The Committee is generally opposed to this request, but we understand that there is a larger debate to be had, and that opinions vary on the suitability of divestment as a policy tool. Detailed majority and a mi- 40 AC–2015ATM PPROPRIATIONOMMITTEE nority reports are presented under this Article. For common reference, Section 3 “Investment and man- agement decisions” of MGL Chapter 203C, known as the “Prudent Investor Act”, is quoted here in full: (a) A trustee shall invest and manage trust assets as a prudent investor would, considering the pur- poses, terms, and other circumstances of the trust, including those set forth in subsection (c). In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. 1 .B@CAB44HA8<D4AB;4<B0<3;anagement decisions respecting individual assets shall be consid- ered in the context of the trust portfolio as a part of an overall investment strategy reasonably suited to the trust. (c) Among circumstances that a trustee shall consider in investing and managing trust assets are such of the following as are relevant to the trust or its beneficiaries: (1) general economic conditions; (2) the possible effect of inflation or deflation; (3) the expected tax consequences of investment decisions or strategies; (4) the role that each investment or course of action plays within the overall trust portfolio; (5) the expected total return from income and the appreciation of capital; (6) other resources of the beneficiaries; (7) needs for liquidity, regularity of income, and preservation or appreciation of capital; and + 0<0AA4BHAA>4280:@4:0B8=<A78>=@A>4280:D0:C4!if any, to the purposes of the trust or to one of the beneficiaries. (d) A trustee shall make a reasonable effort to verify facts relevant to the investment and manage- ment of trust assets. (e) A trustee may invest in any kind of property or type of investment consistent with the standards of this chapter. (f) A trustee who has special skills or expertise, =@8A<0;43B@CAB448<@4:80<24C>=<B74B@CAB44HA representation that the trustee has such special skills or expertise, shall have a duty to use such special skills or expertise. Article 44 – Majority Report It is widely recognized that greenhouse gas emissions from fossil fuel consumption are the leading cause of global climate change. Reducing emissions is a difficult problem to solve, and requires a combination of state and federal policies (investment in and subsidy of scalable, cost effective green energy alterna- tives; regulations for vehicle fuel efficiency; full transparency in tracking energy generation and con- sumption). Any solution should be mindful of the cost imposed on consumers and on the implications for economic growth. At the Town level, our efforts have focused on: Energy conservation in town buildings, residential homes and apartments Installation of solar panels on Town building roof tops, and potentially at Hartwell Ave. Providing informational support to residents willing to do their own solar panel installations Setting up electric vehicle recharging stations In 2013, Lexington Town Meeting passed a non-binding resolution calling for the Town to (a) consider climate change in all appropriate decisions and planning processes; (b) take action to prepare for the im- pacts of a changing climate; (c) reduce greenhouse gas emissions; and (d) develop and implement a com- prehensive climate action plan; all with the goal of making Lexington a truly sustainable community. 41 AC–2015ATM PPROPRIATIONOMMITTEE We could not determine the exact size of fossil fuel related investments in Lexington Trust and Pension Funds, which are invested in several mutual funds that each manage a large and diversified portfolio. Given the value and impact of energy companies in the overall world economy, it is expected that such funds will generally maintain significant positions in fossil fuel industries and related markets as part of a diversified and prudently weighted investment strategy. According to the motion sponsor, the article seeks divestment in all direct and indirect holdings (through mutual funds, ETFs, bonds, derivatives, etc.) from the 200 coal, oil and natural gas companies ranked in The Carbon Underground 2015 index published online at . This is http://fossilfreeindexes.com/ sought through SRI (socially responsible investing) or ESG (environmental, social and governance re- strictions) investment strategies. The proposed Article 44 resolution on fossil fuel divestment presents us with a number of concerns: 1. Lack of Town Meeting authority. Over 100 Lexington Trust Funds have been established by indi- viduals in order to provide funds for scholarships, beautification and to help those in need. The Lex- ington Trust Funds hold approximately $7 million in assets, which are invested in mutual funds as well as in passive index funds. They function under state legislation enacted a little over 100 years ago with the specific purpose of not having these funds commingled with other town assets. The funds have three trustees appointed by the Selectmen with responsibility for the oversight and administration. The trustees are governed by the Prudent Investor Act quoted above, and they must act as fiduciaries on behalf of the town and of the citizens who contributed funds for their dedicated purposes. They view their responsibility first and foremost to act as fiduciaries without a political agenda. In the case of the Lexington Pension fund, which holds approximately $140 million in assets, and of the more recently created Lexington Post-Employment Insurance Liability (PEIL) fund, the Retire- ment Board is further bound by statute to discharge its duties “for the exclusive purpose of providing benefits to members and beneficiaries of the retirement system.” Cost of compliance. 2. Divestment limits the standard diversification of a fund, potentially increasing risk and reducing expected performance as measured against the actuarially assumed rate of return. In the case of the Lexington Pension Fund, the rate of return used for calculating contributions is cur- rently 7.75% per annum, and full funding is targeted by 2025. There is a risk that an actuarial deter- mination imposing a lower assumed rate of return would lead to either increased annual contributions for pension-related investments, or an extension of the time needed to full funding. Disruption of existing investment strategies 3.. Divestment, if adopted, would have to be implement- ed gradually, given that some funds may have a sizable direct or indirect investment in the industries targeted for divestment. The current glut in energy commodities production has produced a declining market for energy-related stocks. Nobody can time the market perfectly, but any investor would be re- luctant to lock in recent losses without careful consideration. Security selection. 4. Investments in a particular industry could be made directly, through owning stock, or indirectly, through owning mutual funds, ETFs, derivatives, or other securities. Many energy companies manage significant investment portfolios themselves, including sizable holdings in areas related to renewable energy. The wording of a resolution should be very specific as to how and why securities are targeted for divestment, and should not rely solely on recommendations published by a for-profit investment firm. The problem of excessive consumption. 5. Production of fossil fuel is driven by demand from industry and private use. Over-consumption of fossil fuels is an integral part of the problem, yet the resolution would not target industries that are big consumers of fossil fuels (agriculture, airlines, electricity gen- eration) or providers of equipment that run on fossil fuels (most automobiles, oil and gas heating equipment). 42 AC–2015ATM PPROPRIATIONOMMITTEE We view the problem of greenhouse emissions as a grave one, necessitating quick action. Fossil fuel di- vestment of the Lexington Trust and Pension Funds would be a strong, symbolic step, but the question remains as to how effective it would in addressing the problem it seeks to resolve. Divestment shifts the focus to problems created by others, in faraway states where coal, oil and gas are produced. It is incumbent upon us to look at our own contribution to this problem, through our choices and the systems we implicitly rely on. We live in a town dominated by large, single family homes. In the past twenty years, the floor to area ratio in our single family homes has doubled. Our transportation needs are met mostly with gasoline-powered private vehicles. Many of our recreation facilities rely heavily on petroleum products. The most effective solutions require us to find better ways to measure, track and re- duce our own carbon footprint. Article 44 – Minority Report Social, environmental, and moral implications identified by divestment advocates are just part of the analysis behind determining whether Town Meeting ought to support recommending divestment of its holdings in coal, oil, and natural gas companies from the Lexington Trust Funds and from Massachusetts Pension Reserve Investment Trust Fund (PRIT). Not all divestment movements will hit the tipping point where economic pressure contributes to a shift in public or corporate policies that impact economic decisions and lives. But among those movements that have succeeded, it is likely that they required decision makers to balance the same considerations that are facing Town Meeting today. Leaders considered both human and financial imperatives when institutions, states, and municipalities passed laws requiring divestment from: South Africa to build momentum against apartheid, Tobacco to undercut support for the production and advertising of this product due to the direct and indirect deadly effects of consumption, and Sudan to withdraw investments from American companies doing business with companies that directly or indirectly supported the state sponsored genocide. One advantage the above movements shared is that advocates were able to point to the incontrovertible fact that people were suffering and dying. The mortality resulting from climate change is harder to quanti- fy, but is it necessary to wait until everybody is convinced that many deaths across the globe are attribut- able to effects of climate change? We should consider the economic and social impact of Lexington Trust Fund and PRIT investments, rather than a strictly monetary analysis of investments’ prospects. 5 Twelve other Massachusetts cities and towns with the same fiduciary responsibilities have already passed resolutions endorsing state and/or local divestment. A growing number of colleges and universi- ties, cities, counties, and religious institutions worldwide are choosing to divest to exert financial pressure to shift global or corporate public policy. Lexington, through previous Town Meetings, has formally adopted policies and endorsed actions support- ing the scientific conclusion that greenhouse gas emissions from fossil fuel consumption are the leading contributor to global climate change. In 2013, Lexington Town Meeting passed a non-binding resolution calling for the Town to (a) consider climate change in all appropriate decisions and planning processes; (b) take action to prepare for the impacts of a changing climate; (c) reduce greenhouse gas emissions; and (d) develop and implement a comprehensive climate action plan; all with the goal of making Lexington a more sustainable community. Expenditures have followed and economic risks have been taken as Lexington complies with Green Community standards and this year approved the development solar power on our closed landfill and on 5 Amherst, Boston, Brookline, Cambridge, Concord, Framingham, Great Barrington, Northampton, Provincetown, Somerville, Sudbury, Truro. – http://gofossilfree.org/commitments/ 43 AC–2015ATM PPROPRIATIONOMMITTEE municipal rooftops. Our investment portfolio should reflect our choice to support these and other sustain- ability initiatives. 1. Town Meeting has Authority to Approve Article 44 under the Prudent Investor Act The Lexington Trust Funds have three trustees appointed by the Board of Selectmen to administer trust funds belonging to the town pursuant to Chapter 107, Acts of 1910, An Act To Authorize the Town of Lex- ington To Borrow Money To Repay or Reimburse Its Trust Funds and To Provide for the Custody and Management of Its Trust Property. The trustees of the Lexington Trust Funds are bound by MGL c. 203C, known as the Prudent Investor Act. Section 3 of that act, quoted above, instructs trustees to consider eight factors, including: (4) the role that each investment course of action plays within the overall trust portfolio. Section (9) states, “Compli- ance with the prudent investor rule shall be determined in light of the facts and circumstances existing at the time of a trustee’s decision or action.” The trustees of Lexington Trust Funds have a present duty to consider the risks to the portfolio associated with holding investments in carbon intensive companies in the same way city planners today have a re- sponsibility to consider the impact climate change will have on infrastructure. In light of the fact that Lex- ington has repeatedly acknowledged and spent public funds to support environmentally friendly actions to mitigate risks associated with carbon emissions, it would be imprudent to narrowly interpret the trustees’ fiduciary duty as an obligation to stay the course with existing investment strategies, without considering the potential returns of fossil fuel companies “in light of the facts and circumstances existing” today. The coal, oil, and gas sectors have under-performed over the last several years (especially over the last year), and in the foreseeable future these companies will have to adapt to more restrictive legislation, carbon cutting international agreements, price volatility, high and increasing production costs, and continued po- litical unrest in oil rich counties. A “No” vote on Article 44 allows trustees to continue investing in companies that our community has acknowledged do harm to the environment. 2. The Cost of Compliance is De Minimis The majority report assumes that divestment from fossil fuel could increase the risk, potentially resulting in increased annual contributions for pension-related investments from other sources. This assumption is unsubstantiated by researchers and institutional investors. It has been shown that optimized carbon-free 6 portfolios closely tracked the U.S. market since 1988 and the global market since 1997. Some analysts report that fossil free portfolios have, in some cases, lowered risk and increased returns by cutting out volatility and stranded asset risk. Fossil free funds may not outperform conventional funds, but divested portfolios can meet and compete on returns against those maintaining fossil in their portfolio. 3. Production Versus Consumption Article 44 would not affect industries that are big consumers of fossil fuel (agriculture, airlines, electricity generation) or providers of equipment that run on fossil fuels (automobiles, oil or gas heating equipment). The goal of divestment is not to destroy energy companies, but to contribute to growing social stigmatiza- tion of unmitigated extraction and use of fossil fuels. Social stigmatization of corporate behavior can change consumers’ minds and spending. This, in turn, could alter economic incentives enough to justify change of public and corporate policies to meet consumer demand for more climate friendly investments, development, and behavior. This resolution will express Lexington’s intention to continue to act in alignment with our stated environmental values. The Committee recommends disapproval of this request (2-5-1). 6 Building a Carbon-Free Equity Portfolio, Aperio Group LLC, 2014 – http://www.aperiogroup.com/ 44 AC–2015ATM PPROPRIATIONOMMITTEE FundsFunding Committee Article 46: Acquisition of Land RequestedSourceRecommendation Shown on Assessors’ Property Map 22, Lot 51B Approve (8-0) NoneN/A This Article seeks Town Meeting’s authorization to take by eminent domain, or otherwise acquire for municipal purposes, a 3,452 square foot parcel of land located adjacent to the Stone Building / Waldorf School in East Lexington. This small sliver of land is located next to Town-owned land presently leased to the Waldorf School. The current owner of this parcel remains unknown and the most practical way to clear the title is to take it by eminent domain. The Waldorf School contacted the Town Manager about their plans for a small addition and anticipated need to restructure its limited parking spaces. By way of background, the Town sold the former Adams School to the Waldorf School in 1983. The Town retains ownership of the land, which is leased to the Waldorf School. If this request is approved, the Town could clear title to the parcel, then lease the land to the Waldorf School, thereby enabling the school to develop expansion plans. The potential legal costs associated with this measure are unknown at this time, but would fall within the parameters of the Town’s legal budget. The Committee recommends approval of this request (8-0). 45 AC–2015ATM PPROPRIATIONOMMITTEE Appendix A: 3-Year Budget Projection This projection can help us understand the financial challenges that Lexington will face in the next three years. The projection is also an opportunity to obtain a better qualitative as well as quantitative under- standing of known trends and cost drivers. The creation of a revenue and expense projection differs in both method and purpose from the creation of a balanced budget. In a budget, one plans conservatively to avoid both over-spending and under-funding, either of which could necessitate harsh remedies in the middle of a fiscal year. For a projection, one makes rough estimates about future revenues and expenses regardless of how they might impact the over- all fund balance. The resulting figures do not represent actual revenue or spending targets. We have adopted some key assumptions as the basis for the projection presented herein using limited in- vestigations to establish their plausibility. We note below the most important aspects. In regard to revenue, we assume that the modest economic growth continues in FY2017, FY2018, and FY2019. We caution the reader that it is unclear if our detailed assumptions capture this intent. The fol- lowing points outline the basis of our assumptions regarding revenue changes: The tax levy is assumed to grow annually by 2.5% of the previous year’s base and by an added amount for “new growth”. No amounts are included for Proposition 2½ operational overrides. New growth, i.e., the increase in the tax levy from new construction and new personal property, peaked at a value well over $3,000,000 in FY2013 and then dropped about 15% in FY2014. It contin- ued to drop another 4% in FY2015. This recent history of new growth exemplifies the volatility of this revenue source, and the uncertainty it adds to the projection. In light of this, the model straight- lines new growth using the five-year average from FY2010-2015. State aid is assumed to increase by 5% annually, driven primarily by increasing school enrollments leading to increasing Chapter 70 aid. Available funds include Free Cash as well as amounts in the Parking Fund and the Cemetery Fund. The amounts in the latter two categories are assumed to be $335,000 and $105,000, respectively. Free Cash is assumed to total $5,700,000 for FYs 2017-19 with $4,000,000 applied to the operating budget and $1,700,000 to cash capital. Additionally we’ve included the town management’s recommendation that, for each of the FYs 2017 through 2019, $1,860,000 will be transferred out of the Health Claims Trust Fund to fund health insurance premiums, and thereby freeing up the same amount to fund the Post Employment Insurance Liability (aka OPEB) Trust Fund. These assumptions imply that availa- ble funds will be lower than the corresponding totals for the previous five fiscal years (FYs 2012 through 2016) which ranged from a low of approximately $7,249,652 for FY2012 to as high as $16,224,796 for FY2016. We note that the average of available funds for FYs 2005 through 2010 was lower than $3,300,000. We illustrate projected transfers from the Capital Projects/Building Renewal/Debt Service Stabiliza- tion Fund (aka Capital Projects Stabilization Fund) to mitigate in-levy debt and exempt debt pay- ments. The use of these funds will be a critical component of the financing plan for the proposed school capital program. For in-levy debt, transfers would limit the annual growth of the debt service payments to 5%. These transfers would be $2,060,000 in FY2017, $1,772,500 in FY2018, and $1,324,000 in FY2019. For exempt debt, we model transfers that would limit the annual growth of the exempt debt payments to $100 per year for a residence of average assessed value. These transfers would be $4,140,000 in FY2018, and $5,350,000 in FY2019. In total, these transfers represent signif- icant withdrawals from the Capital Projects Stabilization Fund. Revenue offsets include amounts from cherry sheet assessments that are assumed to grow by 3.5% annually, amounts for the Assessors’ overlay ($750,000 annually in FYs 2017 and 2019; and 46 AC–2015ATM PPROPRIATIONOMMITTEE $900,000 in FY2018, a revaluation year), and $300,000 that is set aside annually for potential deficits in the snow and ice budget. Water and Wastewater Enterprise Fund indirect expenses are assumed to increase by 3% annually. Recreation Enterprise Fund indirect expenses are assumed to increase by $5,000 per year. Starting in FY2016, Recreation Enterprise Fund expenses will be offset by $216,836 in tax levy funding for Community Center operations personnel. This expense will grow by 1.3% annually to accommodate step increases, and the tax levy funding will increase with at that pace also. The major assumptions that we made regarding expenses are as follows: Line items for FYs 2017-2019 do not include increases for as of now unsettled cost-of-living adjust- ments (COLAs) for salaries and wages. The potential impact of COLAs of different sizes initiated in FY2017 is summarized below the main projection. The Lexington Public Schools personnel costs are assumed to increase by 2% annually for step changes, and 2% for enrollment driven increases. The Lexington Public School expenses for items other than special education are assumed to increase by 2% per year. Special education expenses for out-of-district tuition are “net” of the State Circuit Breaker reimbursement and are assumed to increase by 5% annually, while the expenses for SPED consultants and out-of-district transportation are assumed to increase by 3% per year. Municipal personnel costs are assumed to increase by 1.3% annually for step changes. Municipal expenses are assumed to increase by 3% per year. The assessment for Lexington’s share of expenses for Minuteman Career and Technical High School is assumed to increase by 4.5% per year. Additional debt service payments for capital improvements will be $128,000 in FY2018 and $162,000 in FY2019. Appropriations for current and future contributory pension payments are assumed to follow the schedule set up by the Retirement Board following the most recent actuarial evaluation of pension costs. These costs are $5,505,537 in FY2017, $5,755,537 in FY2018 and $6,005,537 in FY2019. Health insurance costs are assumed to increase annually by 5%. Part of this growth is driven by antic- ipated increases in school staffing due to enrollment. Non-exempt debt service costs are assumed to support annual appropriations of $5,000,000 for debt- based capital projects, growing $1,654,128 in FY2017, $1,725,313 in FY2018 and $1,800,208 in FY2019. These are the unmitigated debt payments. The proposed mitigation payments are described in the revenue section. Dept. of Public Facilities costs include salaries and wages (assumed to grow by 1.3% annually for step changes), utility bills, and other expenses (assumed to grow by 3% annually). Utility costs are as- sumed to drop $338,000 in FY2017 when the Hartwell solar farm comes on line, and then to rise by 1.5% annually. Expenses for cash capital are assumed to include amounts for road and building envelope mainte- nance (following from overrides) that increase annually by 2.5%, as well as the amount of $1,700,000 from Free Cash for other capital expenses. No new funds are appropriated into the Stabilization Fund. Other expenses are assumed to include $20,000 annually for the senior tax work-off program; $110,000 of revenue set aside as a hedge for State or Federal aid reductions; $200,000 set aside for unanticipated current fiscal year needs, an annual $1,860,000 contribution to the trust fund for future costs of health insurance for retired employees. 47 AC–2015ATM PPROPRIATIONOMMITTEE The offsetting revenues and expenses for revolving funds, grants, and enterprise fund operations, ex- cept the Recreation Enterprise Fund, are projected using the 5-year trend from FY2011-2015. Reor- ganization of the Recreation Enterprise Fund in FY2016 increased its base budget ($415,833 in per- sonal services and $337,882 in expenses) and those costs are now layered on top of the 5-year trend line. Enterprise capital is projected using the five averages for FY2011-2015. The illustrative preliminary Excluded Debt Service Model created by the Town Manager and Assis- tant Town Manager for Finance and dated January 21, 2015, is used to project exempt debt service for the anticipated and still unappropriated school capital project. These are the unmitigated debt pay- ments. The proposed mitigation payments are described in the revenue section. No potential expenses for unidentified new programs are built into these projections. The projection for FY2017 shows an increase of approximately $940,000 in total general fund revenue. This increase is below the projected $6,500,000 increase in the FY2016 general fund revenue because we assume that there will be a large decrease in Free Cash (the major part of the available funds line) from that available for FY2016. We do not expect large amounts of Free Cash, like that certified last Novem- ber, will continue to be certified every fall. Traditionally when additional Free Cash materializes it is not used to fund operating expenses, but is applied to one-time expenses such as capital projects or stabiliza- tion funds. Free cash is built by an excess of actual revenues over actual expenditures. This makes it par- ticularly difficult to project, and the uncertainty in the number is significant. The projection shows overall revenue growth of $6,690,000 in FY2018 and $6,860,000 in FY2019. Projected school budgets are subject to unpredictability in the growth of enrollment. This model assumes a 2% annual enrollment growth, but the actual growth could range from 0% to over 4% annually. COLAs of 1% in FY2017 for the schools, municipal departments, and Public Facilities Department would increase their respective budgets by $818,000, $229,000 and $52,000. Our table illustrates the cumulative effect that COLAs of varying percentages would have on reducing any surpluses for FY2017-2019. We expect that the actual range of uncertainty of this bottom line figure considering the universe of possible factors is very roughly one to three million dollars. Revenue Summary FY2014FY2015FY2106FY2017FY2018FY2019 actual recap budgeted projected projected projected Property Tax Property Tax Levy $135,440,316$141,843,658$148,286,733$154,493,901$161,020,692$167,710,652 Allowable 2.5% inc. $3,386,008$3,546,091$3,707,168$3,862,348$4,025,517$4,192,766 New Growth $3,017,335$2,896,983$2,500,000$2,664,443$2,664,443$2,664,443 Excess Levy Capacity ($1,175)($74,194) $0$0$0 Tax levy limit $141,842,483$148,212,539$154,493,901$161,020,692$167,710,652$174,567,861 State Aid $10,214,580$11,193,462$11,430,693$11,753,135$12,340,792$12,957,831 Local Receipts $14,374,770$10,769,383$11,769,694$11,946,239$12,125,433$12,307,314 Available Funds $12,473,510$11,012,293$15,604,229$8,000,000$8,000,000$8,000,000 In-Levy Debt Svc. Mitigation $919,000$620,567$2,060,000$1,772,500$1,324,000 Revenue Offsets ($1,644,621)($2,492,221)($1,987,549)($1,957,695)($2,139,464)($2,022,346) Enterprise Funds (Indirect) $1,497,405$1,487,905$1,617,576$1,663,885$1,711,433$1,760,258 Total General Fund $178,758,127$181,102,361$193,549,111$194,486,256$201,521,346$208,894,920 Other Revenues Revolving Funds $2,395,771$3,179,010$2,622,305$2,450,683$2,450,683$2,450,683 Grants $96,230$102,916$103,000$99,841$100,497$101,564 Enterprise Fund $19,396,755$21,436,310$22,873,187$22,570,513$23,732,375$24,894,585 Exempt Debt $6,927,654$7,423,332$8,467,489$8,823,940$10,073,014$11,326,037 Exempt Debt Svc. Mitigation $1,600,000$950,000$215,000 $4,140,000$5,350,000 Sub-Total Other Revenues $30,416,410$33,091,568$34,280,981$33,944,978$40,496,570$44,122,868 Total Revenues $209,174,537$214,193,929$227,830,092$228,431,234$242,017,915$253,017,788 48 AC–2015ATM PPROPRIATIONOMMITTEE Expense Summary FY2014 FY2015 FY2106 FY2017 FY2018 FY2019 actual recap budgetedprojectedprojectedprojected Education Lex. Pub Schools Wages $68,735,873$73,496,851$78,675,324$81,822,337$85,095,230$88,499,040 Lex. Pub Schools Expenses $6,920,127$7,120,054$7,984,612$8,144,304$8,307,190$8,473,334 Out-of-District SPED $5,744,507$6,007,024$5,400,380$5,916,648$6,195,741$6,488,287 Sub-Total Lex. Pub. Schools $81,400,507$86,623,929$92,060,316$95,883,289$99,598,162$103,460,661 Minuteman Reg. School $1,474,266$1,244,384$1,202,814$1,256,941$1,441,503$1,534,611 Sub-Total Education $82,874,773$87,868,313$93,263,130$97,140,229$101,039,665$104,995,271 Municipal Municipal Wages $20,415,866$21,413,446$22,598,270$22,892,048$23,189,644$23,491,110 Municipal Expenses $9,990,840$10,543,866$10,980,001$11,309,401$11,648,683$11,998,144 Sub-Total Municipal $30,406,706$31,957,312$33,578,271$34,201,449$34,838,327$35,489,253 Shared Expenses Benefits & Insurance $26,780,825$29,824,547$32,423,750$34,077,878$35,803,190$37,603,398 Debt (within-levy) $5,409,996$6,730,641$6,732,527$8,703,490$9,557,465$10,124,333 Reserve Fund $900,000$900,000$900,000$900,000$900,000$900,000 Facilities $9,681,646$9,897,675$9,899,632$9,749,903$9,916,338$10,097,931 Sub-Total Shared Expenses $42,772,467$47,352,863$49,955,909$53,431,270$56,176,993$58,725,662 Capital & Reserves Cash Capital $6,919,202$5,238,117$4,871,905$4,264,227$4,327,083$4,391,510 Stabilization Fund $0$0$0$0$0 Capital Building Stab Fund $3,983,240$5,910,726$9,447,832$600,000$600,000$600,000 PEIL Fund (OPEB) $775,000$1,119,000$1,862,194$1,862,194$1,862,194$1,862,194 Other (SrWorkOff, aid redc) $3,580,000$620,000$353,035$330,000$330,000$330,000 Sub-Total Capital & Res. $15,257,442$12,887,843$16,534,966$7,056,421$7,119,277$7,183,704 Total Op, Cap & Res. $171,311,388$180,066,331$193,332,276$191,829,369$199,174,262$206,393,890 Revolving Funds $2,395,771$3,179,010$2,622,305$2,450,683$2,450,683$2,450,683 Grants $96,230$102,916$103,000$99,841$100,497$101,564 Enterprise Funds Water $7,835,386$8,481,606$9,195,730$9,157,505$9,770,763$10,384,021 Wastewater (Sewer) $8,637,738$9,052,588$8,624,962$9,685,089$10,170,044$10,654,999 Recreation $1,711,881$1,848,116$2,601,831$2,620,925$2,687,429$2,754,318 Enterprise Capital $1,211,750$2,054,000$2,667,500$1,326,650$1,326,650$1,326,650 Sub-Total Enterprise Funds $19,396,755$21,436,310$23,090,023$22,790,168$23,954,886$25,119,988 Exempt Debt $8,527,654$8,373,332$8,682,489$8,823,940$14,213,014$16,676,037 Total Expenses $201,727,798$213,157,899$227,830,093$225,994,002$239,893,342$250,742,162 Balance (w/o COLA) $7,446,739$1,036,030$0$2,437,232$2,124,574$2,275,627 Balance (Deficit) for various COLA rates COLA ProjectionFY2017 COLA implemented in FY2016 each 1% COLA for schools$818,2231% $1,338,226($84,428)($1,054,471) each 1% COLA for municipal$228,9212% $239,220($2,315,410)($4,451,169) each 1% COLA for public facilities$51,8623% ($859,786)($4,568,373)($7,915,126) Total cost of each 1% COLA for all departments$1,099,006 49 AC–2015ATM PPROPRIATIONOMMITTEE Appendix B: Enterprise Funds The Town of Lexington has maintained Water, Wastewater (Sewer), and Recreation Enterprise Funds since the state legislature enacted legislation authorizing such funds, G.L. c. 44, § 53F ½, in the late 1980’s. An enterprise fund “establishes a separate accounting and financial reporting mechanism for mu- nicipal services for which a fee is charged in exchange for goods or services. Revenues and expenses of the service are segregated into a fund with financial statements separate from all other governmental ac- tivities” and are accounted for on an accrual basis. DOR Enterprise Funds Manual (April 2008). An en- terprise fund provides management and taxpayers with information to: measure performance, analyze the impact of financial decisions, and determine the cost of providing a service. Enterprise funds may be op- erated on a stand-alone basis or subsidized by the General Fund. The Water and Wastewater Enterprise Funds operate on a completely stand-alone basis. These funds do not rely on any tax-levy revenues, but cover their complete operating and capital needs with user charges and fees. The Recreation Enterprise Fund is only partially stand-alone. It covers its operating costs with user charges and fees and contributes to the debt service on certain recreation capital projects (in particu- lar, the Lincoln Field restoration project). Most recreation capital costs, however, are subsidized by the General Fund through a combination of within-levy borrowing, Community Preservation Act (CPA) funding, and debt exclusion funding. Establishing the Enterprise Fund Budgets At the Annual Town Meeting each year, Town Meeting appropriates a budget for each of the three enter- prise funds for the upcoming fiscal year. Later in the year (in the early fall in the case of the Water and Wastewater Enterprise Funds), user charges are set that are designed, based on projections of usage for the fiscal year, to be sufficient to cover the appropriations made by Town Meeting to run the enterprises. Depending on the accuracy of the usage projections, the actual revenue realized by the enterprise during the year may exceed or fall short of the appropriated amount. Any operating surplus must be retained in reserve in the enterprise fund. The funds accumulated in that reserve (referred to as “retained earnings”) may be applied only to meet the capital needs of the enterprise or to reduce user charges. Any operating loss (after applying any accumulated reserves in the fund), must be made up in the succeeding fiscal year’s appropriation. Since FY2007, the Annual Town Meeting Warrant has contained a separate Article for the appropriation of the enterprise fund operating budgets (previously, appropriations for the enterprise funds were com- mingled with those for the General Fund). This presentation makes it easier to understand the operating budgets of the enterprise funds. However, it should be noted that certain indirect costs that are charged by the General Fund to the enterprise funds (see discussion below) are still appropriated as part of the munic- ipal operating budget, this year in Article 4. For the complete operating costs of the enterprise funds, in- cluding indirect costs, see the Brown Book sections on Water, Wastewater, Recreation. To present a more meaningful picture of the complete enterprise fund operating budgets, the tables in- cluded in the write-up of this article have been expanded from those presented in the Warrant to show the indirect as well as the direct costs of the funds. Debt service costs for previously approved capital expend- itures are shown in the enterprise fund operating budgets. However, it should be noted that appropriations for capital needs of the enterprises, whether funded by cash or borrowing, are addressed in separate capi- tal Warrant articles. 50 AC–2015ATM PPROPRIATIONOMMITTEE Appendix C: Revolving Funds Ordinarily, revenue received by any municipal department must be deposited in the General Fund, and cannot be expended for any purpose without further appropriation by Town Meeting. A revolving fund allows Town Meeting to dedicate in advance a specific source of anticipated revenue from fees and charges, on an ongoing basis and without the need for further appropriation, to pay expenses for rendering the services for which those fees and charges are collected. Revolving funds managed by municipal departments are generally governed by G.L. c. 44, § 53E1/2. (There are also a number of revolving funds managed by the School Department, such as the School Lunch Fund, which are governed by other statutes and are not within the control of Town Meeting.) Un- der Section 53E1/2, a municipal revolving fund can be established only by vote of Town Meeting. That authorization must be renewed prior to each succeeding fiscal year. The authorization must specify: the purpose(s) for which monies deposited in the fund may be used the source(s) of funds to be deposited the board, department or officer authorized to expend monies from the fund a limit on the total amount that may be expended from the fund in the ensuing fiscal year Expenditures may not be made, nor liabilities incurred, in excess of the balance of the fund. If a revolving fund is reauthorized, any balance in the fund may be carried over to the next fiscal year. If a revolving fund is not reauthorized, or if the purposes for which the money in the fund may be spent are changed, the balance in the fund reverts to the General Fund at the end of the fiscal year unless Town Meeting votes to transfer the funds to another duly established revolving fund. 51 AC–2015ATM PPROPRIATIONOMMITTEE Appendix D: Tax Relief Programs In early 2004, the Board of Selectmen created an ad hoc Tax Deferral and Exemption Study Committee to explore ways in which the property tax relief available to senior citizens and other needy residents could be enhanced and made more accessible. Since then, Town Meeting has taken a succession of steps to ex- pand such relief, for the most part maximizing the options that the Town is allowed to adopt under exist- ing state law and, in some cases, increasing opportunities for tax relief beyond those that would ordinarily be available under state law. The principal programs for tax relief now available to Lexington homeowners are: A state income tax “Circuit Breaker” program providing a state tax credit for low- and moderate- income homeowners and renters age 65 and over. “41A”, a tax deferralprogram, under which low-to-moderate-income homeowners age 65 or over may defer any or all of their property tax due, after applying any available exemptions, up to half the value of their house, at an interest rate equal to the Town’s cost of funds (see table below), until the house is sold or transferred, G.L. c. 59, § 5, cl. 41A. “41C”, a tax exemption program, under which homeowners age 65 or over with limited income and limited assets other than the value of their home may deduct $1,000 from their annual proper- ty tax, G.L. c. 59, § 5, cl. 41C½. A locally-controlled Senior Service program, adopted by Town Meeting in 2006. A Community Preservation Act surcharge exemption program. State Income Tax “Circuit Breaker” Low- and moderate-income homeowners age 65 and over whose homes have an assessed valuation not greater than a specified ceiling may obtain a tax credit on their state tax returns (see table below). Renters are also eligible for a tax credit. The actual credit received depends on income and real estate tax pay- ments. This program is administered by the Massachusetts Department of Revenue and has no direct im- pact on Town finances. The “41A” Deferral Program This program, although it has not been widely used, is an important tool for tax-relief because it offers immediate and substantial property tax relief to seniors with significant equity tied up in a residence. Those who qualify may defer any part or all of their property tax for a given year, up to a cumulative total of half the assessed valuation of their house, at a very generous interest rate. The deferred taxes are even- tually paid when the property is sold or transferred. The interest rate is based on a floating Treasury rate equivalent to Lexington’s cost of funds in the year of deferral (capped at 8% but normally less than 1%), which remains in effect for the life of each year’s deferral (see table below). The 41A deferral program is an attractive form of tax relief from the Town’s point of view because it is essentially revenue-neutral. While the unlikely event of a significant increase in the number of partici- pants in any particular year could potentially create a short-term cash flow problem, the Town is in effect making well-secured loans. The Town should eventually be repaid all the funds that are deferred with in- terest, and over time an equilibrium should be reached under which as many deferral agreements are re- paid as are entered into. The total amount of deferred taxes now carried by the Town as accounts receivable is shown below. The “41C” Exemption Program For many years, the Town has made available to qualifying seniors a property tax exemption under Clause 41 of G.L. c. 59, §5, and its successor, Clause 41C. Under the “41C” Program, the Town receives partial reimbursement from the State for exemptions defined under the program, subject to appropriation. The portions of the exemptions that are not reimbursed are funded from the Town’s overlay account. 52 AC–2015ATM PPROPRIATIONOMMITTEE Prior to 2004, the amount of the credit was limited to $500 per year and eligibility criteria were quite re- strictive. Since then, the Town has taken a number of steps to expand both eligibility and the credit amount. Taking advantage of new local options made available by the legislature in 2002, Town Meeting voted in 2004 to: Increase the amount of the exemption to $750. Lower the age of eligibility from 70 to the minimum allowed age of 65. Increase the income threshold from $13,000 (single) / $15,000 (married) to the maximum allowed amount of $20,000 (single) / $30,000 (married). Increase the threshold for personal assets, not including the home, from $28,000 (single) / $30,000 (married) to the maximum allowed amount of $40,000 (single) / $55,000 (married). In 2005, Town Meeting voted to adopt the provisions of G.L. c. 59, § 5, Clause 41D, which automatically adjusts the income and asset limits for Clause 41C (but not the exemption amount) by a COLA estab- lished annually by the state Department of Revenue. The current income and asset limits are detailed in the table below. In 2006, Town Meeting voted to increase the exemption to the maximum allowable amount of $1,000. The Senior Service Program Low-income seniors may perform volunteer work for the Town in exchange for a reduction in their property tax, currently up to a maximum credit of $1,045 for an individual, or a maximum credit of $1,330 for a two-person household. The Senior Service program, formerly funded from the overlay account, is now funded as part of the Town’s annual budget, and is subject to appropriation. In 1999, the Legislature authorized cities and towns, by accepting G.L. c. 59, § 5K, to offer residents, age 60 and over, the opportunity to reduce their property-tax obligation by up to $500 in exchange for com- 7 munity service. Lexington, which had earlier maintained its own program, accepted this statute shortly after it was enacted. The statute allows towns to set their rules and procedures for implementation, but limits participation to persons age 60 or over and also limits the hourly credit to the state’s minimum wage of $8/hour. In 2006, Town Meeting voted to rescind its acceptance of the statewide senior property tax work-off pro- gram under G.L. c. 59, § 5K, and to replace it with a locally controlled program. This gave the Town the flexibility to: allow participation by persons under age 60, such as the disabled and handicapped, who might be able to benefit from the program pay a wage in excess of the minimum wage allow a higher amount to be credited against a participant’s property tax bill Although the Board of Selectmen has the authority to expand eligibility to persons under age 60 who are disabled or handicapped, it has not yet done so. The current qualifications are detailed in the table below. CPA Surcharge Exemption Low-to-moderate income homeowners age 60 or over, and low-income homeowners under age 60, may obtain a 100% exemption from the CPA surcharge on their property tax. These exemptions directly re- duce the amount of CPA revenue that the Town receives. 7 In 2002, the maximum amount of the Section 5K credit was increased to $750. In 2009 it was increased to $1,000, and the 2010 Municipal Relief Act added a provision allowing towns to adopt a local option to set the limit at 125 hours of service at the prevailing minimum wage (now $8.00 per hour), which would automatically increase the limit if the minimum wage increases. 53 AC–2015ATM PPROPRIATIONOMMITTEE Tax Relief Programs – Limits and Qualifications as of January 2014 State Income Tax Circuit Breaker Maximum assessed valuation$691,000 Maximum tax credit for renters$1,050 41C Property Tax Exemption for SeniorsSingleMarried Income Limit$25,485$38,230 AssetsLimit$50,974$70,088 Limits and Qualifications as of 2015 41A Property Tax Deferral Interest rate on taxes deferred in 20140.25% Total accounts receivable for deferred taxes$881,716.63 Senior Service ProgramSingleCouples* Income eligibility$53,000$55,000 Maximum benefit(110 hours)$1,045(140 hours)$1,330 Hourly Rate$9.50$9.50 *Coupleslivingin the same household. 54 AC–2015ATM PPROPRIATIONOMMITTEE Appendix E: Specified Stabilization Funds The state statute authorizing towns to create and maintain a stabilization fund, G.L. c. 40, section 5B, was amended in 2003 to permit the creation of multiple, separate stabilization funds for specified purposes. The creation of such funds, the specification of their purpose, any alteration of their purpose, and any ap- propriation into or out of the funds, must be approved by a two-thirds vote of Town Meeting at an Annual or Special Town Meeting. To supplement its general Stabilization Fund Lexington has created several specified stabilization funds, which are described below. At the 2007 Annual Town Meeting, four specified stabilization funds were established to replace certain pre-existing special revenue accounts. Monies in the special revenue accounts, funded by negotiated payments from developers, had previously been spent without specific appropriation. In order to comply with Massachusetts Department of Revenue guidelines, and to make the existence and use of the funds more transparent, monies in the special revenue accounts were transferred to the following specified sta- bilization funds, where they are now subject to review and appropriation by Town Meeting: Transportation Demand Management/Public Transportation (TDM/PT) S.F.: Contains payments negoti- ated with developers to support the operations of Lexpress. Traffic Mitigation (TM) S.F.: Contains payments negotiated with developers to support traffic mitigation projects, such as improvements to signals and pedestrian access at intersections, including funds previous- ly contained in the Avalon Bay TDM special revenue account. School Bus Transportation S.F.: Supports daily school bus operations, and was originally funded with $200,000 contained in the Avalon Bay School Bus Transportation special revenue account. Section 135 Zoning By-Law S.F.: Created to finance public improvements using monies contributed by developers pursuant to Section 135 of the Code of Lexington. At the 2008 Annual Town Meeting, the Special Education Stabilization Fund was created to set aside re- serves to help cover unexpected out-of-district special education expenses that exceed budget. A related goal was to enhance transparency around the out-of-district special education budget component by seg- regating this expense item and bringing budget overruns to Town Meeting for its approval. This fund was created in FY2009 with an initial appropriation of $350,000 and another $350,000 was appropriated to the fund at the spring 2009 Annual Town meeting. The current target level for this fund is $1,000,000. At the 2009 Annual Town Meeting the Center Improvement District Stabilization Fund was created and was funded by a $100,000 payment received from the developer of Lexington Place in FY2010. The funds may be used for projects such as tree planting, sidewalk improvements to the abutting connector between the parking lot and the sidewalk. None of these funds have been appropriated yet. At the 2011 Annual Town Meeting two more funds were created: Avalon Bay School Enrollment Mitigation Fund: funded with a $418,900 payment received from Avalon Bay pursuant to an Education and Trust Fund Escrow Agreement dated May 31, 2006. The terms of that agreement called for the establishment of an escrow fund in the amount of $750,000 with disbursements made to the Town annually if the number of students residing at the development (Avalon at Lexington Hills) exceeded 111. The amount payable per student in excess of 111 was $7,100. The fund has been almost fully withdrawn, leaving only a negligible residual balance. Transportation Management Overlay District Fund (TMOD): funded by payments from those developers who choose to pay a transportation mitigation fee rather than taking responsibility for improving all the intersections in the area to a certain level as provided in Section 135-43.C of the Zoning Bylaw. Per Sec- tion 135-43.C(5)(c) “any transportation mitigation fees paid to the Town are intended to be used to fund infrastructure improvements that are necessitated by the proposed development of the applicant.” 55 AC–2015ATM PPROPRIATIONOMMITTEE At the 2012 Special Town Meeting, the Debt Service/Capital Projects/Building Renewal S.F. was created to set aside funds for future capital projects, including but not limited to building renewal projects, and/or to mitigate the impact on taxpayers of debt service, both excluded and non-excluded, related to capital projects. Current Town policy has a goal of keeping debt service at approximately 5% of total revenue. When the Town must issue a particularly large bond, such as was needed for the new Estabrook School construction combined with the Bridge and Bowman school renovations, the Town’s debt service rises sharply. This rise is typically followed by a period of lower growth in debt service while the Town pays down its exist- ing debt, and limits additional borrowing, until debt service converges back on the goal of 5% of total revenue. Rather than adding the higher debt service directly into the tax levy, this fund allows the Town to smooth the impact of sudden increases in debt service on property tax bills. Town Meeting can set aside funds in periods when the Town has a surplus, and in later years these funds can be appropriated to directly reduce annual debt service, which in turn reduces the amount that must be raised in the tax levy. 56 AC–2015ATM PPROPRIATIONOMMITTEE Appendix F: Other Post Employment Benefits The OPEB Liability The Town of Lexington is required by State law to provide health benefits to retired employees that are comparable to those provided for active employees. These and other retirement benefits that are distinct from the pension benefits earned by many retirees are known as “other post-employment benefits” or OPEB for short. Health care benefits are by far the largest component of OPEB. Currently, about 80% of retirees are eligible for Medicare and receive Medicare supplement coverage from the Town. The remain- ing retirees receive full coverage from the Town, either because they under 65 years old or because they do not qualify for Medicare for other reasons. Because the Town is obligated to provide these benefits in the future, the anticipated costs over the life- time of the current and future retirees represent a financial liability for the Town. Two factors drive the size of this liability, one adding to it while the other reduces it. After ten years of full-time employment with the Town, employees become eligible for a pension and all future retiree health benefits. At these ten-year anniversaries, the Town’s OPEB liability increases by an amount that can be estimated based on the expected number of years the employee will receive retirement benefits, and the expected cost of providing those benefits in the future. Conversely, as the Town pays for benefits to retirees each year, a slice of the accrued liability is eliminated. In a simpler world, i.e. a world where the number of retirees was not growing and medical costs did not outpace inflation, the size of the OPEB liability (in inflation-adjusted dollars) would be relatively stable, because the increases and decreases would tend to balance out. In practice, however, the inflation- adjusted value of the OPEB liability generally increases each year, because of the increasing cost of health care, the growth in the number of retirees receiving benefits, and the upward trend in longevity. The Post Employment Insurance Liability (PEIL) Fund The PEIL Fund was created pursuant to authority granted to the Town through a special act of the Legis- lature in 2002. The Fund was created to allow the Town, at the discretion of Town Meeting, to set aside funds to pay for future retiree health benefits. Once money has been appropriated into the PEIL Fund, Town Meeting may only appropriate money out of it to pay for health care costs of retirees. The Retirement Board is responsible for the management of the PEIL Fund as well as the Retirement Fund, which supports the Town pension system. The rules governing the management of these two funds are similar and, unlike most other Town monies, both of these funds can be invested in equities to yield a higher risk/return ratio suitable for long-term growth. GASB 45 and the choice of a discount rate Under Government Accounting Standards Board statement 45 (GASB 45), the actuarial value of the Town’s OPEB liability is revised every two years and the results must be included in the Town’s financial statements. Bond rating agencies have consistently asked about this report since it became available, sug- gesting that the size of the OPEB liability, and its current funding level, factor into the Town’s bond rat- ing. Estimating the present value of a complicated long-term liability like OPEB involves many actuarial as- sumptions, and the final result will be very sensitive to some of these factors, especially the discount rate (the assumed rate of return on long-term investments), and the predicted rate of inflation for medical costs. Understanding the results requires the reader to consider the underlying assumptions, and to judge how well they mirror their own real-world expectations. The Town engages an actuarial consultant who must follow procedures and reporting templates estab- lished by GASB 45 to produce the actuarial report. The primary purpose of this report is to inform poten- tial investors about one specific aspect of the financial health of the Town, and to enable uniform finan- 57 AC–2015ATM PPROPRIATIONOMMITTEE cial comparisons across multiple municipalities. However, the required elements of the report are argua- bly insufficient to provide practical guidance for a municipality that seeks to control or reduce its OPEB liability. Per GASB 45, the liability is estimated using a conservatively determined “blended” discount rate that is well below the discount rate typically used for long-term investments. This will greatly magnify the esti- mate of the OPEB liability for municipalities that have not already funded some large portion of their OPEB liability. The lower the discount rate used (predicting worse investment returns), the higher the resulting estimate of the liability will be. In 2011, the Town’s OPEB report used a blended discount rate of 2.5% yielding a liability of $302 million. In 2013, with the consent of the Town’s actuarial consultant, a higher blended discount rate of 4.5% was used, yielding a liability of $130 million. This large drop in the official estimate of the liabil- ity is due almost entirely to the use of a higher discount rate, but even 4.5% is too low for our purposes. The discount rate currently used by the Town’s pension fund analysis is 7.75%, and the pension fund is quite similar in purpose and design to the PEIL Fund. At the Town’s request, the latest actuarial analysis included an auxiliary schedule using a discount rate of 7.75%. This yielded a liability of approximately $90 million as of June 30, 2013. This is arguably the appropriate figure to contemplate for a pre-funding plan, because, in actuarial terms, it assumes that Town will actually follow through with a funding plan (while the blended discount rate assumes the Town will never complete a funding plan). Unless otherwise noted, all estimates of present value in the remainder of this discussion are based on a discount rate of 7.75%. Pre-Funding OPEB There are two approaches to handling the OPEB liability. Currently, the Town follows a pay-as-you-go model where annual OPEB expenses are paid entirely through the Operating Budget. This model uses current dollars to pay for expenses accrued in the past. The Town’s pay-as-you-go OPEB cost for FY2015 is budgeted at $6.1 million. The other approach is a pre-fundedmodel, where the cost of benefits earned during the current year is appropriated into the PEIL Fund, and the investment returns from the Fund are then used to pay for annu- al benefits. This model uses current dollars to pay for future expenses, and is essentially the way the pen- sion fund operates. Under the pre-funded model (ignoring the unfunded liability for now), the amount that would have been appropriated into the trust fund for FY2014 was approximately $1.7 million. This amount is referred to in the actuarial analysis as the “Normal Cost.” The Normal Cost is an actuarially determined annual contri- bution that would fund the Town’s share of future retiree benefits earned by active employees in the cur- rent fiscal year. Until the Town fully funds its OPEB liability, moving toward the pre-funded model will require the Town to continue paying for annual pay-as-you-go OPEB expenses, while also appropriating funds into the PEIL Fund. Both types of payments reduce the OPEB liability in their own way. This combination of ap- propriations would continue until the future investment returns from the PEIL Fund are sufficient to cover the cost of all benefits earned in previous years. At that point the Town’s annual OPEB appropriation would drop significantly. The pay-as-you-go and pre-funded model each have advantages and disadvantages. The pay-as-you-go model is simpler to administer, but there is no benefit from long-term investment earnings, and no hedge against the higher inflation of health care costs. In the pre-funding model, once a sufficient trust fund bal- ance is achieved, the investment earnings pay for a substantial portion of the costs. Building up the trust fund is more expensive in the near term, but eventually results in much lower annual appropriations from the operating budget. 58 AC–2015ATM PPROPRIATIONOMMITTEE Under pay-as-you-go, there is a disconnect between the time when services are rendered and the time when funds must be appropriated to pay the benefits associated with those services. This disconnect can complicate long-term financial planning. With pre-funding, the fully loaded cost of services is accounted for in the current year. Even partial pre-funding has some benefits. Any monies in the PEIL Fund provide assurance that the Town will be able to satisfy at least some portion of its future liability, and the Fund could also be used as a reserve, e.g., to fund a portion of retiree health costs in particularly challenging fiscal years. On the other hand, monies invested in the PEIL Fund are unavailable for other uses. Appropriating money into the PEIL Fund reduces the spending power of the current budget. One should consider whether fund- ing the PEIL Fund takes priority over other liabilities, such as the costs of maintaining or replacing roads and buildings in a timely manner. In some circumstances, choosing the latter might generate significant future savings. On March 10, 2014, based on a recommendation from the OPEB Working Group, the Board of Selectmen endorsed a formal policy for making annual appropriations to the Post Employment Insurance Liability (PEIL) Fund: It is the policy of the Board of Selectmen to recommend to Town Meeting each year a budget contribution to the OPEB Trust Fund in an amount that ranges from 35 to 100 percent of the full Normal Cost, with the General and Enterprise Funds bearing their respective shares of those con- tributions. This approach will mitigate growth in the Unfunded Actuarial Accrued Liability, re- ducing the amount the Town will need to budget for health insurance by approximately one-third, as the assets of the OPEB Trust Fund will be used to underwrite the annual cost of retiree bene- fits. Further, it is recognized that there are competing claims for limited Town funds, which are con- sidered as part of the annual budget process. Consequently, the annual recommendation for OPEB funding shall be made in the context of other capital and operating budget needs, such that recommended OPEB funding shall not have a material, detrimental impact on service delivery or the maintenance of Town capital assets and infrastructure. The Committee supports this policy. 59