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HomeMy WebLinkAbout2022-11-16 FY2024 Budget Summit III-min FY2024 Budget Summit III Select Board, School Committee, Appropriation Committee Capital Expenditures Committee November 16, 2022 The remote participation Budget Summit III meeting was called to order by Select Board Chair Jill Hai at 7:01 p.m. on Wednesday, November 16, 2022 via hybrid meeting services. Present for the Select Board (SB): Ms. Hai, Chair; Mr. Lucente, Vice Chair; Mr. Pato; Ms. Barry; 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. Cuthbertson, Chair; Ms. Jay; Ms. Lenihan; Ms. Sawhney, Vice Chair; Mr. Freeman; Dr. Hackett, Superintendent of Schools; and Mr. Coelho, Director of Finance for Lexington Public Schools. Present for the Appropriation Committee (AC): Mr. Parker, Chair; Mr. Padaki, Vice Chair; Mr. Ahuja; Mr. Bartenstein; Mr. Levine; Mr. Michelson, Mr. Osborne Ms. Yan \[late arrival\]. Present for the Capital Expenditures Committee (CEC): Mr. Lamb, Chair; Mr. Kanter, Vice Chair and Clerk; Mr. Cole; Ms. Rhodes; Ms. Beebee; Mr. Boudett. Also present: Ms. Kosnoff, Assistant Town Manager for Finance; Ms. Labrecque, 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 the meeting. ITEMS FOR INDIVIDUAL CONSIDERATION 1. FY2024 Budget Summit III  FY2024 Updated Revenue Projections Ms. Kosnoff explained that one of the primary points for tonight is to try to finalize the revenue allocation model for how the FY2024 revenue will be split between the Town and the School. She stated that the total general fund operating revenues for FY2024 are just over $273M. This is an $8.2M increase over the FY2023 estimated budget, representing approximately a 3.1% increase. Ms. Kosnoff explained that this January multiple new solar panels will be turned on around Town at many of the schools. Along with that power purchase agreement, the Town will be getting a pilot payment. For the first year, the pilot payment can be included under the pilot revenue. In future years the payment will move under personal property revenue. The amount of the pilot payment for this year was just under $80,000. Regarding the Department municipal fees, a little extra money has been added to the ambulance receipts, based on a renegotiated contract. Finally, since the last Summit, $50,000 has been added to the investment income, based on rising interest rates. The revenue estimate was made a bit more aggressively this year due to trends and the transition of free cash from the operating budget. Ms. Kosnoff noted that the available funds are approximately $2M more than when presented at the last Summit. This is primarily due to the free cash line. The original projection for free cash was $14.25M, and it is now it is up to $16M. The primary reason for this is that the School circuit breaker was previously not fully expended. Another minor adjustment was based on an addition of $50,000 to the Visitor Center Stabilization Fund. This was made to help offset the debt service on the new Visitor Center building. She also noted that the PEG Access Special Revenue Fund is beginning to become depleted, so the contribution is being reduced to make this more of a smooth transition.  FY2024 Revenue Allocation (Municipal & School) and Uses of Free Cash Ms. Kosnoff explained that, as of Summit I, the total revenue was projected at $270.7M. Once necessary items were removed from that projection, the amount was reduced to $265.4M. When dividing this up into the correct percentages for the Town (26%) and the Schools (74%), the allocation for the School Department was $3.9M and for the Town was $1.38M. This was a 3.1% increase over last year. The School Department budget, as presented at the last summit, was indicated to be approximately $133.6M, or approximately 4.2% over their last year's budget. This left the School Department with a shortfall of approximately $1.4M. The Town's allocation was $46.4M, with requests from the Departments submitted at $48.5M, a 7.6% increase over last year. This leaves the Town with a shortfall of approximately $2M. The revenue that can be allocated is 3.6%, or $6.2M over last year. This will give the School $4.6M more than last year, and the Town $1.6M more, still leaving both sides with a fairly significant shortfall. Ms. Kosnoff reviewed some of the drivers for the allocation shortfalls. She explained that Lexington’s enrollment at Minuteman is increasing. This assessment is largely driven by the four-year rolling average of the number of students enrolled at Minuteman. For 2023 there are 78 students current enrolled at Minuteman, an increase of 10% over the four-year average. The increase to health, dental and other fringe benefits has a large impact, at a $1.6M increase over last year's budget for health benefits. She noted that the Facilities Department budget has a very significant increase over last year of approximately $1.6M, or 12.5%. The majority of this is driven by energy costs. Ms. Kosnoff noted that the contribution to the Special Education Stabilization Fund has been increased to $1M from free cash. There will also be a continued contribution to the Pension Fund of $50,000/year from free cash. Regarding cash capital, a majority of the $12.2M is coming from free cash, but $700,000 of tax levy funding was also added. Ms. Kosnoff explained that, on the Town side, the trash and recycling contract is projected to potentially go up $1.1M-$1.2M in just one year. Some funds are being held aside, in case that item needs to be dealt with. Also, the HR department would like to do a municipal wage study across all Town Departments to see where Town employees are lining up compensation-wise with other communities. She explained that there is no way to be able to fund any program improvements this year out of the Town's municipal budget. Thus, she and the Town Manager are requesting that this item be funded from free cash, as it is a one-time expense. In response to a question from Mr. Lucente (SB) regarding the increase to health insurance rates, Ms. Kosnoff explained that Lexington is a member of the GIC, the State's health program. This tends to be a bit more stable than market rate plans. A 5% increase in health premiums and a 3% in dental premiums have been projected at this time. The number is based off active employees in the system, with additional leeway for others who may enter the plan throughout the year or change their plan status. In response to a question from Mr. Levine (AC) as to why the tax levy was not used for the operating budget and the free cash used for the tax-free cash capital, Ms. Kosnoff explained that this is based on long-term planning and projections. Dr. Hackett (SC) stated that the share expenses and set asides are a choice. A tiny adjustment in these could make a huge difference in the School budget. She questioned the amount of funding that might be needed to fix air quality issues in Town buildings. She noted that the School Department has returned approximately $6M back to the Town, which then goes into free cash. The following year, the revenue allocation model is applied, and the School gets 74% of what was returned to the Town. The School Department is requesting to adjust the allocation amount from $1M to slightly more than $1.4M, in order to bring the Special Education Stabilization Fund back to $2M. In response to a question from Mr. Padaki (AC) regarding the Parking Fund, Ms. Kosnoff explained that very little revenue came into the Fund during the pandemic. The balance at the end of FY2022 was approximately $110,000. The intention is to fund this Fund until revenue increases again. The increase to the Cemetery Sale of Lots Fund has a lot to do with the Cemetery Building and the projection for debt service. In response to a question from Mr. Padaki (AC) regarding if the proposed solar panels on the school buildings will help to offset some of the increases to the Facilities budget, Ms. Kosnoff stated that this is true, though it is hard to say exactly what the offsets will be. While the panels are operational, it is unclear when the batteries will be turned on. Ms. Kosnoff reviewed the municipal budget challenges, such as the trash and recycling contract, the Facilities budget, gas, and diesel, two transportation contracts that are set to expire, multiple union contracts in negotiation, and supply chain disruptions and lead time. She noted that if some of the off-the- top expenses change from the projections, she would be open to allocating that extra revenue between the Town and School Department. She noted that she would not recommend further adding free cash into the operating budget unless it is to bridge a very temporary gap. Mr. Malloy explained that the Town does not charge a fee for curbside pickup. The projection for curbside recycling and refuse pickup is increasing from approximately $2M to a little over $3M. That consumes approximately 80% or more of the total allocation on the municipal side. He explained that he has recommended to the Board, for the FY2025 budget, to create an ad hoc committee to study the future of the Lexpress bus service. Currently, the transportation services cost budgeted in 2024 is approximately $937,000. These services bring in approximately $30,000 in revenues from fares each year. That gap has been growing each year, as fewer people have been riding Lexpress, while the cost has consistently increased. The Board is also considering bringing the Liberty Ride service in-house. Regarding wages and collective bargaining, the Town had six contracts open this year. Mr. Malloy explained that inflationary increases are being seen on everything for the supply chain, simply due to supply and demand. He stated that he and Ms. Kosnoff will be working on further rounds of cuts to the budget. He noted that the Select Board could consider setting a fee aside for sanitation services to offset that cost, though free trash pick- up has been a longstanding issue in Town. In response to a question from Ms. Hai (SB), Mr. Malloy explained that trash collection at the School Departments is approximately $250,000 a year and approximately $50,000 a year for all Town buildings. The amount for the Town buildings is currently absorbed in the Public Works Department budget. This may need to change. In response to a question from Dr. Hackett (SC) regarding the use of ARPA funds for the one-time expense of air quality in buildings, Ms. Kosnoff explained that ARPA funds can be spent on any municipal project. Mr. Malloy noted that the increases in the utilities for electric and gas are based on the distribution charge, not on the generation charge or supply. He stated that he believes utility companies will only continue to increase the distribution and transmission charges. Ms. Sawhney (SC) stated that she has been reviewing the actuals and predicted numbers for revenue transferred for the tax levy. In almost every year, there has been a surplus, ranging from -$1 million to $2M+. She stated that she believes the Special Education Stabilization Fund, in some ways, should be looked at as a Capital Stabilization Fund, as it is just as necessary. Mr. Michelson (AC) noted that the town has a bylaw which specifies that trash collection is free. The Select Board would have to consider a bylaw change in order to enact any charges for trash collection. Mr. Malloy explained that Town Counsel has reviewed the bylaw, the bylaw actually states the Town is required to provide a location for trash to be brought to for free. It does not say that curbside trash pickup or recycling is free. Mr. Michelson (AC) suggested that Town Counsel review the results of the citizen’s lawsuit that was taken against the Town regarding this item. In response to a question from Mr. Kanter (CEC) regarding availability of funds for capital, Ms. Kosnoff explained that the intention is to use free cash to do complete most of the ongoing programs, including the school and municipal building envelopes, street improvements, sidewalks, IT equipment, School IT capital, etc. Mr. Kanter suggested that the balance between operating and capital should be included in these discussions. In response to a question from Mr. Bartenstein (AC) regarding creation of another enterprise fund for stormwater management, Mr. Malloy explained that DPW is continuing to pursue and refine the projections for a stormwater management fund. DPW will present to the Board in December on this proposal. In response to a question from Mr. Boudett (CEC) regarding projections on the property tax levy front, Ms. Kosnoff stated that she believes this will not be undershot quite as much as in previous years, due to new policies. In response to a question from Mr. Kanter (CEC) regarding creating a contribution from operations into Recreation to keep their fund in a reasonable state, Ms. Kosnoff explained that, during the pandemic, the Recreation Enterprise Fund lost essentially all of its revenue for an entire year. However, there was also a lack of associated expenses at the same time. By the end of FY2022, this Fund was approximately $1,000,005. The discussion regarding potentially moving some of Rec’s fixed employees into the general fund has been tabled for now.  Debt Service Projections and Capital Financing Ms. Kosnoff reviewed the debt service projections. She noted that the debt service within the levee is declining, which frees up some money in the operating budget for other things. However, if free cash is not available in the future, annual capital purchases, such as fixing buildings, equipment, etc., will not be able to be completed without bonding the projects. If these are bonded, debt service will creep up again. She reviewed authorized debt projects that have not yet been fully issued, including Hartwell Ave., and infrastructure design, leading to approximately $6M on hold. There are a few facilities items which have also been delayed. Approximately $4M which was not placed into the projection deals with an outstanding conservation land acquisition item and a few other miscellaneous items. Ms. Kosnoff explained that there is not enough free cash to do the entire capital plan in FY2024, A few items will need to be debt financed. This is at the Town’s discussion. The Bedford/Hartwell long range plan could be issued as needed over a number of years. The solar project for the Police Station will likely need to be debt financed. Ms. Kosnoff explained that the debt model presented i s a level principal model which, over the long run, does save the Town interest expense. It allows for much higher payments in the early years and then lower payments at the end. A $400M construction cost is now being held, along with a 25% MSBA reimbursement. It is expected that the Town is going to have to debt finance approximately $277M of the construction cost. This will likely come to the 2027 Town Meeting and bonded after that. In this model, the design costs are bonded at 20 years and the construction at 30 years, with an interest rate of 4.5%. Debt service starts ramping up in FY2029, at which point the Town will have to start making drawdowns from the Capital Stabilization Fund to offset the debt service. The long-range model shows that at no point will the Town run out of stabilization funds and not be able to offset that impact. The model is based on the debt service portion to the taxpayers not increasing more than 3% per year. In response to a question from Mr. Bartenstein (AC) regarding projections for new growth, Ms. Kosnoff agreed that this will likely continue to increase. Mr. Bartenstein stated that he would like to take in to account the degree to which money is taken from taxpayers today, to offset the cost of future taxpayers who will be getting a lot more than the taxpayers today are getting. Mr. Malloy agreed that the number projected is likely conservative and that staff will continue to work on realistic estimates for this. Ms. Hai (SB) noted that the Select Board will begin its budget hearings the week after Thanksgiving. She reminded everyone that next Tuesday, November 22, 2022, at 7pm is the annual Lexington Interfaith Thanksgiving Service, which is going to be held at Hancock Church, as well as via Zoom.  Municipal Budget Challenges for FY2024 This was previously addressed. DOCUMENTS: Summit III Budget Presentation.v2, FY2024 Revenue Projections ADJOURN Upon a motion duly made and seconded, the Select Board voted 5-0 by roll call to adjourn the meeting at 8:42 p.m. The other committees followed suit. A true record; Attest: Kristan Patenaude Recording Secretary