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HomeMy WebLinkAbout2018-10-22 Summit-min Page 1 of 7 Financial Summit Meeting I Board of Selectmen, School Committee, Appropriation Committee and Capital Expenditures Committee Monday, October 22, 2018 A Financial Summit meeting was held on Monday, October 22, 2018 at 7:02 p.m. at the Hadley Public Services Building Cafeteria, 201 Bedford Street. Present for the Board of Selectmen (BOS) were Ms. Barry (Chair); Mr. Pato; Ms. Ciccolo (late arrival); Mr. Lucente; Ms. Hai; Mr. Malloy, Town Manager; Ms. Axtell, Assistant Town Manager; Ms. Kosnoff, Assistant Town Manager for Finance; Ms. Hewitt; Budget Officer; and Ms. Siebert, Recording Secretary. Present for the School Committee (SC) were Ms. Jay (Chair); Ms. Colburn; Mr. Alessandrini; Ms. Lenihan; Ms. Sawhney; Dr. Hackett, Superintendent of Schools; and Mr. Rowe, Assistant Superintendent of Schools for Finance and Operations. Present for the Appropriation Committee (AC) were Mr. Bartenstein (Chair); Mr. Levine; Mr. Michelson; Mr. Padaki; Ms. Yan; Mr. Neumeier; Ms. Basch; Mr. Nichols; Mr. Parker. Present for the Capital Expenditures Committee (CEC) were Mr. Kanter, (Vice Chair); Ms. Beebee; Ms. Manz; and Mr. Smith. Review of Financial Indicators Using a series of recognized metrics, including those from the International City/County Management Association (ICMA), the Government Finance Officers' Association (GFOA), and Moody's Investor's Service, plus data from the Town of Lexington, the Massachusetts Department of Revenue, the Massachusetts Department of Elementary and Secondary Education, and the U.S. Census Bureau, Ms. Kosnoff presented a preliminary FY2020 snapshot of the Town's fiscal position. Highlighted Financial Indicators from the presentation included: Indicator 1: Revenues. Favorable. Ms. Kosnoff stated that, over all, revenues (tax levy, State aid, local receipts) continue to be strong and trending upward, with a 3.22% FY2018 increase over FY2017. The total percentage has decreased slightly in constant dollars, but it is still above the 10-year average. Indicator 6: Expenditures Per Department. Marginal. This a downgrade ranking from last year's Favorable rating. Departmental expenses have been increasing faster than revenues and Ms. Kosnoff said there has been a consistent uptick over the last three years with a 4.3% increase in FY2018 over FY2017. This trend is expected to continue, largely due to increasing debt service. A close eye will be kept on this indicator. Indicator 8: Employee Benefits. Favorable. Mr. Malloy pointed out that Lexington is close to fully-funding its Pension Liability, a milestone expected to be reached in 2024. If Lexington participated in Social Security/FICA instead of in the municipal retirement system, the Town would have paid $1.35M more in FY2018. Page 2 of 7 Financial Summit Meeting I—October 22, 2018 Indicator 9: Retirement Participants. Marginal. This is an upgrade from last year due to the recent strides the Town has made toward funding both pensions and post-retirement health-care costs (Other Post-Employment Benefits (OPEB)). Indicator 10b: OPEB Liability. Unfavorable. The Town is on a positive trend line, but OPEB is only 4.7% funded Once the Pension Liability is amortized, more attention can be focused on OPEB. Ms. Kosnoff noted that every bond rating call has asked a question about Lexington's OPEB status. There is currently more than $1OM in the fund. Indicator 11: Debt Service. Marginal. Lexington is still in reasonable territory with its Debt Service percentage, but over the last 20 years, large Capital investments have been made that increased the tax burden, particularly on the Residential side. This investment trend is expected to continue given the Capital Plan, and the debt-service increase will put pressure on the Operating Budget. Some of the exempt Debt Service [Indicator L 11(a)] will be mitigated with the Capital Stabilization Fund, but the trend is steep and requires close monitoring. Because of Lexington's AAA bond rating, Lexington remains able to borrow at favorable rates. Taxpayers have so far supported Capital funding projects, which adds value to the Town's assets. Indicators 13: Reserves and Fund Balance; and 13 (a) Use of Capital Stabilization Fund: Favorable. The balance of the Capital Stabilization Fund is $28.5M. The balance of the General Stabilization Fund is $9.65M; Free Cash stands at $13.454M. Mr. Kanter (CEC) noted that although the Selectmen adopted the recommendation of the ad hoc Financial Policy Committee to create reserves to offset cyclical downturns in State Aid and Local Receipts, such was not the case with the General Stabilization Fund, as detailed in Indicator 13. Mr. Kanter also asked, again as he had before, that the Board of Selectmen review its policy on how discretionary funds are directed. Mr. Bartenstein (AC) noted that Lexington's Pension funding compares very favorably with other communities; he asked for a comparison with regard to OPEB funding. Ms. Kosnoff said Lexington is making more progress on its OPEB liabilities than other communities, but she does not have the comparison data available this evening. Rating agencies do credit Lexington for the progress it is making on OPEB. Mr. Alessandrini (SC) asked if any relief is expected from the State House in terms of OPEB funding or legislation. Mr. Malloy said nothing is known yet about what the State might do once the State mandates full OPEB funding, although the blow will be softer because the Town has set aside OPEB funds steadily. Page 3 of 7 Financial Summit Meeting I—October 22, 2018 FY2020-2024 School Operating Budget and Enrollment Dr. Hackett said the upcoming presentation would provide a high-level overview of the Schools' evolving goals and objectives, enrollment trends, Master Planning/projects, and a conservative projection of numbers and percentages. Three strategic areas of focus for the School Committee with FY2020 budget implications are: Diversity/Equity/Inclusion, including a consultant-conducted"equity audit"to study items such as disproportionate suspensions for students of color and students with special needs, and disproportionately low numbers of students of color enrolled in Advanced Placement or Honors classes; evaluation of inclusionary practices;professional development to meet goals and recruitment/retention of diverse staff. Social/Emotional Learning including school safety, a later start time for Lexington High School (LHS), health and wellness of the school community, increased extra- and co-curricular opportunities, and project-based learning. Dr. Hackett noted that a later LHS start could cost between $900,000 and $1.4M, but the Schools are examining how to mitigate/minimize this cost by consolidating bus routes, etc. Flipping elementary and high-school start times was viewed negatively by the elementary community. That approach will not be taken. Dr. Hackett also noted that participation in extra- and co-curricular activities is closely tied to student inclusion/emotional well-being; as the school population increases, these activities must also expand or risk leaving out an increasing number of students. Visioning/Planning, particularly Capital Master Planning and pre-kindergarten through 12'h grade (PK-12) Strategic Planning including submission of the LHS Statement of Interest letter to the Massachusetts School Building Authority (MSBA). The Master Planning Committee has met twice so far and there are eight more meetings remaining before the June deadline. With the "One Lexington"philosophy at the core of discussions, the group has begun to examine various master plan models. Enrollment trends show a persistent increase in student numbers across the board with the exception of a slight decrease in K-5 FY2018 enrollment(as of October 1, 2018). Mr. Rowe noted that continued enrollment increases and influxes are projected throughout the grades and that close to 1,000 students have already been added in the last ten years. Between FY2019 and FY2024, the high-school population is expected to grow another 11.7% (267 students) and middle-school enrollment is nearing capacity. All indications point to the need for a new or substantially renovated high school. MSBA representatives have toured the facility. Dr. Hackett reported that the Schools anticipate asking the Selectmen for a formal endorsement in November in order to move ahead with a letter of interest to the MSBA by April 4. 2019. The need for expanded Science labs as been forestalled for the time being. Page 4 of 7 Financial Summit Meeting I—October 22, 2018 Mr. Kanter (CEC) asked if the cost of a later high-school start time will be included in the FY2020 Operating Budget. Dr. Hackett said the numbers will be included once they are finalized. School Budget Assumptions: Salaries and Wages: • A level services budget will be constructed that asks for no program improvements. • A 2.5% increase will be included on top of the base budget for step increases, although $750,000 in salary costs is avoided every year due to staff turnover. Benefits, Workers' Compensation and Medicare costs will be included in the budget analysis. • Funding to settle contracts is assumed FY2020-FY2024. • Additional staff will be included commensurate with enrollment increases. • Additional Facilities and School staffing for the new Hastings Elementary School and Lexington Children's Place (LCP) will be included. Assumptions: Expenses/Non-salary: • Program per-pupil budget will be increased by the Consumer Price Index value of 1.7% annually, applied against enrollment projections. All other expenses will also be indexed by the same percentage increase. • Special Education Out-of-District Tuition and Transportation will be projected based on program needs as they are known. • The budget will also include additional expenses from the new Maria Hastings Elementary and the new LCP. Dr. Hackett noted that,taking all of the above into account, a budget increase of 5.51% is expected over FY2019. In the ensuing five years, lower increases are projected, but these projections could change if enrollments differ from estimates. The Enrollment Advisory Group has been reconvened and it is taking a close look at the factors that affect enrollment. Mr. Lucente (BOS) asked if additional staff would be needed at the Harrington School. Dr. Hackett said Harrington square footage already exists, making additional custodian staff unnecessary. Seven full-time-equivalents (FTEs) are projected across the elementary staff, which should cover enrollment needs. Mr. Parker(AC) asked if turned back funds have been factored into the budget. Dr. Hackett said the traditional turn back of approximately $1M has been included. Mr. Michelson (AC) said he believes 1.7% inflation used in the calculations may be optimistic. Mr. Pato (BOS) concurred. Dr. Hackett said this number has been used in past Summit presentations, but the Schools will revisit the formula. Mr. Rowe said the inflation number only affects supplies and materials, which is a small portion of the overall budget. Mr. Padaki (AC) asked which enrollment-projection model has been most accurate. Mr. Rowe said, looking back 5-6 years, the Cohort Survival Model was under-projecting, but the Housing Model was over-projecting. The model being used now is the Cohort Survival Model, but based on five years of actual kindergarten-enrollment numbers, not the MSBA recommended Page 5 of 7 Financial Summit Meeting I—October 22, 2018 Birth—related Projection Model. Kindergarten actual numbers take into account Lexington—specific information. Ms. Beebee (CEC) asked for more detail about the cost of inclusion initiatives and the proposed high-school later-start time. Dr. Hackett said no increases have been factored into the budget on the programming side. Mr. Rowe said, on the transportation side, $500,000 was built into the non-salary account for FY2020. Ms. Beebee (CEC) asked how the budget would change if the enrollment increases 1% above projections. Mr. Rowe said that would depend on where the increases fall, but, in the past, 60 additional students translated to budget increases of between $1M and $1.5M. Ms. Yan (AC) said she appreciates that bus routes are being examined to minimize the cost of a later start time, but she feels the Town should consider a lower transportation offset for families of students and thus avoid burdening all taxpayers. Dr. Hackett said this could be explored. Mr. Kanter (CEC) asked if the salary reclamation of$750,000 is a number that has been used before this year. He also asked if use of the $1M Special Education (SPED) Stabilization Fund is being considered. Dr. Hackett said, in the past, $1M was used instead of$750,000, but the amount has been reduced based on trends the Schools have been seeing. The budget does not assume dipping into the SPEd Stabilization Fund. Mr. Kanter said he would prefer to see the budget built without a turnback amount included. FY2020-2024 Town-wide Revenue and Expenditure Forecast Ms. Kosnoff highlighted a few items, noting that the numbers are very preliminary and assumptions are aligned with those used in past years. • Property tax-levy projections assume the 2.5% levy increase allowed by State law. • Projections incorporate $2.5M in annual New Growth which Ms. Kosnoff called a conservative estimate based on past years in which New Growth has been over $3M. • State Aid assumes the minimum per student allotment. • The large jump in Available Funds from FY2019-FY2020 is due to the use of the Capital Stabilization Fund which will be drawn down to minimize debt-service demands. • Looking at the Lexington Public School line item, Ms. Kosnoff said the numbers may be amended if an alternative enrollment-projection method is used. • The line item for Minuteman High School shows a significant increase starting in FY2020 due to debt that will be issued and Lexington's share of that cost. • Within-Levy Debt Service will be kept to approximately 5%. • Note Retirement will continue until FY2022 for the purchase of the Pelham Road LCP land and the property at 173 Bedford Street being used for temporary swing space. • Retirement allocations will increase slightly based on the new actuarial calculation. • Ms. Kosnoff projects putting funds into Capital Stabilization through FY2024, but this assumption may not be realistic. • $1M in unallocated revenue is projected through FY2024. Page 6 of 7 Financial Summit Meeting I—October 22, 2018 • A deficit of$68,000 is projected for FY2020 that can be mitigated by the Capital Stabilization Fund. Ms. Kosnoff said this deficit is not alarming, but the trendline shows a growing deficit going forward. Lower amounts of Free Cash have also been projected in an attempt to be conservative with expectations. Mr. Bartenstein verified that the Town still plans to amortize the land-purchase debt within the five years, using a yearly loan rollover model until FY2022. Mr. Kanter raised the question of whether this debt can be wiped out sooner than five years and recalled that was a recommendation made by both the AC and CEC. Ms. Yan (AC) asked why a significant increase is shown in the Health Insurance line item going forward. Mr. Kosnoff said the FY2019 projection was based on an FY2018 higher-than-actual assumption. Finance will take another look at Health Insurance estimates after November 1, 2018, when actual increases will be known. Mr. Parker(AC) asked what interest rate is being assumed for the debt not yet issued. He also believes it is not a good idea to continue putting more funds into Capital Stabilization while the Fund is being drawn down. Ms. Kosnoff said the projection for borrowing interest rates is 5%. She added that the Town is committed to holding the Debt Service at 5%no matter of what the interest rate is. Given the upcoming large Capital projects, this 5% debt rule may no longer be realistic and a policy discussion may be necessary. The next Summit on December 6, 2018, will look at more detail and use more solid revenue projections to make decisions on revenue-allocation models. Revenue Set Asides remain similar to past years, but will be revisited for the December Summit. Ms. Colburn (SC) said she does not see an allocation listed for shared Mental-Health-service expenses as agreed between the Municipal and School sides. Ms. Kosnoff will look into this. Mr. Kanter (CEC) believes the FY2020 Capital Plan projection of$70M is very high and may require revision, which would affect budgeting and borrowing. Policy Issues Related to FY2020 Operating and Capital Budget Ms. Kosnoff focused on policy considerations that have fiscal ramifications: • Mr. Malloy and Ms. Kosnoff will develop a new five-year Capital Plan that will incorporate re-visited decisions about how to move forward and include consideration of the goal to make Lexington more affordable. • New Enrollment projections will be taken into account in the new five-year plan. • Within-levy and excluded debt will both be considered as new projects, not originally on the Capital Plan, requiring recalculation. Ms. Kosnoff said that projects might be prioritized and postponed or debt terms might be lengthened. The Capital Stabilization Fund could be drawn down more aggressively and new Page 7 of 7 Financial Summit Meeting I—October 22, 2018 revenue sources, such as sidewalk betterments and fees to establish Enterprise Funds, could be considered. Mr. Padaki (AC) verified that the Town has not yet agreed to the Minuteman Athletic Complex project. Ms. Kosnoff added that both the Athletic Complex and the Center Streetscape project, anticipated currently as within-levy expenses, would be eligible in part for Community Preservation funds; there would not be enough CPA cash to fund both so CPA debt is another area for consideration. Mr. Kanter (CEC) said he would discuss with his Committee a recommendation that department heads be prepared to discuss prioritization of their Capital projects when they brief the CEC. Mr. Alessandrini (SC) strongly encouraged all departments/committees to develop Master Plans and to convene a Master Plan Summit. Establish Dates: Summit II Ms. Kosnoff said the next Financial Summit will take place on December 6, 2018. Annual Town Meeting can start taking up financial articles on April 1, 2019. Ms. Barry said although the dates have not yet been voted, the Town Election is expected to take place Monday, March 4, 2019, and Annual Town Meeting is expected to commence on Monday, March 25, 2019. Upon motion duly made and seconded, the Board of Selectmen voted 5-0 at 9:06 p.m. to adjourn. The School Committee, Capital Expenditures Committee, and Appropriation Committee followed suit. A true record; Attest: Kim Siebert Recording Secretary