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HomeMy WebLinkAbout2021-09-22 Fall Fiscal Guidelines Summit-min Summit Select Board, School Committee, Appropriation Committee, Capital Expenditures Committee September 22, 2021 A remote participation Summit meeting was called to order by Select Board Chair Jill Hai at 7:01 p.m. on Wednesday, September 22, 2021. Present for the Select Board (SB): Ms. Hai, Chair; Mr. Lucente, Vice Chair; Ms. Barry; Mr. Pato; and Mr. Sandeen as well as Mr. Malloy, Town Manager; Ms. Axtell, Deputy Town Manager; Ms. Katzenback, Executive Clerk. Present for the School Committee (SC): Ms. Lenihan, Chair; Ms. Jay; Ms. Sawhney; Mr. Bokun; Ms. Cuthbertson; Dr. Hackett, Superintendent of Schools; and Mr. Coelho, Assistant Superintendent for Finance and Operations. Present for the Appropriation Committee (AC): Mr. Parker, Chair; Ms. Yan; Mr. Bartenstein; Ms. Muckenhaupt; Mr. Michelson; Mr. Levine; Mr. Ahuja. Present for the Capital Expenditures Committee (CEC): Mr. Lamb, Chair; Mr. Kanter, Vice Chair; Mr. Cole; Mr. Smith; Ms. Beebee. Also present: Ms. Kosnoff, Assistant Town Manager for Finance; Ms. Hewitt, Town Budget Officer Ms. Hai stated that the meeting was being conducted via Zoom as posted, with the agenda on the Town’s website. Public comments were not taken during this meeting. ITEMS FOR INDIVIDUAL CONSIDERATION 1. Fall Fiscal Guidelines Summit  Fiscal Year 2021 Operating Results and Federal Funds Review Ms. Kosnoff noted that State and Federal funds used to cover Operating expenses over the last 18 months have been higher than before the pandemic, although revenue from the usual sources was significantly more robust than expected. 95.8% of FY2021 Revenue has been spent or encumbered. FY 2021 Property taxes and State Aid revenues were as forecast. FY2021 Local Receipts, particularly Excise Taxes— a th source of concern at the end of the third quarter—bounced back in the 4 Quarter. Enterprise funds collected were 115% of expectations. 98% has been spent or encumbered. At the end of FY2021, the School Department was able to turn back $3M; Shared Expenses turned back were $3.7M; the Municipal side turned back just under $2.5M. Due, in part, to these turn-backs, Free Cash, when certified, is expected to be a minimum of $12M. Ms. Kosnoff also noted that Local Receipts from meals, jet fuel, and hotel/motel exceeded expectations, bringing in 197% of budget expectations, but she also noted that, when the FY2021 budget was built, expectations in these categories were cut to 25% of historical revenue, meaning that actual receipts, while 1 outperforming budget projections, were far lower than pre-pandemic levels. Ms. Kosnoff believes these categories will require continued adjustment. Ms. Kosnoff reported that fines and forfeiture totals were lower than expected, primarily because parking fines were not levied for the period. Parking rules will be enforced once again once the “pay by phone” program kicks off. Revolving Funds for the Visitors Center, Liberty Ride, and School Bus operations have been a concern. Visitors Center and Liberty Ride expenses were adjusted so the resulting income-versus-expense balance was close. In the case of the School Bus Revolving Fund, a significant amount of the expense was moved to the General Fund since students were not riding the bus. More will be presented about this later in the meeting. On the subject of CARES Act and FEMA funds: Lexington was allocated $2.97M from the CARES Act, on a reimbursement basis, through application to the State. The deadline to apply for remaining CARES Act funds has shifted to October 29, 2021. The Finance department has made every effort to access the full $2.97M but that will not come to pass; Ms. Kosnoff estimated that $412,000 of Lexington’s remaining balance will be unclaimed. Somewhat frustratingly, the deadline to access CARES Act funding has changed three times and the criteria for what qualifies for reimbursement has changes more times than that. Ms. Kosnoff reported that the Town requested a $1M CARES Act reimbursement for School Bus and Lexpress contractual expenses but that application was denied. To date, the Town has received $400,000 from FEMA for expenses directly due to COVID-19 response, mostly for Public Health and Police departments. Ms. Kosnoff reported that Lexington is applying to FEMA for another $485,000 to cover School COVID testing plus the Town’s vaccine program. Also covered by funding were some unemployment expenses for staff that were furloughed due to COVID. Additionally, due to a request to all its member towns, Lexington agreed to transfer $34,000 to Minuteman Technical High School. The newer Federal funding program the American Rescue Plan Act (ARPA) turns the focus from response via the CARES Act to recovery. To date, only broad categories of what ARPA can be applied to (through December 2024) have been determined. Lexington’s ARPA allocation is $9.9M. Staff are now developing recommendations for the Select Board and other applicable committee to review to determine how to apply funding. Eligible categories include: Public Health; small business and resident assistance; cultural associations; and municipal needs. Ms. Kosnoff said the big difference between CARES and ARPA is that ARPA can be applied to lost revenue. Mr. Kanter (CEC) asked what is done when property taxes are in arears. Ms. Kosnoff said there are always some uncollected property taxes every year. If taxes are not collected within nine months of being due, a lien is applied to the property. If the amount remains outstanding, the Town can seek legal assistance and foreclosure proceedings can be started. Typically, the Town tries to work out payment plans with the owners rather than pursue legal redress. Tax deferrals and tax abatements are available to residents as well. Mr. Kanter (CEC) asked what the cut off date is to apply for FEMA funding related to the pandemic. Ms. Kosnoff said the Town can submit expenses incurred through September 30, 2021. Any unspent CARES Act funds will revert to the State and be distributed by a currently unknown formula. 2 Ms. Barry (SB) noted an unpaid amount under Payments in Lieu of Taxes (PILOT). Ms. Hewitt reported that the Town and the Waldorf School reached an agreement to forgive half the amount due in light of the pandemic strain on the school’s budget. Ms. Kosnoff said that there are are less than a dozen non-profit entities in PILOT agreement with the Town. Mr. Parker (AC) asked what kind of research has been conducted to learn who, besides the Town itself, might have been greatly affected by COVID and therefore eligible for the broader ARPA funding. Ms. Hai reported that staff is now looking into this question and will report findings on October 18, 2021 to the Select Board before bringing them to the community. Ms. Yan (AC) asked how much is collected in a non-pandemic year for licenses and permits. Ms. Kosnoff said that the amount can vary greatly. This category covers building permits and other commercial licenses. One permit alone can yield $1M, depending on the building. In general, the Finance department tried to be conservative in its forecasts. If the actual amount received is higher than projected, the excess can be applied to areas like the Capital Stabilization Fund.  Proposed Capital Stabilization Fund Framework Looking for feedback on the proposed Capital Stabilization Fund (CSF) framework, Mr. Malloy reported that a Working Group was established about a year ago to look into Other Post-Employment Benefits (OPEB) funding and what could be done to mitigate the impact of debt for the new high school project. The Working Group included a member of the School Committee, the School Finance Director, a member of the Appropriation Committee, a member of the Capital Expenditures Committee, a member of the Select Board, and Finance Department staff. Dr. Hackett has been apprised of the Group’s recommendations. The Group’s proposal recommends taking revenue from extraordinary New Growth, such as Preliminary Site Development and Use Plan ( PSDUP) and Hartwell Avenue redevelopment sources, and setting it aside in the CSF from now until the debt service for the high school begins to come due. Even if the high school were to be approved this year, the debt impact would not be realized until five years from now, which gives the Town the opportunity to establish a substantial cushion. Mr. Malloy said there is no concrete understanding of how much New-Growth funding would be realized during this time but whatever can be set aside would provide flexibility to address the debt more advantageously. Ms. Kosnoff and Ms. Hewitt showed some exhibits to illustrate, as described above, how this New Growth/Capital Stabilization approach would work. In this model, Ms. Kosnoff emphasized, only “extraordinary” New Growth would be set aside, meaning it would not become part of the Town’s regular Operating budget. This would also have the effect of keeping the Operating budget relatively lean vis-à- vis additional staff and Program Improvements. Other surplus revenue, besides extraordinary New Growth, is still to be expected and this type of revenue can be applied, as it has been in the past, to one- time purposes, such as OPEB or pension obligations. Ms. Kosnoff and Ms. Hewitt showed a history of CSF balances and activity since FY2013. Ms. Kosnoff noted that, due to recent changes in zoning, intended to spur commercial development, New Growth should exceed past levels. 3 Ms. Kosnoff also presented a high-level illustration of what the high school debt trajectory could be, estimating it on the basis of a $350M project at 3.5% interest over 20 years. She showed what the impact of this would be on a so-called average homeowner. Without mitigation, the impact would be significant. Before questions were fielded, Ms. Hai emphasized that the numbers used in the models are estimates and should be taken as such. Ms. Sawhney (SC) asked if commercial growth, like residential growth, results in additional expenses for the Town (i.e. schools, sidewalks, services). Mr. Malloy stated that commercial growth does not carry the same level of expense and whatever expense is anticipated can be paid for within the permitting process. Mr. Lucente (SB) expressed excitement about the proposed financial plan. He asked if the New Growth used in the illustration was calculated on the property itself or using the new taxes for the property. Also, as time go by, would the property value remain at its original value in the model or would it increase incrementally? Ms. Kosnoff said that only the incremental New Growth is being used in the calculation. The Assessors are now valuing properties and those values will become the baseline for the tax levy in the new model. Ms. Hewitt said it is a policy call whether the value would grow within the CSF amount or within the overall baseline, but for the purposes of the illustration, the incremental addition of 2.5% would become the new tax-levy baseline. Mr. Michelson (AC) asked if Personal Property increases would also be set aside for the CSF. Ms. Kosnoff said there is no intention to include them. Mr. Malloy said there is no intention to reopen the question of how Personal Property taxes work, barring a change in State Law. Ms. Kosnoff stated that, if the assembled are comfortable with the model presented, the intention is to use it starting with approval at Special Town Meeting in November 2021. Noting that there will be another meeting of the Working Group to firm up the model, Mr. Kanter (CEC) asked that there be an explicit clause added that acknowledges the potential for the non-sustainable to be included so that this is part of the framework.  Other Fiscal Guideline Considerations Ms. Kosnoff said, as the FY2023 budget is being created, the assumption is that the Town will tax up to the levy limit, as it has done for many years. The revenue allocation model will be used, once again, to establish the ceiling for both School and Municipal budgets. Extraordinary New Growth, as discussed, will be expressed in the budget model as a set-aside. Ms. Kosnoff noted that this set-aside might have an impact on some of the other Reserve Funds. Ms. Kosnoff cautioned that the pension fund projection is likely, once again, to see revisions that will adversely affect the date at which unfunded pension liability is fully amortized. These revisions would be seen in the FY2023 budget. Mr. Kanter (CEC) asked that the pension contribution be accelerated so that the burden of dedicating $9M annually is relieved and the money can be used for other purposes.  Fall 2021 STM Articles and Proposed Budget Revisions 4 Ms. Kosnoff quickly previewed the financial articles to be addressed at 2021-1 Special Town Meeting. Ms. Sandeen (SB) asked if in the next information packet, Community Preservation revenues and expenses could be included. Mr. Parker (AC) asked if the Town Meeting Members could be looped in on the Capital Stabilization Fund as discussed. Mr. Malloy said he would share the framework to Town Meeting Members. Mr. Kanter (CEC) asked if the Recreation Enterprise Fund will pay back funds that were transferred to the account during COVID-19 to cover expenses. Ms. Kosnoff replied that the current balanced in the Fund is deceptive because of Recreation’s revenue/expense cycle. There is no expectation of a pay back.  Establish Date: Fiscal Year 2023 Budget Summit I, etc. Ms. Kosnoff reviewed the upcoming FY2023 financial summit dates: Budget Summit I, October 14, 2021, and Budget Summit II, December 2, 2021. ACTIONS: Working Group to make revisions. CPA budgets and fund balances to be included in next Summit information packet; Town Meeting Members to be informed of the new CSF extraordinary New Growth set-aside. Committee Chairs to poll members regarding dates of upcoming meetings and email confirmation to the Select Board office. DOCUMENTS: Summit Presentation—Fiscal Update & Guidelines; FY2021 Year-End Budget to Actuals Memo; CSF Framework Recommendation; CSF Framework—Exhibits; STM 2021-1 DRAFT Article list ADJOURN Upon a motion duly made and seconded, the Select Board voted 5-0 by roll call to adjourn the meeting at 8:45 p.m. The other committees followed suit. A true record; Attest: Kim Siebert, Recording Secretary 5