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HomeMy WebLinkAbout2018.12.06 BOS Summit II Page 1 of 6 Financial Summit Meeting II Board of Selectmen, School Committee, Appropriation Committee and Capital Expenditures Committee Thursday December 6, 2018 A Financial Summit meeting was held on Thursday, December 6, 2018 at 7:03 p.m. at the Samuel Hadley Public Services Building Cafeteria, 201 Bedford Street. Present for the Board of Selectmen (BOS) were Ms. Barry (Chair); Mr. Pato; Mr. Lucente; Ms. Hai; Mr. Malloy, 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; 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. Padaki; Ms. Yan; Mr. Neumeier; Ms. Basch; Mr. Nichols. Present for the Capital Expenditures Committee (CEC) were Mr. Kanter (Vice Chair); Mr. Cole; Ms. Manz; and Mr. Smith. FY2020 Revenue Projections and Revenue Allocation Ms. Kosnoff said projected Revenue in FY2020 is expected to increase by $7,943,950 to $229,265,581 which is 3.59% over FY2019. This increase is slightly lower than the increases in FY2018/19 (4.0%) and FY2017/18 (4.9%). Major items contributing to growth in Revenue are the annual tax levy increase of 2.5% and projected New Growth of$2,500,000. Ms. Kosnoff termed the New Growth estimate as "conservative", noting that New Growth has annually exceeded $3M for the last several years. Total increases from these two Revenue sources is projected as $6.9M. State Aid is expected to increase 1.3% or $182,250. In prior years, State Aid increased by a greater amount because the State was trying to meet the minimum-per-student aid target. Local Receipts are more challenging to predict due to greater variability. Overall, FY2020 Local Receipts are expected to increase 3.2% ($430,406) over FY2019. Free Cash has been certified at $13AM, a 7.9% increase over the prior year. FY2020 will be a revaluation year and; historically, tax abatement applications have been higher in these years. Therefore, the Overlay allocation has increased by 20% ($150,000). Ms. Manz (CEC) asked why there is such a drop in the FY2020 New Growth projection. Ms. Kosnoff said that New Growth, based on commercial and residential real estate development, is difficult to predict and a conservative projection is better than one that is overly optimistic. New Growth is also attributable to Personal Property, a topic that will be discussed in greater detail at a future meeting. Mr. Kanter (CEC) asked why Chapter 70 funds appear on the balance sheet while Chapter 90 funds do not. Mr. Malloy replied that Chapter 90 could be categorized as a"reimbursable grant." Page 2 of 6 Ms. Barry (BOS) asked why Veteran Services has been level funded if the caseload is decreasing, as the department has reported. Mr. Malloy said that Veterans' Benefits revenue lags behind a year from expenses. The Town will check to see if the number should be adjusted in subsequent years due to lower caseloads. Ms. Kosnoff said that FY2020 Revenue Set-Asides for Designated Expenses can come from one or more of three different sources: Tax Levy; Free Cash; and the Capital Stabilization Fund. She noted that the line item "Appropriate into Capital Stabilization Fund" has been decreased from $2.5M at the Summit I to $1.6M at Summit IL A new line item—"Transition Free Cash out of Operating Budget"—marks the effort over the coming five years to gradually move away from using Free Cash to support the Operating Budget; Ms. Kosnoff stated that best practices use Free Cash for one-time expenses and not for the Operating budget. Addressing Other Post Employee Benefits (OPEB), Mr. Levine (AC) asked if there will be a transfer again this year from the Health Insurance Trust Fund. Ms. Kosnoff stated that $750,000 will be transferred to OPEB via the Tax Levy to slowly eliminate the Trust as required by the Department of Revenue. Mr. Kanter (CEC) asked if there has been consideration of moving away from the degree to which budget projections have been conservative so that less Free Cash is generated. Mr. Malloy said that each line item could be scrutinized to determine where Free Cash is being generated but he fears this will send a message to departments that if they do not use their allocations entirely, they will erode their baseline budgets for the next budget cycle. Mr. Padaki (AC) said that quarterly forecasts could be used to hold departments accountable to projected expense and revenue targets. The Revenue Allocation Model shows that there is $229,266,000 to be allocated in the FY2020 budget. Ms. Kosnoff noted that the "Tax Levy Support for the Community Center" line item has been moved out of the Shared Expenses budget into the Municipal column. Summing up all expenses, in the model (FY2019 School and Municipal Base budgets„ Shared Expenses, and designated Set-Asides), the total committed amount for FY2020 is $221,321,000; the difference between this and the total amount available $7,944,000 , is the incremental amount which will be proportionally split between the Municipal side (26.3%) and the School side (73.7%). To be used in creating their FY2020 budgets. The Municipal-side would therefore receive just over $2M in revenue and the Schools would receive $5.89M. Mr. Kanter (CEC)requested that the BOS revisit its policy on how discretionary funds applied to potential uses (e.g., the Other Post Employment Benefits Trust Fund (OPEB),the Pension Liability, etc.). Ms. Colburn (SC) asked why Street Improvement is categorized as an expense shared by the Municipal and School budgets. Ms. Kosnoff said that her understanding is that the practice of sharing this expense stems from an agreement made following a previous override. Ms. Colburn asked if it is policy that the incremental revenue resulting from every operating override be deemed a Shared Expense. Ms. Kosnoff does not believe this has consistently been the practice, Page 3 of 6 but she noted that if the Expense were wholly on the Municipal side, the Municipal side would receive a higher percentage of Unallocated Revenue. Ms. Barry said that the policy decision to treat Street Improvement as an ongoing Designated Set-Aside was a one-time override decision in 2001 and does not apply to all overrides and debt exclusions. Mr. Bartenstein (AC) asked if the $1,900,000 in Free Cash Set Asides treated as "unallocated" ($200,000 for unanticipated current year expenses, $1,000,000 general unallocated, and $700,000 transitioned out of the Operating Budget but otherwise unallocated), is consistent with with the amount set aside in prior years. Ms. Kosnoff said that it was. Mr. Levine (AC) recalled that in years past, the Revenue Model has been fluid throughout the fall months. Ms. Kosnoff said the amounts do fluctuate and Set-Aside items are still up for discussion and could be reallocated to other areas such as Capital projects or Reserves. Mr. Kanter (CEC) said that turned-back funds from either Municipality or Schools could be used for anything deemed necessary or appropriate. He reported that CEC members believe the terms of the 2001 override are no longer relevant and that the basis for the request should be in terms of the DPW needs. Mr. Levine (AC) said the disposition of the Set-Asides will be determined by the time Town Meeting convenes. If money remains after budget needs are satisfied, he prefers available funds to go to the Capital Stabilization Fund in preparation for the eventuality of the upcoming large Capital projects, such as the High School. Ms. Yan (AC) asked what is driving the $893,498 Facilities Department increase. Ms. Kosnoff reported that this is based on utility costs, expanded building square footage, and the Environmental Protection Agency's MS4 Stormwater compliance. Ms. Barry (BOS) asked what the impact would be on Lexington's member costs if the Town of Belmont re joins the Minuteman High School consortium. Ms. Kosnoff said if new communities join, Lexington's portion of the Minuteman High construction debt would decrease. Mr. Kanter (CEC) asked that a consensus vote be taken of whether the committee members present support moving Street Paving out of Shared Expenses. The Selectmen caucused and determined this topic merits further discussion at a future meeting. Ms. Kosnoff highlighted several policy issues for consideration: • Review a plan for eliminating Free Cash in the Operating Budget • Discuss best practice for using one-time funding such as retire the land purchase note; Cash Capital; or transfer to the Capital Stabilization Fund • Future Capital Plan—inventory of needs, prioritization of projects • Review policy for Within Debt Levy Debt Service Mr. Malloy read the portion of the Government Finance Officers' Association regarding "Achieving a Structurally Balanced Budget", specifically highlighting the recommendation that one-time revenues, such as Free Cash, not be used for Operating expenses. This best practice is Page 4 of 6 the reason he has recommended the transition of$700,000 in Free Cash out of the FY2020 Operating Budget. Mr. Levine (AC) said he believes calling Free Cash non-recurring is inaccurate because, although the funds that make up Free Cash come from variable sources, Free Cash will continue to be generated every year. Mr. Bartenstein (AC) noted that the Town has enjoyed a structural surplus for nearly a decade and that surplus funds have been available beyond budget needs have been used to create substantial Reserve funds. Mr. Padaki (AC) asked if the certified Free Cash would be level at the end of the five-year draw- down. Ms. Kosnoff said that she does not expect Free Cash to remain in the $13M range. She noted that Rating Agencies have expressed displeasure that the Town has used Free Cash in the Operating budget. She agrees that Free Cash will continue to be generated but also believes finances will get tighter over the next few years. FY2020 Debt Service Projections Ms. Kosnoff said Capital funding is a subject of keen interest. She focused projections for Debt Service on General Fund Debt, both within levy and exempt. Within -Levy Debt Service: General Fund Issued Debt is about$8M currently and projected to steadily drop off until FY2027. General Fund Land Purchases Debt is being paid down rapidly; this year about$3M was paid. Unissued General Fund Debt includes all debt authorized by Town Meeting that has not yet been bonded; Ms. Kosnoff has used all of the debt to calculate the model but she does not expect all the authorizations to be acted upon as originally envisioned. Most of this type of debt is short term and projected to level off quickly, meaning there is remaining capacity for additional borrowing. Ms. Kosnoff said that approximately $17.3M total in Capital project debt is in the FY2020 pipeline, including the Center Streetscape ($8.2M of the $9.M total) and the Minuteman Fields Project($5M of the $8M total); a portion of each of these projects is Community Preservation eligible. The Capital Plan currently in place is to hold bonded debt increases to 5%per year, which would be about$6M in FY2020, significantly less than the $17M requested. Ms. Kosnoff noted that Revenues will also increase yearly over time, but if Revenues do not keep pace with debt service obligations, the Operating budget will be adversely affected. The Capital Stabilization Fund will be used to "shave off the peak" of debt service impact, particularly in the next couple of years. Ms. Kosnoff noted that the Capital Stabilization funds are currently modeled to mitigate existing and contemplated with in-levy and excluded debt service until FY2024, at which time the balance might be available for other capital projects. The funds would run out if they are used more aggressively. Page 5 of 6 Ms. Colburn (SC) asked what the balance of the Capital Stabilization Fund will be in FY2024. Ms. Kosnoff projected that$6.7M will remain in the Fund at that time, although it is possible more funds may be added in the interim. For clarification, Mr. Kanter (CEC) asked for an itemization of approved and not approved projects. He also asked for clarification on amounts used for Within-Levy Debt service so that it is clear what remains for future Excluded Debt projects. Exempt Debt Service: Ms. Kosnoff noted that the terms of many of these loans are 30 years. The three authorized projects included in the model are the Hastings School, the Lexington Children's Place, and the Fire & Rescue Station, the majority of which have not yet been bonded. It is assumed that the funding for the Police Station, including the corresponding swing space, will move forward at the next Annual Town Meeting and that debt exclusion votes will authorize the borrowing. The anticipated High School project has been projected in the model but in only a general way; the project would add significantly to the current level of excluded debt and Ms. Kosnoff said that addressing this impact will require careful consideration. Mr. Kanter (CEC) asked what working number was used in the model for the High School. Ms. Kosnoff said she made very general assumptions, calculating $350M for the project at a 5% interest rate over 30 years. The debt service for the High School is envisioned to start in FY2023. A 35% Massachusetts School Building Authority (MSBA) reimbursement rate was assumed when calculating the project amount. Mr. Levine (AC) said it would be helpful to know how much was projected to be used from the Capital Stabilization Fund to mitigate this debt load. Ms. Kosnoff said she believes it important to revisit the mitigation plan to determine how to best deploy the Fund. Next Steps: The Municipal and School sides will use the Revenue allocations to develop FY2020 Operating budgets. Recommended Town Manager and Superintendent of Schools budgets will be presented in January. Confirm Date for Summit III Summit III will take place on Thursday, January 31, 2019, at 7 p.m. in the Samuel Hadley Public Services Building Cafeteria at 201 Bedford Street. Discussion will include: the FY2020 Municipal and School budgets; a more clearly defined short- and long-range Capital Plan;policy issues raised in Summit II. Adjourn Upon motion duly made and seconded, the Board of Selectmen voted 4-0 to adjourn at 8:50 p.m. A true record; Attest: Kim Siebert Page 6 of 6 Recording Secretary