HomeMy WebLinkAboutLexington Financial Study Committee report, 02-06-1965 THE LEXINGTON FINANCIAL STUDY COMMITTEE
February 6, 1965
Board of Selectmen
Town of Lexington
Lexington Town Hall
Lexington, Massachusetts
Gentlemen:
Briefly stated, the 1964 appropriations of $8, 588, 799
must, in the judgement of the town officers and corn-
' mittees involved, rise to $13, 6Z6, 000 in 1969 if Lex-
ington is adequately to serve its expanding poprlation.
Graphs and schedules supporting our conclusion are
attached.
If the taxes believed necessary for 1969 are startling,
they ought not to be frightening. They would become
so only if we refuse to face them With a clearer view
of the nature and dimension of the problem, the town
can now better judge what is best to do so as to keep
taxes within the limit taxpayers can live with and still
not stifle growth.
Caution, courage, imaginative thinking and horse sense
must be the qualities drawn upon to meet the problem
Lexington has plenty of these qualities. The great need
is to draw upon them to the maximum.
We make only one claim for this report: that it has been
honestly arrived at and that it is free from preconceived
biases which we sought to prove or disprove.
Board of Selectmen Page Two
Your assignment has been as interesting to us as it has
been challenging We have enjoyed the opportunity to
serve, and we have found it a highly educational experience.
Respectfully submitted,
The Lexington Financial Study Committee
enrilhask p
Harry C! erglund
Edward D. Duncan
Frank T uel, Jr /
of ....,,. Q
Louis ne
•60/4", %al/
Pa/lxl�ell airman
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t- PREFACE
A statement relating to objectives and the procedures used ought to introduce any
such report as this one Briefly stated, our assignment from the Board of Selectmen
was to project a tax rate for as far as we could see into the future We were to assume
a continuation of present town policies and conditions with no changes in state legis-
lation (sales tax) nor in town regulations (zoning)
It early became apparent that the five years ending in 1969 was the very maximum
period that ought to be studied. We assumed that population grown and economic
conditions would continue the trends of the past five years, and that there would be
neither sharp inflation nor sharp deflation. We accepted the assumption of the as-
sessors that taxable property would increase at an annual increment of $3, 250, 000
We have not attempted to act as a super Appropriations Committee nor as a super
Capital Expenditures Committee Rather, we have met with the various town committees
and departments to explain our assignment and have asked them to give us their best
lij,judgement of how an expanding population would affect the town's expenses, costs of
personal services and capital costs We have considered our responsibility to be prima-
rily that of a funnel which would collect and bring to the citizens of Lexington the con-
sidered judgement of those concerned with the sound development of the services they
direct.
All of the expanded services impress us as being things that a town such as Lexington
might well have if the town we live in is to be as fine as we would want it to be Obvi-
ously, varying degrees of priority attach to each department's or committee' s needs
At the outset, we attempted to project a realistic tax rate into 1969 It early be-
came apparent that department financial needs as seen by the town officers and
committees would frequently differ from the needs as seen by the Selectmen, the
Appropriations Committee, the Capital Funds Committee and the town meeting itself
( At once the question arose: Whose judgement were we to accept? For us to project a
tax : ate into 1969 would have required us to scrutinize minutely each departmental
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budget request for the next five years and for us to accept, reject, or reduce each
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major it m This study committee lacked the time and personnel to attempt an as-
signment'' of that magnitude in the time available After all, the town already had a
citizens' committee working steadily all year long to analyze each annual town budget.
Who were we, in three months time, to attempt to render a balanced judgment covering
a five year interval? Our report, therefore, does not project a five year tax rate
Rather, it'reflects what the tax rate might approximate if the requested appropriations
were granted.
What then is the value of this report? Primarily it lies in there being assembled within
it what responsible members of town government envision as their departmental financial
needs for the next five years To our knowledge, no such data for Lexington has ever
before been compiled. The report places before the citizens an overall estimate of the
financial problems which an expanding population is expected to bring Only as the town
can envikion the total need can the citizens place intelligent priorities upon each segment
of that ned. Surely, some items, appearing to have a high initial priority, may lose
that status as yet more pressing needs appear from review of the total need.
We were to be a fact finding committee only and were to make no recommendations
Having submitted our report, our responsibility ends We do make two recommen-
dations, nevertheles s:
First, that this report be updated periodically Probable legislative changes, both
state and federal, create so fluid a situation that no really meaningful income pro-
jections are possible until this legislation becomes law
Second, we suggest that consideration be given to revising the financial portion of the
town' s annual report.
As now presented, even men reasonably familiar with financial data would find it con-
fusing and uninformative To folks unaccumstomed to such data, the report would repel
interest and would defeat efforts to learn more about the town' s financial operations
We command the report of the School Committee which reports income and expenses as
a unit. Would it not be equally desirable for each town department to present a state-
ment where cash and non-cash departmental income was related to cash and non-cash
departmental expenses?
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We welcDme all constructive criticisms and suggestions to the end that subsequent
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committees can refine and sharpen this initial effort.
Finally, we thank the town officers and committees who, without exception, cooperated
't heartily lin supplying the data that made this report possible
Especially are we grateful to Albert Gray, Jr , Executive Assistant to the Selectmen.
His broad knowledge of town operations was constantly at our disposal, and he gave us
helpful guidance
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A FINANCIAL PROFILE OF LEXINGTON
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When the committee was looking into future tax trends in Lexington, it seemed
desirable to get some approximation of where Lexington stands financially today,
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where it has been, and how its financial rating compares with that of other towns
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in eastern Massachusetts The following information came to light, and we believe
will bel of interest. 1
For our purposes, it was fortunate that an approximation of this kind of information -�
is available from a manual prepared by The Moody Investmet t Service, which appraises
the investment quality of the bonds offered by all the municipalities in the nation.
Letter symbols are used to designate any one of nine different groups into which
the bonds may be graded. These nine symbols are: Aaa, Aa, A, Baa, Ba, B, Caa,
Ca, and C.
The range from Aaa to C runs the gamut from gilt edge to out-and-out speculation.
So great is the respect given these ratings that bond buyers determine the rating of
a bond as a first procedure when considering a purchase. As a measure of the gen-
erally high investment level of bonds offered by Massachusetts towns and cities, only
eight towns rate as low as Baa; all of the others rate as A or higher
Citizenslof Lexington will be interested in the bond rating of their own town and how
it compares with its neighbors For this comparison, we have limited the analysis
to Masealichuaetta towns and to cities smaller than Springfield and Worcester We
have also eliminated school and water district bonds. Of the towns and cities having
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bond issues rated by this service (bonded indebtedness of many towns is so small
that the bonds are not rated), only five carry the Aaa rating that goes with gilt edge
bonds. These five are: Brookline, Northampton, Salem, Wellesley, and Winchester
Bonds having the Aaa rating are of prime investment quality because, to quote the
manual, " the interest payments are protected by an exceptionally stable mar-
gin that leaves the principal unquestionably secure. No changes can be visualized
that are likely to impair the fundamentally strong position of such issues "
Next below this rating of Aaa are the bonds of 48 towns rated as Aa. The following
eastern Massachusetts towns are among those in the Aa classification: Cambridge,
Concord, Framingham, Malden, Medford, Melrose, Newton, Stoneham, Waltham,
Watertown, Weston, and Wilmington. Again quoting the manual. "Bonds of this Aa
rating are looked on as of high quality by all standards Together with the Aaa
group they comprise what are known as high grade bonds They are rated lower
than the best bonds because the margins of protection may not be as large as in the
Aaa securities "
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'In between the 53 towns whose Aaa or Aa bonds rate as high grade, and the eight
towns whose Baa bonds are rated lowest of the towns and cities of the Commonwealth,
are the bonds of 130 towns and cities whose bonds are rated as A. Lexington is in
this group. According to the rating service, the A bonds " possess many favorable
investment attributes and are to be considered as higher medium grade obligations
Factors giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptability to impairment sometime in the future. "
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Is there any way of telling whether Lexington is in the top, middle, or lower third
of this group of 130 towns ? Unfortunately, the ratings do not go that far As the
manual concedes, "Bonds carrying the same rating are not claimed to be of absolutely
equal quality In a broad sense they are alike in position, but since there are only
nine rating classes used in grading thousands of bonds, it follows that the symbols
cannot reflect the fine shadings of risks which actually exist. Therefore, it should
be evident to the user of ratings that two bonds identically rated are most unlikely
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to bellof precisely identical investment quality "
Even though it is not'possible to determine where Lexington ranks among 130 towns,
there is reason to believe that within this A grouping her bonds are well regarded in
investment circles Within the past year they have been graded by the New York
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State Banking Department as approved investments for state chartered banks in that
state. I This is pleasing because until 12 years ago Lexington's bonds carried the
prized Aa rating. They dropped to the lower A rating, partly, at least, because the
bonding for: the new high school doubled the previously-existing debt of the town.
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It is difficult, indeed, to compare the financial standing of towns on any basis that
is validand firm. Any measurements used are subject to attack. Assessed valu-
ations are certainly not satisfactory; neither are tax rates The Boston Safe Deposit
and Trust Company annually compiles information about assessed valuations, tax
levies, and tax rates of the towns and cities in the Commonweblth. From such a
study we learned that as of October 1, 1964, the net per capita bonded debt of Lex- _
ington was $393. Of 312 towns included in the analysis, Lexington's $393 per capita
indebtedness was exceeded by only 10 towns in the Commonwealth.
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Forlpurposes of comparison we list below per capita bonded indebtedness of se- (I
lected towns and cities of eastern Massachusetts:
Andover $209
Arlington $72
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Bedford $535
Belmont $15
Concb'rd $143
Lincoln $292
Billerica $215
Burlington $377
Carlisle $299
Medford $50
t Melrose $51
Natick $194
Needham $248
Wellesley $176
Winchester $149
�, Woburn $358
Reading $152
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North Reading $385
Waltham $224
i Watertown $69
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Although Lexington's per capita debt is very high, undue criticism may not fairly
,be directed at it. Towns and cities which encountered their population growth prior
to World War II built their schools, roads, and sewers when costs were far lower than
they are today Towns which have encountered their population growth in the last
10 to 15 years have had to shoulder construction costs that were double or treble
what they would have been in the 1930's Almost certainly, per capita debts of rural
towns currently experiencing marked population growth will see their per capita debt
rise, just as has been true in Lexington. Besides, heavy per capita debt ought not
receive undue emphasis. What the town received for the proceeds of the bond issues
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ought to weigh equally heavily Here, there is real satisfaction in the superior school
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facilities which Lexington possesses
Nevertheless, Lexington's high bonded debt cannot lightly be dismissed. Thoughtful
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citizens ought, to feel concern that about 16% of Lexington's tax-generated income must
be used to service this debt -- $300, 000 annually for interest and $950, 000 for prin-
cipal payments
Balance is nelpessary as between paying for capital expenditures currently through
taxes compared with paying for them through a bond issue. To pay for all capital ex-
penditures through taxes would force the tax rate unconscionably high. To bond all of
them would increase the total financing costs unduly high because of the interest bur-
den. The recommended policy of the Capital Expenditures Committee of bonding for
school construction, but meeting all other capital costs from tax revenue, seems to
be balanced and businesslike.
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The stress in the financial profile given to bond ratings and per capita debt occurs
( because they are unfamiliar areas to most citizens and are believed to be of more
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than passing interest. The need for a balanced presentation suggests that reference
, should also be made to Lexington's high average family income. At $12, 500 this is
one of the highest in the Commonwealth. This fact has already received publicity in
the local press, and we shall not duplicate it in this report. The comment is in
order, however, that averages are composed of extremes The medium income
families and families living on fixed retirement income find Lexington's tax rate
already high. Many families could take an increase in stride. Many others would
find incrleases in taxes the determining influence in a decision to move out of Lex-
ington. This would apply particularly to families whose children have grown up
and movbd away from Lexington. No longer would families, with no children to
educate, find Lexington's fine schools an adequate offset on Lexington's taxes. How `
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best to limit an increase in taxes to a figure taxpayers can live with and which at the
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same t' e will not stifle growth is the big dilemna.
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CONCLUSION
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An expanding population that will require widening of existing services plus the
increased costs of personal services make it inevitable that the tax rate will rise
in the next five years
The II'degree of the tak rate increase is not in focus and will not be until it is apparent
whenll and how much state aid will become available from pending legislation. Be-
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cause the tax burden upon real estate will become more and more critical as the
year pass, we have faith that increased state aid will become available. But, at
this stage it is pure peculation as to what action will result.
Equally important, expense-wise, in its effect on the tax rate is the degree of con-
1 trol exercised upon 4xpenses. There will be general agreement that sound fiscal '
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planning requires that Lexington limit its budget to expenditures that have a high
priority But what registers on one citizen as high priority may not register so
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at all to another citizen. Because there can be wide and honest differences of opinion
as to what constitutes the degree of priority for any given item, the whole subject
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should'Ihave the widest possible discussion. A sound solution requires the maximum
blending of caution, courage, imaginative thinking, and horse sense.
Thus, every citizen will watch with interest to learn whether a sound case can be
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demonstrated that purchase by the town of land for conservation purposes will lessen
the number of potentidl students and so lessen the impact of rising capital costs for
schools as well as the annual operating costs Decision maki`ig as to annual school
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budgets rests with the School Committee, not with the town meeting A soundly
documented case for purchase of such tracts might permit the town meeting, acting
diretly, to place fewer demands upon the school system by reducing the expense
arising from an increasing school population.
We must continue the conventional scrutiny of expenses, but minor economies of
a few thousand dollars here and there will not suffice. We need massive and dra-
matic measures to hold expenses at a level that taxpayers can live with.
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PROJECTED EXPENDITURES
1965 - $9 865 000
1966 - $10 463 000
1967 - $11. 974 000
1968 - $1?, 770, 000
1969 - $13, 62.6, 000
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PROJECTED RECEIPTS .a ab
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1965 - 0.49
1965 1966 1967 1968 1969
Taxes, prior years $94, 000 $ 94, 000 $ 94, 000 $ 94, 000 $ 94, 000
Redemptions in lieu of taxes 2, 000 2, 000 2, 000 2, 000 2, OC 1
Ftorn Commonwealth 707, 000 500, 000 550, 000 600, 000 650, OG.)
Licenses 8, 000 8, 000 8, 000 8, 000 8, 00 )
Permits 9, 000 9, 000 9, 000 9, 000 9, 00 )
Court Fines 2, 000 2, 000 2, 000 2, 000 2, 00 )
State Grants 342, 250 375, 100 408, 000 408, 000 408, 000
From County 3, 000 3, 000 3, 000 3, 000 3, 000
Total General Revenue 1, 167, 725 993, 100 1, 076, 000 1, 126, 000 1, 176, 000
Special Assessments 917, 000 934, 000 951, 000 968, 000 985, 000
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General Government 15, 000 15, 000 15, 000 15, 000 15, 000
Health and Sanitation 7, 500 7, 500 7, 500 7, 500 7, 500
Highway 55, 000 55, 000 55, 000 55, 000 55, 000
Unclassified 25, 000 25, 000 25, 000 25, 000 25, 000
TOTAL Commercial Revenue 2, 186, 750 2, 029, 600 2, 129, 500 2, 196, 500 2, 263, 500
Cemetaries 18, 000 18, 000 18, 000 18, 000 18, 000
Public Service Enterprises 485, 000 500, 000 675, 600 1 590, 000 555, 000
Interest 50, 000 50, 000 50, 000 50, 000 50, 000
Refunds 5, 000 5, 000 5, 000 5, 000 5, 000
Deposits 75, 000 75, 000 75, 000 75, 000 75, 000
TOTAL CASH RECEIPTS $2, 819, 750 $2, 677, 600 $2, 953, 100 $2, 934, 500 $2, 966, 500
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APPROXIMATE MAXIMUM
TAX RATE
1965 - $40 10
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1966 - $43 50 ,
1967 - $49 30
1968 - $53 10
1969 - $56. 55