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HomeMy WebLinkAbout2023-10-18 FY2025 Financial Summit I-min FY2025 Financial Summit I Select Board, School Committee, Appropriation Committee & Capital Expenditures Committee October 18, 2023 The Budget Summit I meeting was called to order by Select Board Chair Joe Pato at 7:00 p.m. on Wednesday, October 18, 2023 via hybrid meeting services. Present for the Select Board (SB): Mr. Pato, Chair; Ms. Barry, Vice Chair; Ms. Hai; Mr. Lucente; and Mr. Sandeen as well as Mr. Malloy, Town Manager; Ms. Axtell, Deputy Town Manager; Ms. Katzenback, Executive Clerk. Ms. Cuthbertson, Chair of the Lexington School Committee, called the School Committee to order with a roll call. Mr. Parker, Chair of the Appropriation Committee called the Appropriation Committee to order with a roll call. Mr. Lamb, Chair of the Capital Expenditures Committee, called the Capital Expenditures Committee to order with a roll call. Present for the School Committee (SC): Ms. Cuthbertson, Chair; Ms. Sawhney, Vice Chair; Ms. Jay; Ms. Lenihan; Mr. Freeman; Dr. Hackett, Superintendent of Schools; and Mr. Coelho, Assistant Superintendent for Finance and Operations. Present for the Appropriation Committee (AC): Mr. Parker, Chair; Mr. Padaki, Vice Chair; Mr. Ahuja; Mr. Bartenstein; Mr. Levine; Mr. Michelson, Mr. Osborne. 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. Impink, Town Budget Officer Public comments were not taken during the meeting. ITEMS FOR INDIVIDUAL CONSIDERATION 1. FY2025 Financial Summit I  Review of FY2023 Operating Results Ms. Kosnoff stated that the Town had a very strong year in revenue collections across many different categories. Regarding property tax, the Town collected 99%+ of the property tax levy for the year. The Town received slightly over what was anticipated in State aid. Local receipts were up 171% over what was projected. Motor vehicle excise tax came in higher than anticipated. Other excise taxes rebounded to pre-pandemic levels. Hotel/motel is still lagging slightly behind pre-pandemic levels. The Town projected $200,000 for jet fuel, and it came in at $295,000 over that projection. Rentals of town buildings was under the projected amount, and this has to do with cell carrier revenue. One cell carrier actually removed their equipment due to a merger. School and municipal departments came in strong, with the School Department driven by Medicaid, and the municipal department driven by ambulance fees and net metering credits. License and permits were really driven by building permits, and the majority was commercial development. Ms. Kosnoff stated that Staff is working on revenue projections for FY2025. Regarding operating expenditures, both education and municipal departments are right on target. The Town carried over $7M in encumbrances as of June 30, 2023. The total turn backs for the year were approximately $7.3M. Overall, the Town either spent or encumbered 97% of the operating budget. This sets the Town up in a good position on free cash, starting in the $15M range. She noted that the Minuteman Vocational budget typically should be 100% spent, and it was not 100% spent. This will be explained more later in the meeting. Mr. Bartenstein (AC) asked about the public school education expenses line. Ms. Kosnoff explained that this line does not include encumbrances. Overall, Lexington Public School (LPS) education expenses are 87.5% spent or encumbered.  School Department FY2025 Budget Drivers Dr. Hackett explained that the School Department for FY2023 was able to turn back approximately $3.6M, with $3M coming from unexpended FY2023 budget allocation, $2,204 from unexpended circuit breaker reimbursement, and approximately $500,000 in Medicaid reimbursement. She reviewed the existing ARPA funding available. Dr. Hackett noted that there are FY2025 budgetary drivers related to special education, and contract negotiations. There have been a couple of successful contract negotiations already that resolved many problems. The special education preliminary data suggests that outplacements are still lower than pre-pandemic levels, which was a bit of a surprise. Regarding special education, the Department continues to see increases and more intensive student needs, though not as intensive as last year. The Operational Services Division issued a tuition increase based on inflationary rates of 14%. There are ongoing transportation challenges related to the labor market, such as driver shortages. There are a number of new students with existing IEPs, which is slightly down from last year, although still higher than pre-pandemic accounts. Dr. Hackett explained that, regarding high school enrollment, more of an increase is seen as compared to other grade spans, which have remained relatively stable. The high school enrollment is approximately 354 students shy of pre-pandemic levels, with a total enrollment of 637. This is down by eight students. For the elementary level, enrollment is down by approximately 21 students, combined in all six elementary schools. Middle school enrollment is down approximately 25 students across two middle schools. Lexington Children’s Place (LCP) is up by four students and their high school is up by 34 students. Total pre-pandemic enrollment, PreK through grade 12, was 7,191, leading to a difference of 354 students. There was discussion regarding the enrollment numbers for MSBA. It was noted that the original numbers were adjusted by an additional approximately 200 students in this projection. Mr. Bartenstein (AC) asked if some of the enrollment projections could be due to private school enrollments. Dr. Hackett agreed that this could be a possibility and is being considered. Dr. Hackett stated that kindergarten enrollment has had a sizable rebound from 2021 but remains below pre-pandemic levels. This year's kindergarten cohort was 365. Dr. Hackett reviewed preliminary budget projections. For the next few years, these increases range from 4.41% to 1.75%, depending on the year. For the upcoming year, salaries and wages are projected at approximately $117.5M, expenses are projected at approximately $23.4M, leading to a total budget of approximately $140.8M, or a total increase of 4.57%. Ms. Kosnoff asked about the 14% increase in tuitions from the Operation Services Division. She stated that she recalls this number being 14% last year as well. Dr. Hackett stated that this is correct, but that this should not continue into FY2025.  Fiscal Indicators Ms. Kosnoff reviewed the revenue indicators. Even though revenues over the last year trended up pretty significantly, inflation and constant dollars has pretty much wiped out that growth. In reviewing this trend over the last ten years, it is not going in a favorable direction. A decrease in net operating revenues in constant dollars is considered a warning indicator. This is marked as marginal rather than unfavorable due to economic growth revenue, which is actually very strong, and steady tax collections. Indicator two is State aid. This one is also listed as marginal, because of the trend. This has been downward trending, but this year seems to be a catch-up year. The State has indicated that is wants to fund education at a pre- pandemic level. Indicator three is economic growth revenue. Revenues going up is a good indicator and a reason to believe that the overall revenue picture will remain steady in the coming years. Indicators four and five are property tax revenue and uncollected property taxes. FY2023 is the first time over the ten- year trend that a slight decline in constant dollars was seen. This is likely a factor of inflation. Mr. Kanter (CEC) asked what the practice is in Town if there is a failure to pay. Ms. Kosnoff explained that after one year, a property goes to lien. Depending on the amount, the Town may leave it in lien for a bit, but once it gets over a certain threshold, the Tax Collector starts actively pursuing those outstanding liens. Legal action can then be taken. People usually set up a payment plan. Ms. Kosnoff stated that indicator six, expenses, is favorable. This speaks to all of the municipal and school departments holding their expenditures steady. While this trend, according to the indicator is favorable, there could be a concern that this may be an indicator that the Town is not able to provide the same level of service with the money that it has. Indicator seven is personnel costs. Increasing personnel as a percentage of the total budget is a warning, and this has been steady for the Town. Indicator eight is employee benefits. This one did have a little uptick in FY2023 but has been steady over the 10-year trend. The real driver for this item in FY2022 to 23 is the pension. The Town made a policy decision to increase its contribution to the pension. Indicator nine is retirement participants. This saw a bit of a decrease, but overall, has been holding steady over the past years. Indicator ten is pension liability. Pension liability has increased significantly over the last few years, and the percentage that the Town is funded has decreased. Staff is in the process of updating the Town’s pension valuation and the Retirement Board is going to be voting on a discount rate and a new funding schedule at its meeting tomorrow morning. OPEB liability is considered marginal. Indicator eleven, debt service, is seeing some positive trends. The Town has been trying to reduce the amount of debt financing in favor of financing things with cash capital. Long-term debt has a similar indicator. There was discussion regarding the high school project. Mr. Malloy noted that the estimate of $400M is still being used for the project. Ms. Kosnoff stated that the last indicator is school enrollment and is overall seen as favorable. Ms. Kosnoff suggested that the groups consider collectively, making a decision as to whether or not the Town should dedicate more money into the general stabilization fund, or if the Town should continue using capital as the main stabilization fund. She is unsure if the Town has ever taken money from the general stabilization fund. It has also been about ten years since money was placed into the general stabilization fund.  Special Town Meeting 2023-1 Appropriations Ms. Kosnoff explained that Staff is getting ready to set the tax rate for FY2024. Regarding new levy growth for FY2024, this will impact the upcoming Town Meeting. Staff had projected for FY2024 $3M worth of growth to support the operating budget. Residential new growth came in at approximately $1.8M. The Town saw strong personal property new growth of $1.6M. The total new growth for the Town for the year due to new construction is $5.7M. The new amount of tax levy revenue being put into the Capital Stabilization Fund is $2.3M. The total new revenue above what was projected, is $3.375M. This is the amount that can now be allocated. One of the allocations could include a Facilities Department request for building maintenance. Regarding the capital stabilization fund, at the end of FY2023, there was a balance of $27M. For FY2024, based on the amount being put in, Staff is projecting there will be a balance of $30M in this fund, not including any interest.  Review Future Summit Dates & Agendas The group reviewed their future meeting dates. DOCUMENTS: FY2025 Budget Summit I – Presentation, LPS FY2025 Budget Drivers - Summit I, FY2025 Budget Summit - Fiscal Indicators, STM 2023-1 Warrant The next regularly scheduled meeting of the Select Board will be held on Monday, October 23, 2023 at 6:30pm via hybrid participation. ADJOURN Upon a motion duly made and seconded, the Select Board voted 5-0 by roll call to adjourn the meeting at 8:51 p.m. The other committees followed suit. A true record; Attest: Kristan Patenaude Recording Secretary