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HomeMy WebLinkAbout2026-01-28 Finance Summit IIIFinancial Summit III Select Board, School Committee, Appropriation Committee, Capital Expenditures Committee January 28, 2026 7:00 PM Remote Participation Financial Summit III was called to order by Select Board Chair Jill Hai at 7:11p.m. on Wednesday, January 28, 2026 via zoom remote meeting platform. Present for the Select Board (SB): Ms. Hai, Chair; Mr. Pato; Mr. Lucente; Mr. Sandeen; and Ms. Kumar as well as Mr. Bartha, Town Manager; Ms. Axtell, Deputy Town Manager; Ms. Kosnoff, Deputy Town Manager for Finance; and Ms. Katzenback, Executive Clerk Present for the School Committee (SC): Ms. Jay, Chair; Ms. Cuthbertson; Ms. Lenihan; Ms. Carter; and Mr. Freeman; as well as Dr. Hackett, Superintendent of Schools; and Dr. Scully, Asst. Superintendent for Finance & Operations Present for the Appropriation Committee (AC): Mr. Parker, Chair; Mr. Ahuja; Mr. Bartenstein; Mr. Levine; Mr. Michelson; Mr. Osborne; Ms. Verma; and Ms. Yan Present for the Capital Expenditures Committee (CEC): Mr. Lamb, Chair; Mr. Boudett; and Ms. Rhodes All boards and committee called their groups to order with a roll call of attendance. ITEMS FOR INDIVIDUAL CONSIDERATION 1. FY2027 Financial Summit III FY2027 Preliminary Budget and Financing Plan Mr. Bartha explained that a memo was distributed this afternoon from the School Department recommending that approximately $900,000 should have been included from free cash to balance the budget. At the start of the budget process, approximately a 15% health insurance renewal number was being carried, representing approximately a $2.1M delta from the current figures. Going into Summit II, this number was closer to 13.5% with $900,000 to come out of free cash to balance the budget. The proposal was to use one-time revenues to balance recurring costs, as an emergency action. In 2017, the Town used approximately $4M to balance its budget from one-time revenues. Over the years that number, through discipline, was brought down to $0 in 2023. This has been a challenging budget process for the Town and the schools. Fortunately, there is now only 9% projected for the health insurance renewal in the budget, allowing the budget to be balanced. However, a 9% renewal remains a serious long-term concern if this is the new norm. In terms of the memo received today, there were many trade-offs and tough choices which had to be made on both sides to get to this point. Ms. Kosnoff stated that the proposal is for a balanced budget. The high-level summary shows that the total general fund is projected to increase 2.6% over last year. Even though the general fund for both the revenue and expense sides is going up 2.6%, the Lexington Public School and municipal department budgets are going up 3.9%. This is due to the mix of revenues available. The budget is able to be increased to 3.9% due to ongoing revenues going up by an equal percentage. The Town's revenues for FY27 are significantly lower than in past years. Free cash is the main driver of the lower revenue estimate. Approximately 80% of the Town's revenue comes from the tax levy. In terms of expenses, the schools are allocated 48.5% of the total budget and the municipal departments are allocated 16.5% of the total budget. In terms of the revenue allocation model, the first projection for health insurance was 15% and the total budget was only projected to increase 2.4%. This would have led to approximately $4.7M of new revenue to be allocated for FY27. Both the school and the municipal departments had a significant deficit compared to their level service budget requests. For Summit III, the balanced budget shows a total new revenue to be allocated of $7.69M, or a $3M increase. The new revenue allocation is shown at 3.9% and both the school department and the municipal department have proposed a budget that will balance within that allocation, which means that the shortfall has been eliminated. Ms. Kosnoff explained that the free cash to support the operating budget was projected at $900,000 during Summit II on January 7th. This has since been eliminated and the percentage for the health insurance premium has decreased from 13.5% to 9%, freeing up approximately $1.5M. The School Department talked a bit about what budget reductions would mean for them during Summit II. The municipal departments have proposed reductions in the public facilities department through items such as deferring the purchase of vehicles that are at end of life, and reducing set asides for professional services, training, and subscription services. There is one position proposed to be hired in the Forestry Department/DPW which is currently unfilled. Internal reductions also led to approximately $70,000 worth of cuts for travel, conferences, mileage, and professional development. One program improvement from the Facilities Department was included for maintaining the new fire station doors. The total municipal budget is projected to be $52.2M. All departments went through at least two rounds, in some cases three, of making reductions. There were varying levels of increases across the municipal departments for a variety of reasons. In terms of budget highlights, the first deals with the Lexington High School project. While the appropriations for the construction and design were previously passed, there will need to be accounting for that in the budget for many years to come. Debt service will begin in FY27 and some of the capital stabilization fund will be drawn down in order to offset taxpayer impact. Operational changes and costs associated with them during construction can be dealt with in the appropriated municipal budget or in the project budget. Secondly, the Town’s refuse, recycling, and composting programs will be changed a bit starting in FY28 when there will no longer be manual trash collection. This budget recommends purchasing 11,000 trash carts and 11,000 recycling carts to help plan for the transition in 2028. This budget also continues to fund 4,000 households in Town for the composting program at no separate charge. This will be part of a future policy discussion. Ms. Kosnoff explained that this year, there was a total of $849,000 of new program requests. Out of that, $749,000 was requested from the general fund and there was one enterprise fund request from Recreation for a strategic plan. There is one shared expense proposed to be funded for the Public Facilities Department for $35,000. The other item being recommended for funding is the cashiering module at $115,000. This is the fourth year that this item has been requested. This will significantly improve the user experience for anyone paying bills for water, sewer, utility, motor vehicle excise, regular property taxes, etc. It will also integrate directly with the accounting system. This will also have an ongoing cost of approximately $15,000 starting in FY28. Ms. Kosnoff reviewed the appropriations into reserve funds. The Town is required to continue funding the pension fund per the funding schedule. The Town remains on target to reach full funding for this in 2030. The pension fund covers all the municipal employees and anyone who does not belong to the MA teacher’s retirement system. The Town continues to fund an annual contribution to the OPEB fund. This is only approximately 12% funded and additional contributions will be needed at some point. Finally, the capital stabilization fund is appropriated into from the tax levy. The budget does not recommend any funding for the general stabilization fund or the special education stabilization fund or reserve. These items are funded at an adequate level to cover needs for the foreseeable future. Ms. Kosnoff explained that the capital budget is recommended to be funded at $33M. $20M of this is from the general fund and a variety of projects from the enterprise funds, which are funded by user fees and the Community Preservation Act. Dr. Hackett reviewed the memo. The school budget request for this year shows a 4.6% increase which has been adjusted to 3.9%, among the lowest increases in the past decade occurring in a year when the schools are negotiating 4 out of 5 union contracts. At budget Summit I, the allocation given was 2.6%. After that summit, it was increased to approximately 3.6%. The current allocation is 3.9%, with $700,000 in one time literacy funding. The health insurance savings are approximately $1.5M at this time, which presents an opportunity to strengthen the allocation. The current recommendation allocates approximately $900,000 to replace free cash, $500,000 to the schools and $170,000 to municipal departments. However, if the standard revenue allocation model were applied to the full $1.5M in savings, the schools would receive around $1.1M and the municipal side would receive around $390,000 bringing the total percentage increase for the schools to approximately 4.3%, which is closer to the actual needs of 4.6%. The 4.6% request represents less than level service funding, with 42 fewer FTE compared to the approved FY26 budget. An anticipated 20-30 additional reductions are to be identified this spring, leading to approximately 60-70 full-time equivalent reductions over two years. The schools are also further depleting circuit breaker reserves. Circuit breaker reserves are the school's equivalent of one-time funds. The schools are respectfully requesting that the full health insurance savings be allocated using the revenue allocation model, in addition to the free cash already committed. Dr. Hackett explained that each year, the schools project budget needs for a period of five years. This year, the schools engaged a contractor to conduct a comprehensive financial modeling and analysis. Based on the available revenues after set asides in post-summit discussions, the decision was made to use free cash to partially close the gap. An additional $875,000 was allocated to the schools, bringing the total from 2.6 % to approximately 3.6%, still 1% below the initial request. While acknowledging that Lexington's revenue allocation model is generous compared to less well-resourced communities, a 3.6% increase also represents the lowest budget increase for schools in Lexington in the past ten years. This is particularly concerning in light of negotiations. Additionally, the schools received $700,000 in set aside funds for a new state mandated elementary literacy curriculum as a one-time expense. The actual cost for a district of this size would likely exceed $700,000 and may require additional one-time funding perhaps via the special education reserve fund. The school’s 4.6% request represents less than what a true level service budget requires. This has led to a reduction in the high-risk list safety net for students with special needs for the third consecutive year in a row. The impact of this decision is that there will be limited funding for students with unanticipated special needs requiring a high level of service. The schools will likely need to access special education stabilization or revolving funds to address these needs. The schools have underfunded critical lines, including transportation, which is going up 10%, legal fees, professional development, etc. The schools are relying on less stable funding sources, such as revolving accounts, to balance the budget. The schools are also eliminated other unallocated position safety net. The impact of the 3.9% allocation is that the school will be short approximately $800,000 of the 4.6% request. The schools will thus need to deplete circuit breaker reserves from 87% to approximately 50%. This significantly reduces the funds available for one-time purposes. The schools have significant staffing reductions to contend with. The challenge is compounded by years of modest increases for the schools, consistently below 4%, while costs, enrollment complexities, and State mandates continue to rise. The schools remain committed to exhausting every avenue to avoid an override but worry about compromising the quality education that defines Lexington in order to make strategic decisions. She urged consideration of applying the full $1.5M health insurance savings using the revenue allocation model 74/26% split, in addition to the free cash already committed. This will provide added stability for the schools during four simultaneous contract negotiations and the implementation of State mandated curricula. The alternative leaves the schools further from sustainability and closer to difficult conversations about overrides. Ms. Kosnoff stated that using free cash to balance the operating budget is a very poor practice. Any free cash used to balance the operating budget this year, means that the budget starts next year in a hole of the same size. A 3.9% increase is in the middle of the range where the Town should expect to be. It is one thing to use free cash to close an unexpected gap, but a 4.6% increase is not sustainable in the long run. Mr. Bartha noted that the 9% renewal on the health plan is approximately a $2.7M increase over last year's health insurance costs. This is down from $4.2M, at a 13.5% increase. This is a $2.7M increase on the line versus a $4.2M increase on the line. The $900,000 was being used to offset part of that increase. Dr. Hackett noted that cost avoidance may have been a better term to use in that case. Ms. Lenihan (SC) stated that the school budgets keep having to absorb and will eventually become super saturated, as this is unsustainable. Ms. Hai (SB) stated that the management team on the municipal side likely feels the same way. Ms. Cuthbertson (SC) noted that there was discussion in past years regarding accessing the special ed stabilization fund and the reserve fund. There was pushback on using those one-time funds. She asked if there would be any comfortability with this suggestion at this point. Ms. Kosnoff stated that it is generally not a good idea to balance the known expenses and ongoing costs with a one-time fund. There is a cushion built into the operating budget in case there are placements or other mandates that need to be funded. Those funds are to stabilize the budget in the event of unexpected items during the year. Mr. Michelson (AC) asked about the literacy program for which $700,000 of free cash is being allocated . He asked if this a new curriculum or one that could have been adopted years ago when the school budget was flusher and they were returning millions of dollars of budgeted money back to the Town. Dr. Hackett stated that the previous curriculum served children well for a long time. There is a national movement that has propelled the current program forward, leading to a unanimous vote by the House of Representatives to mandate it. The schools have asked that educators have a voice in the process. Mr. Levine (AC) stated that he feels strongly that the Town should make a commitment to put the maximum balance in the fund towards the excluded debt mitigation. In terms of free cash, these are not truly one-time funds. If the Town decides to use free cash to fund the capital budget, and the tax levy to fund the operating budget, changing this would be changing the balance between how much goes to operating versus how much goes to capital. The Town should not underfund capital. He is not convinced that the need is so great that it rises to the level of making a change. Mr. Freeman (SC) stated that the schools are waving the red flag saying that this is a major issue. Using one-time funds, such as the circuit breaker, are not guaranteed reimbursements. These funds fluctuate. Mr. Lamb (CEC) asked if there was a commitment made to use the entire CSF or a commitment to the tax impact which was published prior to the debt exclusion. The latter could change if, for instance, all of the contingencies were not used, and the total project cost was below $659.7M. This is for a future discussion. In terms of reductions being proposed at the school level, he has seen numbers ranging around 14 but today saw numbers ranging from 20-30. At some point, this will impact program/outcomes. He has not heard anyone say that this will impact programming and would like to hear more about this. Ms. Jay (SC) noted that the currently projected cost for the literacy curriculum is $700,000. She reviewed the potential two curriculum programs and the associated costs/commitments. There are considerable savings for a five-year plan for these programs. In order to obtain those savings, the district would need the full amount in FY27 upfront. The costs are likely close to $1M. There may need to be consideration of raising the $700,000 amount through free cash, as a one-time need. Ms. Hai noted that this information has not yet been vetted and can be further discussed at the next summit meeting. DOCUMENTS: White Book Summit III Presentation FY 2027, FY 2027 Superintendent's Recommended Budget Summary ADJOURN Upon a motion duly made and seconded, the Select Board voted 5-0 by roll call to adjourn the meeting at 9:01p.m. The Appropriation Committee, Capital Expenditures Committee and School Committee followed suit. A true record; Attest: Kristan Patenaude Recording Secretary