HomeMy WebLinkAbout2000-12-18-BRCF-rpt.pdf Report of the Selectmen's Blue Ribbon Capital Finance Advisory Committee
Committee Recommendation
The Blue Ribbon Capital Advisory Committee finds that an effective residential tax rate
growth of 5% over the next ten years will simultaneously accommodate the operating budget s
historical inflationary pressures and fund long-term debt commitments for the elementary
schools, senior center, landfill, DPW garage, and road projects as identified and estimated by
the various proponents of the projects. The financing mechanism involves bonding all
projects, except for roads, for 20 years at a 5 '/2%rate.
Chart I displays the current estimated tax impact for the next ten years. It takes into account all currently
approved spending projects. It also assumes a $3,000,000 operating override every three years as consistent
with the past ten-year history
(Chart I) Approved Projects, Expected Overrides, Only
Estimated Tax
New Growth Tax Levy Tax per Levy Limit with Tax per
Prior Year's Tax Tax Levy Limit Sans $100,000 of Secondary Secondary $100,000 of
Levy Limit with Estimated Limit Operating Debt Year 2000 Percent School Debt School Debt Yr 2000 RE Percent
Year 2.5%Increase New Growth Multiplier Overridee Exclusion RE Value Increase Exclusion Exclusion Value Increase
2000 61,322,549 1,225 61,322,549 1,225
2001 62,855,613 665,000 1.0105798 3,440,829 66,961,442 1,324 8.05% 950,625 67,912,067 1,342 9.59%
2002 68,635,478 450,000 1.0065564 69,085,478 1,357 2 50% 1,700,000 70,785,478 1,390 3.55%
2003 70,812,615 450,000 1.0063548 71,262,615 1,391 2.50% 2,125,000 73,367,615 1432 3.02%
2004 73,044,180 450,000 1.0061607 3,000,000 76,494,180 1,484 6.68% 2,975,663 79,469,843 1,541 7.62%
2005 78,406,535 450,000 1.0057393 78,856,535 1,521 2.50% 2,831,288 81,687,823 1,575 2.20%
2006 80,827,948 450,000 1.0055674 81,277,948 1,559 2.50% 2,686,913 83,964,861 1,610 2.22%
2007 83,309,897 450,000 1.0054015 3,000,000 86,759,897 1,655 6.17% 2,542,538 89,302,435 1,703 5.79%
2008 88,928,894 450,000 1.0050602 89,378,894 1,696 2.50% 2,398,163 91,777,057 1,742 2.25%
2009 91,613,366 450,000 1.0049119 92,063,366 1,739 2.50% 2,253,788 94,317 154 1,781 2.27%
2010 94,364,950 450,000 10047687 3,000,000 97,814,950 1,839 5.74% 2,109,413 99,924,363 1,878 5.44%
!r? vt+ N e0ft 446: t _a_ ' ;f .:14-44* . . r '^ -r'; 4.37*:
`.100. 0Y;i7t046--405, 0;648,70. :,
*Delaying an operating override by one year could make a substantial difference in the overall average
increase during the next ten years.
1
Chart II also looks ten years into the future. In addition to the combined impact of all approved projects and
assuming a $3,000,000 operating override every three years, it also displays cost estimates for the additional
tax impact of proposed capital projects as roughly prioritized by the Board of Selectmen. Current estimates
indicate that the total cost of the proposed projects will be: $59 million for the primary school project (after
50% state reimbursement), $5.8 million for street resurfacing, $11 6 million for street reconstruction, $5 4
million for the Senior Center, $3.9 million for DPW building improvements, and $1 6 million for landfill
closure.
(Chart II) Expected Overrides, Secondary School Project, and Suggested Capital Projects
Estimated Tax Estimated Tax Tax per
Levy Limit with Primary Street Levy Limit with $500,000 of
Secondary School School Debt Street Resur- Recon- Landfill Additional Debt Year 2000 Percent
Year Debt Exclusion Exclusion facing struction Senior Center DPW BLDG Closure Exclusions RE Value Increase
2000 61,322,549 0 0 0 0 0 0 61,322,549 6,131
2001 67,912,067 0 0 0 0 0 0 67,912,067 6,719 9.59%
2002 70,785,478 0 1,262,500 0 358,750 256,250 0 72,662,978 7142 6.30%
2003 73,387,615 212,500 1,210,000 0 349,563 249,688 195,200 75,604,566 7,384 3.39%
2004 79,469,843 1,062,500 1157,500 1,372,500 340,375 243,125 188,480 83,834,323 8,138 10.21% **
2005 81,687,823 2,125,000 1105,000 1,325,250 331 188 236,563 181,760 86,992,584 8,396 3.18%
2006 83,964,861 3,060,000 1,052,500 1,278,000 322,000 230,000 175,040 90,082,401 8,646 2.98%
2007 89,302,435 4,426,250 0 1,230,750 312,813 223,438 168,320 95,664,006 9,133 5.63%
2008 91,777,057 4,237,250 0 1,183,500 303,625 216,875 161,600 97,879,907 9,297 1.80%
2009 94,317 154 4,048,250 0 1,136,250 294,438 210,313 154,880 100,161,285 9,467 1.83%
2010 99,924,363 3,859,250 0 1,089,000 285,250 203,750 148,160 105,509,773 9,926 4.84%
_Y,7 k1.F *4* ;4"ler lff :gJ ._S 11.0.40:',4.`;.47$M4' .$� t #W'.w . :
tei"l a: tmh nk a� mti .'.-. „ftlE .. +4?? : 9r ?r _ -ta3 ser S 1_, h b
** The Board of Selectmen may want to consider rearranging capital project priorities to avoid an increase above 10%.
*** If the committee chose to use FY 2002 instead of FY 01 as its base, it would decrease the average increase by .3%
A residential tax rate growth of 5%would fund many of the Town s proposed projects,
but the planned additions to the Police Station, Town Office Building and other projects
have not been included in our inventory The exclusion of these reflects current
recommendations; nevertheless, it is the prerogative of the Board of Selectmen to change
its priorities and adjust funding. To reduce needed tax revenue, the Town could sell one
of its assets to offset the costs of a capital project. If commercial property values
continue to increase at a faster rate than residential values, the property classification
process can reduce the ten-year real estate tax impact to the Lexington homeowners.
2
While it is possible to fund these long-term commitments within the constraints of 5%tax
rate growth, it will require discipline by all interested parties(Board of Selectmen, Town
Meeting, Town Staff, Capital Expenditures Committee,Appropriation Committee) to
stay within this limit. We support this discipline because the tax rate impact on
individuals is of primary concern to the committee. We also strongly encourage the
elected leadership s continued support of the Cash Capital Policy as adopted.
The projections for future expenditures and revenue are tentative and do not reflect in-
depth analysis of the challenges that may confront the Town. Our assumptions regarding
operating overrides are not scientific and do not set a floor or ceiling on the timing or
amount of any possible future operating override. The committee has assumed a flat $3
million override into Table I, three times over a ten-year period, consistent with the
previous decade's operating override schedule. We know the Board of Selectmen will
make every attempt to avoid and/or minimize the amount and frequency of these
operating overrides.
The Committee believes that the Board of Selectmen should also be especially mindful of
past appropriation history relating to allocation of operating and capital resources. We
strongly urge Lexington's town leaders to properly fund future capital expenditures (cash
capital as well as big-ticket capital projects). A continuation of unbalanced allocation of
financial resources to the operating budget at the expense of the capital budget will create
insurmountable infrastructure and financial problems for the community
3
The committee realizes that Town political and financial realities are in a constant state of
flux. Consequently the Committee does not expect that the Selectmen and Town
Meeting will blindly follow these recommendations. For instance, it is possible that the
tax impact may be different than projected due to fluctuations in residential and
commercial valuation. The Town must continue to maintain a delicate balance between
meeting service demands, responding to capital investment requests, and keeping the real
estate tax burden affordable as priorities shift. The Board of Selectmen and Town
Meeting will undoubtedly have to make some difficult trade-offs as new projects are
added to the list or current cost estimates increase.
Guidelines,Assumptions, & Predictions
We developed certain guidelines, assumptions, and predictions to frame our discussion in
undertaking this future-oriented exercise. These included:
• We made no judgements or endorsements regarding specific projects or operating
budget spending levels.
• Fewer operating overrides will minimize the tax impact to the homeowner and
provide increased financing opportunities for worthwhile capital projects
• The community will avoid and minimize impact of overrides when possible.
• Operational override timing reflects historical trends of the past ten years and not a
particular recommendation by the Committee.
• These recommendations can accommodate only those projects that have been
identified and at the levels of funding as presented to the committee in August 2000
Other projects presented without a financial estimate were considered but deferred for
the Selectmen to consider if better information becomes available in the future.
4
• State aid will not be reduced during the next ten years.
• The current residential to commercial valuation ratio will not increase.
• The Town has a number of assets at its disposal that could be used to subsidize the
costs of these or additional projects. We strongly urge the Board of Selectmen to take
advantage of the financial opportunities presented when renewing lease options.
Examples include what recently occurred with the Waldorf School, or when disposing
of surplus property such as the landfill or the DPW property at 201 Bedford Street.
Lexington's Recent Financial History & the Future
In the belief that looking at the Town s financial history is one of the best ways to predict
what may come our way the committee reviewed the past five,then ten years.
During the past five years, residential values increased on average 6.1% annually in the
Town of Lexington. Meanwhile, the average tax bill has only increased 2.9% annually
This statistic indicates that as a percentage of value, taxes paid on homes have decreased
for most homeowners since 1995 So, the real tax impact has been reduced for the
average Lexington resident. However, when looking back over the last ten years
cumulatively, an entirely different picture is revealed. During this time frame, residential
values have increased by an average of 4.2% annually,while the average tax bill has
increased by 5 4%.
Several factors (decrease in state aid, drops in commercial value, and an increase in
Lexington s school-aged population) during the first five years of the past decade caused
the increase in taxation. With a better overall economy and continuing state financial
support, we all hope that a tax increase of this magnitude will be avoided. We also doubt
5
if it is reasonable to assume commercial and industrial property will decrease in value
substantially during the next ten years as it did in the late '80's and '90's. Although the
statistic based on the past five years paints a brighter picture of the tax impact in
Lexington than the ten-year trend, it is evident that the more prudent planning measure is
the longer ten-year value-to-tax trend.
Development of the Towns Financial Policies and the Blue Ribbon Committee's
Statement of Mission
For the past 12 years, the Town has been grappling with the challenge of Proposition 2 'h.
In 1988, the Town figuratively"hit a financial wall." Since then, the Town has attempted
to develop a balanced strategy to fund cash capital appropriations,to preserve a healthy
free cash balance and other strategic reserves, and to finance "big ticket" capital projects
while still funding normal operating budget growth. During the last few years, the Town
has dealt with these issues incrementally with a bias towards preserving quality municipal
services funded within the operating budget. As the Town has worked to develop a
mature budget process inclusive of all interests, the professional staff has developed
strategies and policies for the community to debate and adopt or reject. The purpose of
these strategies is to address some long-standing concerns relative to developing some
cash reserves, maintaining"small ticket' capital investments through the tax levy, and
financing 'big ticket" capital projects outside of Proposition 2 ''A s constraints. Through
the years, the Board of Selectmen has made significant progress in addressing these
concerns. The recommendations of this Committee are made with the knowledge that the
strategies and policies now in place are essential to Lexington s long-term financial and
physical health.
6
Past Boards of Selectmen have worked hard to establish three (cash capital policy free
cash policy, and "big ticket"project financing) essential guiding principles for sound
financial planning that will provide stable municipal services to Lexington citizens well
into the future. The findings of this report should complete this policy package,
strengthen the community fmancial operating practices, and provide thoughtful and
practical guidance for future Town leaders.
During the lapse in capital spending after Lexington "hit the Proposition 2 %2 wall, a
large number of capital projects accumulated on the Town s plate. With the ongoing
secondary schools and Cary I-Tall projects, the upcoming library project, and the
continued need for infrastructure improvements in buildings and roads, Lexington's need
to fund capital projects has become a major challenge. After the proposal of additional
projects such as the elementary schools refurbishment, a new Senior Center, and many
others, it is clearly necessary to have a carefully considered funding plan in place. For
this reason, the Board of Selectmen asked some of the former and current leaders of the
community to develop a solution that would be both financially and politically feasible.
The Selectmen's Blue Ribbon Capital Finance Advisory Committee was charged with
providing advice to the Selectmen as to the feasibility of financing, through debt
exclusion or other means, a roughly prioritized list of projects. The committee was also
to provide counsel to the Selectmen as to the best scheduling of the capital projects as
prioritized. When doing their evaluation, the committee was to consider all the
possibilities, such as phasing of construction and financing, or alternative financing
7
mechanisms. They were also to consider the real estate tax levy implications involved in
funding the Selectmen s priority list.
The Committee worked on a very restricted timeline. It was not the intention of the
Selectmen to have this committee's responsibilities overlap those of the permanent
Capital Expenditures Committee whose job is to provide an annual proposal for a five-
year capital budget. The Blue Ribbon Committee was to take a step back in order to take
a step forward. They were to look at history to determine the long-term financial effects
of capital projects over the next ten years, and to decide which sequence and timing
would provide the least property tax impact. The Blue Ribbon Committee provides
supplemental assistance to the ongoing capital expenditures effort. the committee
expresses its appreciation to members of the Capital Expenditures Committee who
worked with our Committee and provided valuable and gracious advice and assistance.
Committee Membership
There are seven members of the Selectmen's Blue Ribbon Advisory Committee, which is
comprised of past or present leaders of the community The members are: James Beck,
Daniel Busa, Jean Cole, William Dailey (Co-Chair), Paul Marshall (Co-Chair), Jane
Pagett, and Alan Wilson. The Committee met six times during September and October
Town Manager, Rick White, served as staff. The Committee is grateful for his guidance
and attention to our needs.
8
Overriding concern
Throughout the Committee s deliberations, the Committee remained focused on the tax
impact to the individual homeowner. Each project that was considered was costed out
based on the tax impact to the owner of a standard Lexington home.
Methodology
The committee carefully considered and analyzed a great deal of material in the course of
their discussions. Some of the material they analyzed included:
• Inventory of all the Town s potential capital projects and the estimated dollar costs
associated with each of these projects.
• Review of Selectmen s fiscal policies
• Ten-year review of tax levy regarding the average tax increase
• Five-year financial forecast for the Town
• Ten-year examination of assessed values
• History of Town operating overrides
9