HomeMy WebLinkAbout2026-06-10 SB Packet - Released Financial SummitAGENDA
FINANCIAL SUMMIT SELECT BOARD, APPROPRIATION
COMMITTEE, CAPITAL EXPENDITURES COMMITTEE
AND SCHOOL COMMITTEE MEETING
Wednesday, June 10, 2026
Estabrook Hall, Cary Memorial Building, 1605 Massachusetts
Avenue, Lexington, MA 02420
7:00 PM
1.Anticipated Adjournment
9:00pm
ITEMS FOR INDIVIDUAL CONSIDERATION
Discussion: Long Term Budget Challenges and Policy Considerations
ADJOURNMENT
MEETING INFORMATION
Next Meeting Information
Meeting Packet: https://lexingtonma.granicus.com/ViewPublisher.php?view_id=5
*Members of the public can attend the meeting from their computer or tablet by clicking on the
following link at the time of the meeting:
https://lexingtonma.zoom.us/j/85166465645?pwd=w0sdFtBiYqRhbBh6aAu3E5ENKWkZH6.1
join.zoom.us
Meeting ID: 851 6646 5645
Passcode: 868976
An Act Relative to Extending Certain State of Emergency Accommodations:
https://www.mass.gov/the-open-meeting-law
The next meeting of the Select Board will be a Work Session being held on Monday, June 15, 2026 at
6:30pm via hybrid participation.
The next regularly scheduled meeting of the Select Board will be held on Monday, June 22, 2026 at
6:30pm via hybrid participation.
1
PRESENTER:
Board/Committee Discussion
ITEM
NUMBER:
AGENDA ITEM SUMMARY
LEXINGTON FINANCIAL SUMMIT SELECT BOARD, APPROPRIATION COMMITTEE,
CAPITAL EXPENDITURES COMMITTEE AND SCHOOL COMMITTEE MEETING
AGENDA SECTION TITLE:
ITEMS FOR INDIVIDUAL CONSIDERATION
AGENDA ITEM TITLE:
Discussion: Long Term Budget Challenges and Policy Considerations
SUMMARY:
Select Board, Capital Expenditures Committee, Appropriation Committee and School Committee will
meet to discuss long-term budget challenges & policy considerations.
ATTACHMENTS:
Summit Presentation
Ref: 2019 Fiscal Guideline Recommendations.pdf
Ref: 2009-07-10 AdHocFiscalTaskForce-RPT
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Town of Lexington
Fiscal Policy Summit
June 10, 2026
3
2
Town of Lexington
Fiscal Policy Summit
Meeting Agenda
•Review Summit Process and Norms
•Review Policy Topics, Fiscal Challenges, and Revenue Opportunities
•Discuss Revenue Allocation – review of history, and the pros and cons of the Town’s
model
•Review Outcomes and Next Steps
4
3
Town of Lexington
Fiscal Policy Summit
Meeting Goals & Expected Outcomes
•Reach consensus on the list of Policy Topics to be reviewed and affirmed in future
Summits
•Identify Budget Challenges and Headwinds that require further review and analysis
in budget development
•Identify how to move forward with Revenue Allocation – identify alternative
methodologies to be analyzed or modeled if desired
•Develop a schedule and agenda for future Summits with topics for staff to present in-
depth
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4
Town of Lexington
Fiscal Policy Summit
Summit Process & Norms
We are ALL fiscal stewards of Town funds
•What are our roles as fiscal stewards of Town Funds?
•What parts of the Summits and Budget development process have served us well in
the past?
•Usefulness of staff presentations and data: prior year results, fiscal indicators,
School budget drivers, detailed revenue report, revenue allocation
•Is there other information that should be included?
•Calendar and timing of Summit meetings -how many are needed, and does the
timeline work?
•What have been the past challenges in the Summit process?
•Do we require unanimous support, consensus with reservation, or a mix of support
and opposition when agreeing to a final budget?
•What is our responsibility to each other after the budget is sent to Town Meeting with
a recommendation?
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5
Town of Lexington
Fiscal Policy Summit
Submitted Policy Topics
•Revenue allocation —history of the split of new revenue; reaffirm or revise the
formula; categorize set-asides (mandated / contractual / policy / discretionary)
•One-time funds —continue use for one-time expenses, not annual operating
budgets
•Reserves & safety nets —sustainable use of Free Cash, circuit breaker, SPED
reserve, general and specialized stabilization funds; utilization in the budget; targets
for fund, maintain, or draw-down?
•Capital Stabilization Fund —maintain the current annual set-aside guideline? What
is the target post-LHS project? What are the guidelines for future projects?
•Energy rebates —where they land (set aside to special account vs. free cash); use
LHS rebates to offset LHS debt service or apply to other capital improvements?
•Pension liability post full funding date — where to re-deploy tax levy dollars?
•Override policy/Levy Limit —define clear criteria or trigger points; establish a
planning timeline and when to ask residents directly about service levels
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6
Town of Lexington
Fiscal Policy Summit
Budget Challenges / Fiscal Headwinds
•Fixed and semi-fixed costs outpacing levy growth —
•Shared Expenses: health insurance (GIC rates, PEC), pension, OPEB
•Education Expenses: salaries as a percent of budget, high-needs growth (in-
district SPED programming, out-of-district placements),transportation
•Compensation — target ranges for benchmarking and budgeting
•Town benchmarking: 75th percentile based on total compensation
•School benchmarking: identify established targets or ranges
•School staffing & enrollment — understanding the relationship between student
enrollment and staffing; target staffing ratios; implementation of SPED district review
•Capital Plan and Debt Service (post-LHS)—timing and future financing; East
Lexington Fire Station, Town Office Building, Library, Clarke HVAC
•Evolving Residential Development — unknown impacts to school enrollment,
municipal services and townwide infrastructure
•External risks —state & federal aid, the residential housing market, commercial real
estate market and new growth, economic volatility (financial markets, bond rates)
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7
Town of Lexington
Fiscal Policy Summit
Non-Tax Levy Revenue Sources
•Enhance existing revenues — review fees, fines, and permits, etc.
•Benchmark to peer communities —adopt a 75th-percentile philosophy aligning
wages, service, and fees?
•Deploy strict cost recovery?
•Explore new fee options —identify candidates for a new fee-for-service or cost-
recovery model
•New Enterprise Fund — Stormwater utility, remove expenses from operating
•New revolving fund(s) —bulky waste removal (approved by town meeting in
2023); assess curbside food waste expansion and other tipping-fee offsets
•Consider new fees for service — police detail fees for canine units
•Service sharing with peer communities — identify and explore opportunities for
intermunicipal agreements to fund services
•When should these opportunities be analyzed, and what policy boards or
committees should be involved?
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8
Town of Lexington
Fiscal Policy Summit
History of Revenue Allocation Model
Year Municipal School
FY08 28.1%71.9%
FY09 28.5%71.5%
FY10 28.5%71.5%
FY11 28.4%71.6%
FY12 28.4%71.6%
FY13 28.1%71.9%
FY14 28.0%72.0%
FY15 27.4%72.6%
FY16 26.9%73.1%
FY17 26.7%73.3%
FY18 26.3%73.7%
FY19 26.0%74.0%
FY20 26.3%73.7%
FY21 26.3%73.7%
FY22 26.3%73.7%
FY23 26.0%74.0%
FY24 26.0%74.0%
FY25 26.0%74.0%
FY26 26.0%74.0%
FY27 26.0%74.0%10
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Town of Lexington
Fiscal Policy Summit
Revenue Allocation Pros & Cons
PROs
•Ensures baseline funding is higher than the previous year
•Allows for equitable growth between School and Municipal operations and
ensures one part of the Town’s budget does not crowd out the other
•Sets expectations and allows for planning
•Considers fiscal best practices for set-asides of one-time revenues,
funding long-term liabilities and reserves
CONs
•May leave School or Municipal budgets short of what is considered level
service in any particular year
•Leaves less room for discussions about priorities and service levels
between the School and Municipal departments
•Leaves less flexibility to address fluctuating economic factors from year-
to-year (this may be mitigated with other strategies such as reserves)
Other Pros or Cons?
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10
Town of Lexington
Fiscal Policy Summit
Review Outcomes
•Confirm Policy Topics to be reviewed and affirmed in future Summits
•Review Budget Challenges and Headwinds that require further review and analysis
in budget development
•When to present new Revenue Opportunities
•Confirm the outcome of the Revenue Allocation discussion
•Agree on the timing for future Summit meetings - Policy Discussion and Budget
Development
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Dated: 10/8/19
1
Town of Lexington
Fiscal Guideline Recommendations
The following financial guidelines set forth the overall principals and goals for fiscal planning and
management of the Town’s resources, recognizing that Town Meeting may vote as it determines in the
best interest of the Town and outside of the goals stated in these guidelines. These guidelines address
both current activities and long-term planning and are intended to be advisory in nature and serve as a
point of reference for the Board of Selectmen, Appropriation Committee, Capital Expenditures
Committee and School Committee as well as management staff. It is fully understood that Town
Meeting retains the full right to appropriate funds and incur debt at levels it deems appropriate, subject
to statutory limits such as Proposition 2½.
The principles outlined in these guidelines are designed to ensure the Town's sound financial condition
now and in the future. Sound Financial Condition may be defined as:
• Cash Solvency - the ability to pay bills in a timely fashion.
• Budgetary Solvency - the ability to balance the budget annually.
• Long-Term Solvency - the ability to pay future costs.
• Service Level Solvency - the ability to provide needed and desired services.
It is equally important that the Town maintain flexibility in its finances to ensure that the Town is in a
position to react and respond to changes in the economy and new service challenges without
appreciable financial stress.
Guideline Recommendations
• Eliminate the use of free cash to supplement the operating revenues in a phased manner –
operating revenues should support operating expenditures and one time sources such as
free cash should not be used for this purpose. Status/Implementation: Prior to FY20 the
Town was utilizing approximately $3.5 million per year from free cash to support the
operating budget. Beginning in FY20 the Town implemented a plan to phase out utilizing
free cash by reducing the amount used by $700,000 per year to phase out over a five-year
period and to use the additional free cash for capital replacement for items that may be
currently purchased through debt issuance. The goal is to reduce at the following rate:
• Financial forecasting will done in a 5-year range to ensure that reasonable calculations can
be provided to policy makers in determining priorities and the impact on the community of
decisions and to provide staff the ability to focus their priorities to fit into a balanced
FY19 3,500,000$
FY20 2,800,000$
FY21 2,100,000$
FY22 1,400,000$
FY23 700,000$
FY24 -$
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Dated: 10/8/19
2
budget. Status/Implementation: Prior to FY20, the Town used a 3-year range for financial
forecasting. In FY20 the Town began utilizing a 5-year range for financial forecasting.
• Fiscal Reserves – The Government Finance Officers Association recommends a minimum of
2 months 16.67%) of General Fund operating revenues as a reserve. The Town should strive
to maintain this as a minimum.
Status/Implementation: When Free Cash and total Stabilization are accounted for, Lexington
exceeds the GFOA Best Practice recommendation. However, this is only a snapshot of
Lexington’s fiscal strength on June 30 of each year and Free Cash is generally fully used and
the Stabilization balance shown on the DOR’s website is comprised of both restricted and
unrestricted reserves. The Town should build its fiscal reserves so that it’s maintained as a
minimum of the 16.67% and utilize only those amounts above this minimum. As part of the
FY21 budgetary planning, this concept will be utilized and the table above will be updated to
show both restricted and unrestricted.
• Capital budgeting as it has been established in Lexington has two components. The first is
“programatic capital” which includes those items that are budgeted every year on an
ongoing basis to replace and maintain existing capital. This should be budgeted with an
inflationary index based on the Boston Consumer Price Index. The second component of
Lexington’s capital budgeting are one-time capital items that need to be considered on a
prioritized basis, sorted so that the highest priorities requests are funded annually within
the recommended amount of 1.0% to 1.5% of the General Fund Operating Budget per year.
Status/Implementation: Through the FY20 budget, the Town continued to use the previous
practices of capital planning. Beginning with the FY21 budget process, capital planning is
being done using the above recommendation with a 9 factor rating system that considers (1)
public safety & health; (2) infrastructure needs; (3) quantity of use; (4) efficiency of services
& administration; (5) legal requirements; (6) public support; (7) quality of life; (8) ongoing
expenses; and (9) budgetary constraints. Each of these factors are rated by the Senior
Management Team on a scale of 1-3 and then sorted to identify the highest priorities which
FY20 General Fund Operating Budget 217,000,000
Two Months Operating (16.67%)36,166,667
Lexington Free Cash - FY19 13,401,094
Lexington Stabilization Balance - FY18 39,839,456
Lexington Total Unrestricted Fund Balance 53,240,550
Amount over/(under) GFOA Recommended 17,073,883
FY20 General Fund Operating Budget 217,000,000
Capital Planning Minimum (1.0%)2,170,000
Capital Planning Minimum (1.5%)3,255,000
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Dated: 10/8/19
3
are then further reviewed by the Town Manager and Finance Department to for those
highest priorities to be within the appropriate levels identified above.
• Other Post-Employment Benefits (OPEB) – In 2014 the Board of Selectmen adopted a policy
under the former standards to fund OPEB liabilities at between 35% and 100% of the
“Normal Cost” (the annual amount necessary to fund the Town’s share of future retiree
health benefits earned by active employees in the current fiscal year). The Governmental
Accounting Standards Board (GASB) adopted new standards (#74 & #75) that replaced
standards #43 and #45 and “Normal Cost” has been replaced with “Service Cost” (defined as
the portion of the actuarial present value of projected benefit payments that is attributed
to a valuation year). The Town should continue funding at the previous level (35% - 100%)
of the service cost (as opposed to the normal cost) and by adding $50,000 per year to
continue moving toward 100% in order to meet the long-term OPEB liabilities and to ensure
the Town’s bond rating remains strong. Utilizing the last actuarial study, the Town’s current
position is:
Status/Implementation: The Town has been funding its OPEB liability for a number of years
and has built a balance of $15,845,902 at the end of FY19 (approximately 10.5% of total
OPEB liability). The funding has been through the use of the Health Claims Trust and Free
Cash. The Health Claims Trust will be depleted in FY24 at the approximate time the Pension
Liability will be fully funded which will allow a transfer of funds previously used for the
Pension Liability to be used for the OPEB Liability. The remainder of the funding to stay on
this funding schedule should come from the tax levy as an operating expense and not Free
Cash. This should be phased in over a five-year period of time starting in FY24. This was
initiated as part of the FY20 budget.
• Taxing to the levy limit – Lexington has had a practice of taxing to the full amount allowable
under the Proposition 2½ levy limit. During the FY20 budget deliberations, there were
concerns raised about always taxing up to the limit and the consideration of beginning to
grow excess levy capacity by not taxing the full amount allowable under the levy limit.
Knowing that there is a large capital project (Lexington High School), the recommended
practice is to continue to tax to the levy limit and to increase the amount being transferred
into the Capital Stabilization Fund. It is recommended that this be part of the Revenue
Allocation Model and budgeted in a planned manner to grow the amount being
appropriated each year until the first year of debt service is due on the high school at which
time it is recommended the amount previously being appropriated to the Capital
Total OPEB Liability (6/30/18)150,861,131
Net Assets (6/30/18)12,475,463
Net OPEB Liability 138,385,668
Service Cost (as of 6/30/18)4,498,108
FY20 OPEB Contribution 1,885,486
% of Service Cost Funded in FY20 42%
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Dated: 10/8/19
4
Stabilization Fund be reduced to zero to offset the higher debt service level in the General
Fund. An example of how this may look is as follows:
Status/Implementation: As the high school project has had a statement of interest
submitted to the MSBA and has begun to move forward, it is recommended that this be
included in the FY21 budget to begin increasing the amount set aside in the Capital
Stabilization Fund (this could be initiated in the FY20 budget as part of the Special Town
Meeting). Funding schedules and impacts will be presented as part of the Budget Summits.
• Personal property – Last year there was discussion regarding the impact of personal
property new growth, which gets amortized and spread out among the other classes of
property (residential, commercial and industrial) over a period of years and whether there
was a method to address this issue. Given the recommendation above related to taxing to
the full amount allowable under Proposition 2½ and that the personal property new growth
is included as part of the Proposition 2½ calculation it is not recommended at this time to
further address this issue.
• Pension Funding – The current funding schedule has the retirement system fully funded in
FY24. It is the recommendation to continue the funding schedule, including any
adjustments to ensure the funding schedule remains at full funding in FY24. At this time,
the discount rate is being considered to be changed from 7.5% to 7.25% and once a decision
on this is made and the impact of this is known any potential recommended changes will be
included in the FY21 budget. At this time, no changes to current policy is recommended.
• Revenue Allocation Model – Lexington’s Revenue Allocation Model is unique (it may not be
the only one in MA) in that it eliminates the debate and contentiousness that many
communities have during budgeting related to how much funding goes to the school and
municipal sides of the Town government. As stated above under taxing to the allowable
limit under Proposition 2½ it is recommended that the Town begin setting aside funds
annually as part of the Revenue Allocation Model in preparation for the anticipated debt
service associated with the high school project. Status/Implementation: The Revenue
Allocation Model will continue to be used but will be modified in the FY21 budget by
Appropriate High
to Capital School Debt
Stabilization Service
FY21 1,500,000 -
FY22 3,000,000 -
FY23 4,500,000 -
FY24 6,000,000 -
FY25 7,500,000 -
FY26 9,000,000 -
FY27 - 10,000,000
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Dated: 10/8/19
5
initiating a planned annual increase in the appropriation to Capital Stabilization. Initial
discussions were held between municipal and school staff in September 2019.
• Within levy debt service – The past practice has been to manage the growth of within levy
debt service to 5% over the previous year, which does not appear to be sustainable. It is
recommended that changes in practices that reduce the reliance on Free Cash for balancing
the operating budget and funding the OPEB liability will allow for greater use of Free Cash
for smaller capital purchases with shorter life spans that can be purchased as cash capital
instead of issuing debt. GFOA’s best practices recommends a comprehensive debt
management policy be adopted by the governing body that includes statutory limits as well
as local limits placed on debt. It is recommended that during the next year a
comprehensive policy be drafted based on the criteria recommended by GFOA, other best
practices and the needs of the Lexington community. Status/Implementation: It is
recommended that a revised debt management policy be drafted during 2020 for
implementation in the FY22 budget process.
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10/8/2019 Fund Balance Guidelines for the General Fund
https://www.gfoa.org/print/5024 1/4
In the context of financial reporting, the term fund balance is used to describe the net position of
governmental funds calculated in accordance with generally accepted accounting principles (GAAP).
Budget professionals commonly use this same term to describe the net position of governmental
funds calculated on a government’s budgetary basis.1 While in both cases fund balance is intended
to serve as a measure of the financial resources available in a governmental fund; it is essential that
differences between GAAP fund balance and budgetary fund balance be fully appreciated.
1. GAAP financial statements report up to five separate categories of fund balance based on the
type and source of constraints placed on how resources can be spent (presented in
descending order from most constraining to least constraining): nonspendable fund balance,
restricted fund balance, committed fund balance, assigned fund balance, and unassigned
fund balance.2 The total of the amounts in these last three categories (where the only
constraint on spending, if any, is imposed by the government itself) is termed unrestricted
fund balance. In contrast, budgetary fund balance, while it is subject to the same constraints
on spending as GAAP fund balance, typically represents simply the total amount accumulated
from prior years at a point in time.
2. The calculation of GAAP fund balance and budgetary fund balance sometimes is complicated
by the use of sub-funds within the general fund. In such cases, GAAP fund balance includes
amounts from all of the subfunds, whereas budgetary fund balance typically does not.
3. Often the timing of the recognition of revenues and expenditures is different for purposes of
GAAP financial reporting and budgeting. For example, encumbrances arising from purchase
orders often are recognized as expenditures for budgetary purposes, but never for the
preparation of GAAP financial statements.
The effect of these and other differences on the amounts reported as GAAP fund balance and
budgetary fund balance in the general fund should be clarified, understood, and documented.
It is essential that governments maintain adequate levels of fund balance to mitigate current and
future risks (e.g., revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates.
In most cases, discussions of fund balance will properly focus on a government’s general fund.
Nonetheless, financial resources available in other funds should also be considered in assessing the
adequacy of unrestricted fund balance in the general fund.
Fund Balance Guidelines for the
General Fund
BACKGROUND:
RECOMMENDATION:
BEST PRACTICE
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10/8/2019 Fund Balance Guidelines for the General Fund
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GFOA recommends that governments establish a formal policy on the level of unrestricted fund
balance that should be maintained in the general fund for GAAP and budgetary purposes.3 Such a
guideline should be set by the appropriate policy body and articulate a framework and process for
how the government would increase or decrease the level of unrestricted fund balance over a
specific time period.4 In particular, governments should provide broad guidance in the policy for
how resources will be directed to replenish fund balance should the balance fall below the level
prescribed.
Appropriate Level. The adequacy of unrestricted fund balance in the general fund should take into
account each government’s own unique circumstances. For example, governments that may be
vulnerable to natural disasters, more dependent on a volatile revenue source, or potentially subject
to cuts in state aid and/or federal grants may need to maintain a higher level in the unrestricted fund
balance. Articulating these risks in a fund balance policy makes it easier to explain to stakeholders
the rationale for a seemingly higher than normal level of fund balance that protects taxpayers and
employees from unexpected changes in financial condition. Nevertheless, GFOA recommends, at a
minimum, that general-purpose governments, regardless of size, maintain unrestricted budgetary
fund balance in their general fund of no less than two months of regular general fund operating
revenues or regular general fund operating expenditures.5 The choice of revenues or expenditures
as a basis of comparison may be dictated by what is more predictable in a government’s particular
circumstances.6 Furthermore, a government’s particular situation often may require a level of
unrestricted fund balance in the general fund significantly in excess of this recommended minimum
level. In any case, such measures should be applied within the context of long-term forecasting,
thereby avoiding the risk of placing too much emphasis upon the level of unrestricted fund balance in
the general fund at any one time. In establishing a policy governing the level of unrestricted fund
balance in the general fund, a government should consider a variety of factors, including:
1. The predictability of its revenues and the volatility of its expenditures (i.e., higher levels of
unrestricted fund balance may be needed if significant revenue sources are subject to
unpredictable fluctuations or if operating expenditures are highly volatile);
2. Its perceived exposure to significant one-time outlays (e.g., disasters, immediate capital
needs, state budget cuts);
3. The potential drain upon general fund resources from other funds, as well as, the availability
of resources in other funds;
4. The potential impact on the entity’s bond ratings and the corresponding increased cost of
borrowed funds;
5. Commitments and assignments (i.e., governments may wish to maintain higher levels of
unrestricted fund balance to compensate for any portion of unrestricted fund balance already
committed or assigned by the government for a specific purpose). Governments may deem it
appropriate to exclude from consideration resources that have been committed or assigned to
some other purpose and focus on unassigned fund balance, rather than on unrestricted fund
balance.
Use and Replenishment.
The fund balance policy should define conditions warranting its use, and if a fund balance falls below
the government’s policy level, a solid plan to replenish it. In that context, the fund balance policy
should:
1. Define the time period within which and contingencies for which fund balances will be used;
2. Describe how the government’s expenditure and/or revenue levels will be adjusted to match
any new economic realities that are behind the use of fund balance as a financing bridge;
3. Describe the time period over which the components of fund balance will be replenished and
the means by which they will be replenished.
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10/8/2019 Fund Balance Guidelines for the General Fund
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Generally, governments should seek to replenish their fund balances within one to three years of
use. Specifically, factors influencing the replenishment time horizon include:
1. The budgetary reasons behind the fund balance targets;
2. Recovering from an extreme event;
3. Political continuity;
4. Financial planning time horizons;
5. Long-term forecasts and economic conditions;
6. External financing expectations.
Revenue sources that would typically be looked to for replenishment of a fund balance include
nonrecurring revenues, budget surpluses, and excess resources in other funds (if legally permissible
and there is a defensible rationale). Year-end surpluses are an appropriate source for replenishing
fund balance.
Unrestricted Fund Balance Above Formal Policy Requirement. In some cases, governments can
find themselves in a position with an amount of unrestricted fund balance in the general fund over
their formal policy reserve requirement even after taking into account potential financial risks in the
foreseeable future. Amounts over the formal policy may reflect a structural trend, in which case
governments should consider a policy as to how this would be addressed. Additionally, an education
or communication strategy, or at a minimum, explanation of large changes in fund balance is
encouraged. In all cases, use of those funds should be prohibited as a funding source for ongoing
recurring expenditures.
Notes:
1. For the sake of clarity, this recommended practice uses the terms GAAP fund balance and
budgetary fund balance to distinguish these two different uses of the same term.
2. These categories are set forth in Governmental Accounting Standards Board (GASB)
Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.
3. Sometimes restricted fund balance includes resources available to finance items that typically
would require the use of unrestricted fund balance (e.g., a contingency reserve). In that case,
such amounts should be included as part of unrestricted fund balance for purposes of
analysis.
4. See Recommended Practice 4.1 of the National Advisory Council on State and Local
Budgeting governments on the need to "maintain a prudent level of financial resources to
protect against reducing service levels or raising taxes and fees because of temporary
revenue shortfalls or unpredicted one-time expenditures" (Recommended Practice 4.1).
5. In practice, a level of unrestricted fund balance significantly lower than the recommended
minimum may be appropriate for states and America’s largest governments (e.g., cities,
counties, and school districts) because they often are in a better position to predict
contingencies (for the same reason that an insurance company can more readily predict the
number of accidents for a pool of 500,000 drivers than for a pool of fifty), and because their
revenues and expenditures often are more diversified and thus potentially less subject to
volatility.
6. In either case, unusual items that would distort trends (e.g., one-time revenues and
expenditures) should be excluded, whereas recurring transfers should be included. Once the
decision has been made to compare unrestricted fund balance to either revenues and/or
expenditures, that decision should be followed consistently from period to period.
This best practice was previously titled Appropriate Level of Unrestricted Fund Balance in the
General Fund.
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203 N. LaSalle Street - Suite 2700 | Chicago, IL 60601-1210 | Phone: (312) 977-9700 - Fax: (312) 977-4806
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10/8/2019 Multi-Year Capital Planning
https://www.gfoa.org/print/512 1/3
Infrastructure, technology, and major equipment are the physical foundation for providing services to
constituents. The procurement, design, construction, maintenance, and operation of capital assets
are a critical activity of governments and therefore require careful planning.
Capital planning is critical to water, sewer, transportation, sanitation, and other essential public
services. It is also an important component of a community 's economic development program and
strategic plan. Capital facilities and infrastructure are important legacies that serve current and future
generations. It is extremely difficult for governments to address the current and long-term needs of
their citizens without a sound multi-year capital plan that clearly identifies capital needs, funding
options, and operating budget impacts.
A properly prepared capital plan is essential to the future financial health of an organization and
continued delivery of services to citizens and businesses.
GFOA recommends that state and local governments prepare and adopt comprehensive, fiscally
sustainable, and multi-year capital plans to ensure effective management of capital assets. A
prudent multi-year capital plan identifies and prioritizes expected needs based on a strategic plan,
establishes project scope and cost, details estimated amounts of funding from various sources, and
projects future operating and maintenance costs. A capital plan should cover a period of at least
three years, preferably five or more.
Identify needs. The first step in capital planning is identifying needs. Governments should develop a
capital asset life cycle for major capital assets. The capital asset life cycle should include costs to
operate, maintain, administer and renew or replace the capital asset. This will assist in identifying the
need and schedule for capital asset replacement or major renewal. In addition, using information
such as development projections, strategic plans, comprehensive plans, facility master plans, and
regional plans; governments should identify present and future service needs that require capital
infrastructure or equipment. In this process, attention should be given to:
Infrastructure improvements that support private development and the good of the public
Changes in policy or community entity needs
Incorporating input and participation from major stakeholders and the general public
Projects with revenue-generating potential
Analyze the non-financial impacts of the project (e.g., environmental) on the community
Determine financial impacts. GFOA recommends that the full extent of the capital project/asset
and the associated life cycle costs be determined when developing the multi-year capital plan. In this
Multi-Year Capital Planning
BACKGROUND:
RECOMMENDATION:
BEST PRACTICE
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process, attention should be given to:
The scope and timing of a planned project should be well defined in the early stages of the
planning process
Governments should identify and use the most appropriate approaches when estimating
project costs and potential revenues
If a government’s internal resources are not sufficient to estimate a capital project's
cost, revenues and/or life cycle costs, outside assistance should be procured
For projects programmed beyond the first year of the plan, governments should adjust cost
projections based on anticipated inflation
A clear estimate of all major components required to implement a project should be outlined,
including land acquisition needs, design, construction, contingency and post-construction
costs
The ongoing life cycle costs associated with each project should be quantified, and the
sources of funding for those costs should be identified
Life cycle costs will impact future annual operating budgets
Prioritize capital requests. Though the initial prioritization process may be impacted by legal
requirements and/or mandates, GFOA recommends that, when evaluating capital requests,
governments should first prioritize based on:
Health and Safety - Priority should be given to high risk safety issues that require a capital
project to correct
Asset Preservation - Capital assets that require renewal or replacement based on capital
asset life cycle
Service/Asset Expansion/Addition - Infrastructure improvements needed to support
government’s policies, plans, and studies
In this process, attention should be given to:
Coordination with related entities
Allow submitting agencies to provide an initial prioritization
Incorporate input and participation from major stakeholders and the general public
The impact on operating budget impacts resulting from capital projects
Apply analytical techniques, as appropriate, for evaluating potential projects (e.g., net present
value, payback period, cost-benefit analysis, life cycle costing, cash flow modeling)
Use a rating system to facilitate decision-making
Develop a comprehensive financial plan. GFOA recommends that governments develop a viable
overall multi-year financing plan covering the multi-year period of the capital plan to ensure that the
proposed capital plan is achievable within expected available resources. Financing strategies should
align with expected project requirements while sustaining the financial health of the government.
Governments undertaking a capital financing plan should:
Anticipate expected revenue and expenditure trends including their relationship to multi-year
financial plans and ongoing impacts to the operating budget due to the capital plan
Prepare cash flow projections of the amount and timing of the capital financing
Continue compliance with all established financial policies
Recognize appropriate legal constraints
Consider and estimate funding amounts from all appropriate funding alternatives
Consider sources and uses for debt service
Ensure reliability and stability of identified funding sources
Evaluate the affordability of the financing strategy, including the impact on debt ratios,
applicable tax rates, and/or service fees
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203 N. LaSalle Street - Suite 2700 | Chicago, IL 60601-1210 | Phone: (312) 977-9700 - Fax: (312) 977-4806
Notes:
Last updated in May 2016.
The County of San Diego, CA was awarded the GFOA Award for Excellence for outsanding use of
GFOA's Best Practice on Multi-Year Capital Planning. To learn more about the County's
implementation process, please visit their award page.
24
10/8/2019 Debt Management Policy
https://www.gfoa.org/print/466 1/4
Debt management policies are written guidelines, allowances, and restrictions that guide the debt
issuance practices of state or local governments, including the issuance process, management of a
debt portfolio, and adherence to various laws and regulations. A debt management policy should
improve the quality of decisions, articulate policy goals, provide guidelines for the structure of debt
issuance, and demonstrate a commitment to long-term capital and financial planning. Adherence to
a debt management policy signals to rating agencies and the capital markets that a government is
well managed and therefore is likely to meet its debt obligations in a timely manner. Debt
management policies should be written with attention to the issuer s specific needs and available
financing options and are typically implemented through more specific operating procedures. Finally,
debt management policies should be approved by the issuer s governing body to provide credibility,
transparency and to ensure that there is a common understanding among elected officials and staff
regarding the issuer s approach to debt financing.
GFOA recommends that state and local governments adopt comprehensive written debt
management policies. These policies should reflect local, state, and federal laws and regulations.
To assist with the development of these policies GFOA recommends that a government s Debt
Management Policy (Policy) should be reviewed periodically (and updated if necessary) and should
address at least the following:
Debt Management Policy
Notice:
Issuers of municipal securities should be aware of new disclosure requirements in SEC
Rule 15c2-12, effective on securities issues on or after February 27, 2019. GFOA
recommends issuers consult counsel prior to the effective date to determine how these
changes may impact debt portfolios and debt management policies and procedures.
The Continuing Disclosure Agreements will include affirmation by governments for debt
issues on or after February 27, 2019 to:
disclose additional information about material financial obligations (e.g., guarantees,
capital leases, and bank loans) for securities entered into after the effective date
make event filings of any changes reflecting financial difficulties should any occur to
outstanding or new financial obligations
BACKGROUND:
RECOMMENDATION:
BEST PRACTICE
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1. Debt Limits. The Policy should consider setting specific limits or acceptable ranges for each type
of debt. Limits generally are set for legal, public policy, and financial reasons.
a. Legal restrictions may be determined by:
State constitution or law,
Local charter, by-laws, resolution or ordinance, or covenant, and
Bond referenda approved by voters.
b. Public Policies will address the internal standards and considerations within a government and
can include:
Purposes for which debt proceeds may be used or prohibited,
Types of debt that may be issued or prohibited,
Relationship to and integration with the Capital Improvement Program, and
Policy goals related to economic development, including use of tax increment financing and
public-private partnerships.
c. Financial restrictions or planning considerations generally reflect public policy or other financial
resources constraints, such as reduced use of a particular type of debt due to changing financial
conditions. Appropriate debt limits can have a positive impact on bond ratings, particularly if the
government demonstrates adherence to such policies over time. Financial limits often are
expressed as ratios customarily used by credit analysts. Different financial limits are used for
different types of debt. Examples include:
Direct Debt, including general obligation bonds, are subject to legal requirements and may be
able to be measured or limited by the following ratios:
Debt per capita,
Debt to personal income,
Debt to taxable property value, and
Debt service payments as a percentage of general fund revenues or expenditures.
Revenue Debt levels often are limited by debt service coverage ratios (e.g., annual net
pledged revenues to annual debt service), additional bond provisions contained in bond
covenants, and potential credit rating impacts.
Conduit Debt limitations may reflect the right of the issuing government to approve the
borrower s creditworthiness, including a minimum credit rating, and the purpose of the
borrowing issue. Such limitations reflect sound public policy, particularly if there is a
contingent impact on the general revenues of the government or marketability of the
government s own direct debt.
Short-Term Debt Issuance should describe the specific purposes and circumstances under
which it can be used, as well as limitations in term or size of borrowing.
Variable Rate Debt should include information about when using non-fixed rate debt is
acceptable to the entity either due to the term of the project, market conditions, or debt
portfolio structuring purposes.
2. Debt Structuring Practices. The Policy should include specific guidelines regarding the debt
structuring practices for each type of bond, including:
Maximum term (often stated in absolute terms or based on the useful life of the asset(s)),
Average maturity,
Debt service pattern such as equal payments or equal principal amortization,
Use of optional redemption features that reflect market conditions and/or needs of the
government,
Use of variable or fixed-rate debt, credit enhancements, derivatives, short-term debt, and
limitations as to when, and to what extent, each can be used, and
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Other structuring practices should be considered, such as capitalizing interest during the
construction of the project and deferral of principal, and/or other internal credit support,
including general obligation pledges.
3. Debt Issuance Practices. The Policy should provide guidance regarding the issuance process,
which may differ for each type of debt. These practices include:
Selection and use of professional service providers, including an independent financial
advisor, to assist with determining the method of sale and the selection of other financing
team members,
Criteria for determining the sale method (competitive, negotiated, private placement) and
investment of proceeds,
Use of comparative bond pricing services or market indices as a benchmark in negotiated
transactions, as well as to evaluate final bond pricing results,
Criteria for issuance of advance refunding and current refunding bonds, and
Use of credit ratings, minimum bond ratings, determination of the number of ratings, and
selection of rating services.
4. Debt Management Practices. The Policy should provide guidance for ongoing administrative
activities including:
Investment of bond proceeds,
Primary and secondary market disclosure practices, including annual certifications as
required,
Arbitrage rebate monitoring and filing,
Federal and state law compliance practices, and
Ongoing market and investor relations efforts.
5. Use of Derivatives. The Debt Management Policy should clearly state whether or not the entity
can or should use derivatives. If the policy allows for the use of derivatives, a separate and
comprehensive derivatives policy should be developed (see GFOA s Advisory, Developing a
Derivatives Policy and Derivatives Checklist).
Notes:
Post Issuance Compliance Checklist
Debt Issuance Checklist: Considerations When Issuing Bonds
The County of San Diego, CA was awarded the GFOA Award for Excellence for outsanding use of
GFOA's Best Practice on Debt Management Policy. To learn more about the County's
implementation process, please visit their award page.
References:
GFOA Advisory: Using Variable Rate Debt Instruments, 2010.
GFOA Advisory: Use of Debt-Related Derivatives Products, 2010.
GFOA Derivatives Checklist, 2010.
GFOA Best Practice: Selecting Bond Counsel, 2008.
GFOA Best Practice: Selecting and Managing Municipal Advisors, 2014.
GFOA Best Practice: Selecting Underwriters for a Negotiated Bond Sale, 2008.
GFOA Best Practice: Post-Issuance Policies and Procedures, 2017.
GFOA Best Practice: Primary Market Disclosure, 2017.
GFOA/NABL Post Issuance Compliance Checklist, 2003.
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203 N. LaSalle Street - Suite 2700 | Chicago, IL 60601-1210 | Phone: (312) 977-9700 - Fax: (312) 977-4806
Debt Management Policy Examples
Benchmarking and Measuring Debt Capacity, Rowan Miranda and Ron Picur, GFOA, 2000.
A Guide for Preparing a Debt Policy, Patricia Tigue, GFOA, 1998.
28
Interim Report
Ofthe
AdHoc FiscalTaskForce
Presented to: Board ofSelectmen
Date: July10, 2009
29
Interim Report
Ofthe
AdHocFiscal Task Force
July 10, 2009
Table of Contents page
Executive Summary …………….………………………………………..……. 2
Introduction ………………….………………………………………………… 5
FiscalContext ……………………….…………………………………………. 7
Policy Context ……………………………………………………….………… 11
Revenue andExpense Outlook:
FiscalYears2011-2012andBeyond …………………………..…….. 12
Recommendations …………………………………………………….……… 14
Remaining Long-TermIssuesforFurtherDiscussion ..….…. …………… 19
Appendices
AppendixA: Historical andProjected Revenues FY07-11 ….……. 21
Appendix B: FY2011 Expenditure Projection …………………….. 22
Appendix C: Capital Financing Summary FY2007 to2010………. 23
Appendix D: Appropriation Committee Financial Projections ….. 24
Appendix E: Task ForceCharge & Members ……………………… 31
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Executive Summary
TheFiscalTaskForceappointed bytheBoardofSelectmen hasmetweekly since
early May togatherinformation concerning thetown’sfiscalsituation andtoconsiderwhat
advicetooffertheBoardandothertowndecision-makers. Ourmajor findingsand
recommendations aresummarized asfollows:
Summary ofFindings
1. Fiscal Context
Thegrowthofthetown’srevenueshasslowed markedly intheeconomic
downturnand willonlyrecoveroveraperiod ofyears. Theduration ofthe
economic downturn isdifficult topredict, butislikely tolastinto2010or
beyond.
Duetosteeply declining staterevenues, state aidhasalready beencutbynearly
10percent, maydecline further, andwillonly recoverslowly.
Property taxrevenues arerelatively stable, although theirimpactontaxpayers
increases astaxpayers’ incomesand property values decline, andgrowthinthe
taxbasefromnewconstruction willbesubstantially reducedduring the
economic downturn.
Local receipts andavailable free cashwilllikely besignificantly belowthe
levelsofrecent years fortheduration ofthe downturn.
Expanding thetown’scommercial property taxbaseisanimportant priority and
willrelieve pressure onresidential taxpayers. Important stepshavealready been
takenbyrecent TownMeeting actions, butitwill taketimefortheseactions to
reapbenefits.
Lexington hasexperienced annualrevenue growthofasmuchas6 % inrecent
years. Ifgrowthisreduced tozero, asmay welloccurinFY2011, the
difference isabout $8million eachyear.
Townoperating expenses areexpectedtocontinue torise, largelydueto
inflation inemployee health benefit costs, alongwithotheremployee
compensation costsandspecialeducation costs.
Thesinglemostimportant factor driving thegrowth inoperating expenses isthe
continuing double-digitincreaseinemployee andretireehealthbenefit costs.
Slowing thegrowthinthesecostsisofhighest importance forthetown’sshort-
andlong-termfiscal health.
Present estimates suggest thatcostsforFY2011 willgrowbyabout $4million,
plusanadditional $800,000foreach percentage-point increase inemployee
wage agreements.
Thetown faces continuing demandsforcapitalexpenditures tomaintain and
replace ourassets. These demands have been lessthanfullymetbyrecent
authorizations ofabout $4to5million annually. Inaddition, thetown faces
several largecapital projects thatwillneedtobefundedbyvoterapproval of
debtexclusions from Proposition 2 ½.
Thetown has beensuccessful insettingaside financial reservesinrecentyears,
resulting mostsignificantly inastabilization fundbalance of $6.8million andan
additional $700,000reserveforunbudgeted specialeducation costs.
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2. Fiscal Outlook forFY2011 andFY2012:
Inlightofalltheabovefactors, theconsensus estimates oftheAppropriation
Committee andtownstaffidentifyabudget gap ofapproximately $4million for
FY2011, plusanadditional $800,000perpercentage pointofanyemployee
cost-of-livingincrease.
TheAppropriation Committee forecasts alargergapof $5to7millionforFY
2012.
These estimates aresubject toagreat manyuncertainties, onboththerevenue
and the expense side. Asnewinformation comes in, itwillbevitaltocontinue
toupdate theestimates.
Summary ofRecommendations
1. Recommendations forFY 2011and2012: Inlightoftheseanticipated budget gaps, the
taskforce identifiedamenuofstrategies that thetownshould consider forFY2011. These
samemeasures will provide anappropriate foundation forplanning forFY2012:
Exercising maximum restraint incompensation: Inlightofpresent economic
circumstances, thetownmustmakeeveryefforttolimitgrowth intotal
employee compensation (salaries plusbenefits). Inparticular, highest priority
must gotoachieving substantial, lastingandpervasive savings inemployee
health benefitcosts.
Capitalspending: The townshouldconsider increased useofborrowing todefer
anadditional portion ofcapitalcosts, andshould perhaps alsoconsider some
modest deferrals ofcapitalmaintenance.
Retirement obligations: Thetownshouldconsider somemodest deferrals in
funding ofobligations forretiree pension andbenefit costs.
Discretionary costrestraint: The municipal andschooladministrations should
continue, during FY2010, totakeallprudent measures toholddown operating
costs, bydeferringfillingofnon-criticalhiringandcareful reviewofpurchases.
Earlyidentification ofpossiblecostreductions: Municipal andschool staff
shouldidentify $1millionofpotential programreductions, equitably allocated
betweentownandschool budgets. Such reductions shouldonlybeimplemented
totheextentthat theotherstrategies identified hereareinsufficient toclose the
budgetgap.
Broadening thetaxbase: Thetownshould adopt, attheearliestfeasible time, the
newlocal-option taxes recently authorized bythelegislature (additional 2%
hotel/moteltaxand0.75% meals tax). Inaddition thetownwillreceive an
additional $500,000annually fromtherepealoftheproperty taxexemption for
telephone company polesandwires.
Grant andstimulus funding: The municipal andschooldepartments should take
allreasonable measures topursue anygrant funding tocovercostsofexisting
programs.
Useofstabilization fund: Thetownshould make useofthestabilization fundto
maintain municipal andschoolservices andfacilities. These fundswillalsobe
neededinFY2012 andperhapsbeyond. Depending oncircumstances andthe
outlook beyondFY2011, thetowncoulddrawbetween $2and3million from
thefundforFY2011.
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2. Generalrecommendations: Looking atthetown’slonger-term fiscal situation, beyond
thechallenges oftheupcoming budget cycle, thetaskforceoffers several more general
recommendations. Theseshould informdecisionmaking bothinthecurrentbudget cycle
andbeyond:
Exercising maximum restraint intotalcompensation: AsinFY2011, thiswill
remain anessentialpriorityforthenext severalyears.
Proposition 2 ½ operating overrides: Asthefinancialdownturn abates, and
whenappropriate stepshavebeen takentorestrain the growth intotal
compensation costs, itwillagainbeappropriate togiveLexington votersthe
choice whether toincrease property taxeswhenneededtomaintainservices.
Rebuilding reserves: Asthedownturn abates, itwillbeessentialtorebuild the
town’sreserves, tothelevelof7% ofgeneral fundrevenues, inatimely fashion.
Servicerestructuring and innovation: Evenduring periodsofbudgetary
constraint, thetownshouldremain opentoincremental spending necessary to
implement morecost-effectivewaystoprovide services.
3. Long-Term Issuesforfurther consideration: Thefocusofthisreport isprimarily on
issues ofsignificance inplanning fortheFY2011andFY2012 budgets. Thetaskforce
alsohasidentifiedanumber ofissuesoflonger termsignificance, buthasnothadthe
opportunity tofullyreview themorarriveatrecommendations. These topicsinclude: the
largemenu oflarge capital projects facingthetown; theusesofCommunity Preservation
Actfunding; long-termcompensation policies; effective planningforprogram restructuring;
andissuesonthestatelegislative agenda.
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Introduction
Afteraperiodofsustained economic growthandappreciation inassetvalues,
Lexington’sgovernment andLexington citizensfacemuchmorechallenging
circumstances. Weexpect pressure—likelyforasustained period—ontherevenues
available topayforpublicservices (municipal andschools).
Itisimportant tonotethatthesinglemost important source oflocalrevenue,
propertytaxes, isessentially stableandbylawcangrow 2.5percent annually (plus any
increment fromnewgrowth inthetaxbase). Thisisinwelcome contrasttothesudden,
severe reduction inCommonwealth revenues, forexample, where taxesoneconomically
sensitivebases—personalincome, capitalgains, retail sales, andbusinessincome—have
fallen dramatically shortofexpectations. Likewise, inLexington, anumber ofthetown’s
secondary sources ofrevenue, particularly localaid, new property growth, andlocal
receipts fromautomobile excises andbuilding permits, havebeenseverely impacted bythe
current economic crisis.
TheCommonwealth’sexperience reminds usthattherelative stability ofthelocal
property tax isnotatallthesamethingasrobust growth orevenstabilityinbase
townspeople’sfinancial circumstances. Fewofourfellow citizens (andfellow taxpayers)
arereceiving incompensation inthecurrent circumstances; many arestrugglingincreases
withsignificant incompensation orothersourcesofincome, orprospective orreductions
outrightlossofjobs. Moreover, townspeople haveseentheireducationandretirement
savingsdiminished.
Theworkofthistaskforce, andthisreport, focusonthechallenges offinancing
public services onwhich wealldepend, dailyandforthelong term. Butbothareinformed
bytheequallychallenging circumstances ourfellow citizens faceinthewakeofthecredit
crisisand thecurrent recession. Werecognize aswellthatLexington’sskilled, highly
valuedemployees andtheir families areaffectedbythe prevailing economic anxieties.
Inthemostrecentrating-agency assessment ofLexington’sfinances, Moody’s
Investors Service madenote ofthe pressures arising from “cyclical revenue
declines…withoutcorresponding expenditure reductions,” andtheexpected reductioninthe
town’sfinancial flexibility, giving risetopossible “structural challenges infuture fiscal
years.” Thisreportwill givemeaning tothosegeneralities.
Weaimtosuggest apolicycontextfordiscussion notonlyamongallofLexington’s
officials—the (whocommissioned thistask force), the , SelectmenSchool CommitteeTown
butalsoamong ,, and allMeetingthetownandschooladministrationsthepublicatlarge
ofour . Allofthese stakeholders will, incommon, makemunicipalandschoolemployees
thechoices thatsteerourcommunity through thecurrentchallenge soundly and
appropriately.
Inthediscussion thatfollows, weemphasize thefollowing overlapping points:
Werecognize, andemphasize, thatwefaceaveryhighdegreeofuncertainty about
howtheeconomic andfiscal pictures (for nation, state, andtown) willunfold overthenext
several years. Allofthepredictions andrecommendations thatfollowwillneedtobe
frequentlyreassessed inlight ofnewinformation andchanging circumstances.
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Wehavenotalwaysreached consensus onhowbesttoproceed. Thatistobe
expected where therearedifferences ofopiniononLexington’sbestoptions, informedby
diversevalues andinterests. Itisallthemore sointhecurrent economiccontext, wherethe
fiscaloutlook ishighly uncertain. Whereourdiscussionshaverevealedalternatecoursesof
action, wehavetriedinthisreporttoilluminatethosealternativesandtheirunderlying
rationales, thebettertoinformthepublicdebateanddecisionsthatlieahead
Itwillbetemptingtofocusdebate, aboveall, onthedisposition ofthestabilization
fundsthatLexington haswisely accumulated toseeusthrough “rainydays”—orevenmore
threatening storms. Howtousethesereservesnaturallyloomsasanimportant decision. But
itisnottheonlyissue—nor, inthelongterm, mayitevenbethemostconsequentialissue
forLexington’sfiscalhealthandthestrengthofthecommunitywecherish.
Theannual budget imposesafamiliarandwelcomediscipline. Butanydecisions
Dowefundcurrentoperations bywemakehaveshort- andlonger-termconsequences.
deferring maintenance andrepairofourphysicalfacilities andinfrastructure—potentially
incurring higher costsinthefuture, when borrowing costsmaybehigher? Dowetighten
currentoperating budgets soseverelythatwechoke offinnovations that deliverbothnear-
term savingsandenhanced services (suchasinvesting inin-school special-education
programs, orinenergy-conservation systems)? Howdoweallocate stabilization fund
resources forcurrentneeds, whilemaintaining amarginforpotentially worsefiscal
circumstances insucceeding years? Findingtheproperbalance—moreartthanscience—
willinvolvenimble, responsive, inclusive, andpublic-spiritedworkbyallofLexington’s
stakeholders.
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Fiscal Context
Thetaskforcestarted itsworkbyseekingthebestcurrently available information aboutthe
town’slikelyfiscalcircumstances overthenext several years. Inthissection, we
summarize ourcurrent understanding ofthetown’srevenues, operating expenses, capital
requirements, andreservesforthenextfewfiscalyears.
Revenuegrowth hasslowedmarkedly. ThetableinAppendix A, Historical andProjected
Revenues: FY07toFY11, depicts thistrend. Grossgeneral fundrevenuesincreased about6
percent ineach ofFY2008 (includingtheeffectsoftheJune2007 operating override) and
FY2009. Basedoncurrent estimates ofFY10revenuethatreflect provisions oftherecently
adopted FY2010statebudget, thatrateofgrowth hasdroppedtoapproximately 4percent.
Preliminary projections ofFY2011revenue preparedbytownstaff, show marginally
negative growth. Prominent causes ofthisshift include:
Thecollapse inCommonwealth taxcollections (sensitive toincomes, employment,
andcapital gains; translates intoreduced state aidtolocal communities). Lexington’s
budgeted aiddeclined approximately $760,000, or7.8percent, inFY2010, reversing
average growth of8.5% inthepreceding twoyears. Town staff’spreliminary projection of
FY2011 stateaid isthatitwillremain atitsFY2010 level.
Thelikelydeclinein “local receipts” revenue, driven byfactors such as: declinein
newautomobile sales (translates into reduced localexcise-tax collections); lessened
building activity (reduces permitfees); andprevailing lowinterestrates (reduces investment
income ontown fundbalances).
Theuncertain outlook for “newgrowth” bothofbuildings and ofbusinesspersonal
property andequipment (whichhasprovided asubstantial increment totheproperty tax
baseinfavorable years, averaging $2.6millionoverthelast3years, $2.3million overthe
last5yearsand $2.0million overthelasttenyears). Notethatthesubstantial development
atLexington Technology Park (theShire headquarters) approved ataspecial town meeting
infallof2007will, overaperiod ofyears, significantly expandthecommercial taxbase
addinganestimated $2.5million inannual revenue); however, underthetermsofthe
incentive agreement approved bythatspecialtownmeeting, those newrevenues willbe
gradually phasedinovera20-year period.
Unreserved fundbalance,” or “freecash,” another significant source offunds
available forappropriation, hastended toincreaseinstrong economic periods (driven in
partbybetter thanpredicted localreceipts andnewgrowth). Thatfunding sourceisnow
expected todiminishaswell.
Thedifference between 6percent andzerorevenuegrowth isabout $8million in
incremental funds.
Note that andlosing jobs. Massachusettslaggedthenationinenteringtherecession
Inpreviousrecessions, —andMassachusettshasoftenlaggedinrecoveringrecovery in
asthestatestruggles torepair itsownstateaidtolocalitieshaslaggedevenfurtherbehind
finances. From FY2002through FY2005, stateaiddeclined byanaggregate18percent,
andthen didnotreturntothenominal FY2002leveluntilFY2009 (stillrepresentinga
since thislevelofassistance was adjusted forinflation). sharp decline inrealaidnot
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National economic forecasters suggest thatgrowth mayresume fromlaterin2009to
sometime in2010, butthatemployment growthwill notresume immediately. TheNew
England Economic Partnership forecastssuggest aregional recession lingering wellinto
2010. Whateverforecastonechoosestoadopt, thecurrent reversal instateaidcouldremain
adragonlocalfinances foraprotracted period. Recovery instateaidtothelevelprevailing
atthebeginning ofFY09willalmost certainly takeseveral years.
Operating expenseshavehistorically riseneachyear, reflecting bothcontractual
agreements forthe workforce (municipal andschool) and, particularly, continued inflation
inemployee health-benefit costs. Debt-servicecostswillriseasthetownpaysforcapital
improvements (bothwithintheregularbudgetforrelatively minordebt-funded items and
outsideofitforexempt debt forthenewDepartment ofPublic Works facility). And asa
buyerofmotorfuelsand utilitiesforfacilities, Lexington hassomeexposuretoenergy-cost
increases, although thetownhasprudently locked inprices forelectricity andnaturalgas
through FY2012. Town staff’splanning assumptions, asdepicted inAppendix B, suggest
thatonthecurrent course, expenses forFY2011would behave asfollows:
riseapproximately $2million, reflecting increased special- Education costs
education expenses andemployee compensation-stepincreases, offsetinpartby
retirement/turnover effects. Thisrepresents a3.0percent increase ineducation costs.
including thenewly created Facilities Department, increaseMunicipalcosts
approximately $700,000, reflecting employeecompensation increases, energy costs, etc.
This represents a1.9percentincreaseinmunicipal costs.
comprised ofdebtservice, employee benefits, property andSharedexpenses”
liability insurance, andthe operating budget reservefund, increase approximately $2.2
million, or6.7%. $1.9million ofthisincrease isdriven byanestimated 9percent growth in
employee andretiree health insurancecosts.
Intheaggregate, thetown’sexpensesareanticipated torisenearly $4.6million (a
3.3percent increase). Anycost-of-living-increases forpublic employees (municipal and
school) wouldrepresent anadditional $800,000foreachpercentage-pointincrease.
Capital spending. Thetownincurs capitalexpenses forarangeofdifferent purposes,
including maintenance oftownandschoolbuildings, roads, andfacilities; recurring
replacement ofvehicles andequipment; landacquisition; andrenovation andconstruction
oftown andschoolbuildings andfacilities. Anditpaysfortheseexpenses througha
varietyofmeans, including appropriations ofcurrent funds (“cashcapital”); within-levy
borrowing; exemptborrowing (“debtexclusions”); useofstate funds (forexample, for
schoolbuildings androads); useofenterprise funds (principally water andsanitarysewer
systems, whose usersarebilledforsuchservices); anduseofCommunity Preservation Act
revenues. Inrecent years, Lexington hasauthorized $4million-$5millionofcapital
projects (roadrepair, buildingmaintenance, drainage systems, fireandemergency
equipment, public-worksequipment, etc.) annually fromthetaxlevy (includingboth
borrowing andcashwithinthe “generalfund” budget). Appendix C, Capital Financing
Summary: FY2007 toFY2010, summarizes capitalspending inrecentyearsfromthe
various sources offunding.
Notetwoimportant issues concerning capital projects:
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First, thetown triestofundacertainshare ofcapitalspending, including allofits
smaller projects, withcash (averaging $870,000fromFY2007toFY2010). Thetown
borrows forlarger itemswithexpected longerlifetimes, paying theresulting costs (interest
andretirement ofprincipal) within thebudget. Suchcostscompete withotheruses offunds
forprograms andoperations the budget. within
Second, large, nonrecurring projects arefunded byaffirmative publicvotes onso-
called “debt-exclusion overrides,” authorizing borrowing andrepayment thegeneraloutside
fundbudget. Pastexamples includethesecondary-school renovations, theconstruction of
newFiske andHarrington elementary schools, major roadrepairs, and theDepartment of
PublicWorksheadquarters andgarage. Amongthelargersuchprojects onthe horizon are
furthermajor roadrepairs; renovations orreplacement ofthepoliceandfireheadquarters;
furtherschoolrenovations/expansions; andasenior/community center. Portions ofsomeof
theseprojects, andothers, maybefundedbytheCommunity Preservation Act. Although
suchcostsfalloutsidethebudget, theaggregatecostsareofcoursebornebyLexington
taxpayers
Capital spending isalready beingrestrained, bothbydeferring authorization of
pending projectstothefuture and bydecidingtodelayprojects forwhichTownMeeting
hasalreadyauthorized funds. Indetermining howtosustainoperating budgetsduringtimes
offiscalstringency, pasttowngovernments havehadtoweigh thecosts ofdeferring
maintenance tothefuture (asinincurring more costlyroadrepairs). Thatissue arises again
now, asdoestheissue offinancing someroutine maintenance through borrowing, rather
thanthrough currentbudget appropriations of “cashcapital.”
Reserves, discretionary actions, andotherpotentially favorable factorsLexington’s
government—theadministration, electedofficials (theSelectmen andSchoolCommittee),
andTownMeeting—haveprepared forlessfavorable financial circumstances by:
accumulating financial reserve funds inaccordance withthetown’sfiscalpolicy,
mostsignificantly resulting ina andanadditionalstabilizationfundbalanceof $6.8million
700,000inafundforunbudgeted special educationcosts;
restraining discretionary capital spending, asnoted above; and
asvacancies occur. restraining hiring
Inaddition, asaresultofrecentlegislative action, thetownwillgainaccess toanew source
ofrevenue—anestimated $500,000annually, beginning inFY2010—fromapplyingthe
Thelegislature hasalsogiventhetownpropertytaxtotelephonecompanypolesandwires
effective laterinFYdiscretiontolevynewtaxesonrestaurantmealsandlodgingservices
2010ifenacted byaSpecialTownMeetingthisfall, andestimated toproduce $350,000
and $145,000, respectively, onanannual basisthereafter).
Withregard totheproperty taxationoftelephone company polesandwires, itshould also
benoted that, depending ontheoutcome ofongoinglitigation, thetownatsomepointmay
alsogainuseofsome $600,000ofescrowed fundsforprioryeartaxes. Thetaskforce
wishestoemphasize thatanysuchone-timerevenues shouldnotbespenttosupporton-
goingoperating expenses. Rathertheyshouldbeused forsuchone-timepurposes as
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replenishing (orreducing utilization of) thestabilization fundorsupporting capital
purchases.
Longer-termconsiderations. Whatever decisions aremadetoresolve anypotential gap
thatmayariseinthealready-appropriated FY2010budgetandthecurrently forecastgapof
approximately $4million intheFY2011 budget, therearesignificant longer-termissuesto
beweighed atthesame time.
Reserve replenishment. Asthestabilization fundmonies arespent, credible
commitments need tobemadeto them. Initsresponse tothe2006 Financial Policyrestore
Review Committee recommendations, theadministration madeexplicit theimportance of
aspecification ofthenumber ofyearstoreturnthefundtoitstargetlevelwhen itisdrawn
downbelowthatlevel.” (Thetarget balance isapproximately 7percent ofgeneralfund
revenues—implying, atthecurrent sizeofLexington’sgovernment, astabilization fundof
closeto $10million, andmoreasthebudgetitselfgrows.)
Capital priorities. Looking ahead, several largecapitalprojectsarealready identified
onthetown’sagenda (asnoted above).
Retiree benefits. Inthewake ofthe FY2009declineinfinancial asset values, the
nextactuarialvaluation ofthepensionplanassetsmayrequire astepped-upappropriation to
putLexington backontracktofullfundingoftheseobligations. Inaddition, thetown had
beguntofunditsotherpost-employment benefitobligations (retiree healthcare). Funding of
thoseobligations mayneedtobebudgeted asaregular iteminthetown’sfinancial planning
horizon.
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PolicyContext
Themajorfiscalissuesfacing Lexington government aswestrivetosustainpublic
municipal andschool), who provide thoseservicesretaintheskilledandvaluedpeople
services, and onwhichwedependare: maintainthephysicalassets/infrastructure
makingitmuchmoredifficulttoplansoundheightenedeconomicuncertainty
budgets;
thelikelihood ofanimmediatecessationinthegrowthofrevenuesduringthe
withapossibly prolonged periodofdepressed stateaidthereafter; upcomingfiscalyear
and
the risksthatrecentdecreasesinemploymentandindividual wealthwillerode
further weakening aprincipal source ofrevenueresidentialconstructionandrenovation
growth inrecent years).
Another risk, subjecttoconsiderable uncertainty, isthatthepresentperiodof
extraordinarilylowinflation andinterestratesmaybefollowedatanunknowntimeby
Thatwouldputupwardpressure onwagesubstantiallyhigherinflationandinterestrates
andbenefit costs whiledepressing thehousingmarket. Itwouldalsomakeborrowing for
capital projects moreexpensive.
This taskforcehasbeenasked bytheSelectmen toadvise onfiscalpolicyinthe
relatively near term. Indoingso, werecognize thattheneedforputting Lexington’s
financial decisions onanewbasismayextend foraprotracted period oftime. Accordingly,
wemakerecommendations reflecting boththeuncertain duration ofthecurrent economic
challenges andtheiruncertain severity.
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Revenue andExpense Outlook, FiscalYears2011-2012andBeyond
AstheAppropriation Committee reported toLexington TownMeeting this pastspring:
Whiletheprocess ofdefiningourbaselinesetofassumptions alwaysinvolves
judgment, thisyearwefindthatthecurrentglobal financial crisis andmajor
recession hasmadeitmuchmoredifficult. Indeed, wedon’tknowhowdeepthe
recession willbe, howlongitwilllast, howfasttherecovery willbe, whatitseffects
onstate andtownrevenueswill be, whatinterestrateswillbeandhowtheywill
change, howthepricesofgoodsandserviceswillchange, howthedepressed job
market willaffectwages andsalaries, etc. Itshould therefore benosurprise thatin
thisenvironment wehadtrouble notonlyagreeing with eachother onabaseline set
ofassumptions, butevenincoming toindividual opinions onwhatmight be
reasonable guesses.
Notwithstanding thisuncertainty, both theAppropriation Committee scenarios (see
Appendix D) andmorerecent townstaff forecasts made available tothetaskforce during
May-June2009 (seeAppendices AandB) – bothofwhich assumethe maintenance oflevel
servicesandnobargained-forcostoflivingincreases inemployee compensation – suggest
a. And, although thetown hasnotyetmadebudgetgapofapproximately $4million
budgetary projections forFY2012, theAppropriation Committee scenarios suggestaneven
Asnoted, allsuch forecasts aresubjectgreatergapforFY2012of $5million to $7million
tochanges inrevenue (state aid, localreceipts, newgrowth) andexpenses (principally
compensation costs forLexington employees, including salaries andwagesandbenefits; as
noted above, each percentage-pointincrease inemployee wages adds $800,000tothe
budget). Noneofthesefigures reflectsactualFY2009 results noradjustments inFY2010
estimates asaresult ofrecent legislative action.
Consistent with ourstrongconviction thatshort-termconsiderations needtobe
evaluatedinthecontextofLexington’slonger-termfinancial situation, wealsohighlight
these secular issues:
Health benefits. Asreported atthespring Town Meeting, thesustaineddouble-digit
increaseinhealthbenefitcostsfortownemployeesandretireeshasputtheentirebudget
Totalcompensation costsfortownemployees, althoughunderincreasingpressure
currently negotiated astwoseparate elements (income andbenefits) within astatelegal
framework, needtobeaddressed asawhole. Slowingthegrowthincurrentcostsofhealth-
benefitprogramsandcontrollingtheirfutureinflationareofthehighestpriorityfor
Lexington’snear-termandlong-termfinancialposition, forthetown’sabilitytoprovide
valuableservicesandtocompensateitsemployeesfairly, and, ultimately, forthetown’s
abilitytofunditsemployeeretirement-benefitobligations
Growthinanddiversification oftheproperty taxbase. Lexington derives77.9
percentofitsproperty-taxrevenue fromresidential taxpayers, 18.4percent from
commercial andindustrial realestate, and3.7percent from thetaxation ofbusinesspersonal
property. Inparttoexpand thecommercial taxbase andthusreducethepressures on
residential taxpayers (aswellastoencourage localjobgrowth, andforotherreasons),
TownMeeting thisyearmovedtoadoptnewzoning standards fortheHartwell Avenue
commercial-industrial area, whichmayoverasubstantial periodoftimeyieldadditional
revenue; andapproved theLedgemont III (Beal) proposal, whichwasprojected toyield
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approximately $500,000annually peryearinnetadditional taxrevenues afterconstruction
andoccupancy.
Atthedeveloper’srequest, actionwasnottaken onthePatriotPartners proposal to
further increase development atLexington Technology Park. Thatproposal maycome
before aSpecialTownMeeting thisfall, asmayasubsequent expansion proposal from
Cubist Pharmaceuticals.
Such projects, ifdeveloped, could contribute totaxrevenues laterinthecoming
decade.
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Recommendations
Thehighdegree ofuncertainty affecting bothrevenues andexpenses inthefuturemakes
budgeting especially challenging. Accordingly, ourfirst, overarching recommendation is
thatdecisionsbemade, tothegreatestextentpossible, witharecognition ofthe
Fiscalpolicies mustbeguided bylong-termdirectionsuncertaintiesthatLexingtonfaces
andprinciples, butthespecificstrategiesandtacticsadoptedmustevolvewiththesituation
asnewinformationbecomesavailable.
Webegin byplanning forFY2011withanassumed budget gapofapproximately
4million. That figure maywellberevised, ineitherdirection, depending on:
theclosingbalances forFY2009, whichwill determine freecash available forthe
FY2011budget;
thelevelofspending inFY2010 (forexample, costsforsnowandiceremoval),
which will, inturn, determine thelevel offree cashavailableforFY2012 (andmayaffect
spending estimates forFY2011);
decisions affectingemployee totalcompensation (salary andbenefits) inFY2010
andbeyond;
clearer indications about thenational andstateeconomies, bearingonthelength of
thedownturn, thepaceofrecovery, and/orinflation;
indications abouttheCommonwealth’splansforlocal aid, especially Chapter 70
funds, forFY2011;
actualdataonlocalreceipts (affecting boththe year-end FY2010 balance andthe
forecastforFY2011andbeyond); and
actual experience withresidential andcommercial “newgrowth” revenues entering
thetaxbaseineachfiscalyear.
Inthatcontext, weofferspecificrecommendationsconcerningnear-termactionon
withexpensesandonrevenuestocopewiththeprojectedFY2011budgetgap
consideration forthelikelyimplications forFY2012 andbeyond); and thenseveralgeneral
recommendations, whichapplytoallbudgetyears
FY2011Expenses
Exercising maximum restraint incompensation. Werecommend thatinthecurrent
circumstances—constrained revenues, historically lowinflation, butpersistent healthcare
costinflation, particularly intheGreaterBostonarea— maximumrestraintbeexercisedin
thenegotiationandsettingoftotalcompensation (public-employee salariesandwages, plus
Thetaskforcebenefitcosts), fromthebargainingunitsthroughtheexecutiveranks
recognizes thatveryfewLexington citizens andtaxpayers willreceivesalaryorwage
increases inthecomingyear, andmanywillfacesignificant inincome; thisreductions
realityprovidescrucial context forLexington’scompensation decisions. Aspartofthis
recommendation, weurgeasthehighestfiscalpriority thattownmanagementand
bargaining-unitleadershippromptlyagreeonwaystoeffectsubstantial, lasting, and
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Wecan envision financialpervasivesavingsinemployeehealthcarebenefitcostsno
scenario inthenear-termfutureorbeyondwhich enables ustomaintain services andour
public workforce without suchsignificant changes.
Capital items. Increased useofborrowing todeferanadditional portionofcapital
costs, andperhapssomemodest deferrals ofcapital maintenance, shouldbeconsidered. As
discussed below, thecurrentenvironment ofconstruction costsandinterest rates mayfavor
expanded relianceonborrowing oversimpledeferral ofprojects thatweknowwewillhave
toundertake inthenextseveral years, especially oneswhose costsmaygrowdueto
postponement. Some members ofthetaskforce, however, expressed concerns aboutthe
wisdom ofeitherdeferring capitalmaintenance orincreasing thelevelofborrowing tofund
such projects asawaytofundon-goingoperating expenses.
Retirement obligations. Some modest deferrals offunding ofthetown’slong-term
obligations toretiree pension andbenefit costs maybeprudent, although, likeutilization of
thestabilization fund (seebelow), suchchoices maycallforadditional expenditures during
therecovery phase.
Discretionary costrestraint. During FY2010, boththemunicipal andtheschool
administrations shouldcontinue totakeallprudent measures toholddowncosts—for
instancebydeferring thefillingofnon-criticalvacancies andbycarefulreviewofall
purchases. Thesemeasures canhelp avoidFY2010costoverruns, mayhelpsecurefree
cashbalancesforFY2012, andmayassistinidentifying potential budgetary savingsforFY
2011.
Earlyidentification ofpossible costreductions. Both theschoolsandthemunicipal
departments needtoidentifypossible areasforreductions inspending forFY2011. We
recommendthatboththeschoolsandthemunicipaldepartmentsbeaskedtoidentify
Thispossiblestrategiesforcuttingtheanticipatedgrowthintheirrespectivebudgets.
process should generate amenuofoptionsthat couldsave $1million, ifneeded; this $1
milliontargetshouldbeequitablyallocated betweenthetown andschool budgets. We
believethat program shouldonlybeconsidered totheextentthattheotherreductions
strategies discussed inthisreportprove insufficient toclosethegap. Butwealsobelieve
thatitisimportant thatsuch andavailable incaseofneed. Ifprogramoptionsbeidentified
cutsbecomenecessary, werecommend prioritizing cutsthatwouldberelatively easyto
restoreinfuture years, rather than onesthatwould entaillong-termconsequences.
FY2011 Revenues
Broadening thetaxbase. Apart from thecurrent circumstances, ithaslong beena
goalofmanymunicipal-finance experts, andofficials, tobroaden localities’ taxbases. In
light ofrecent statelegislative action, werecommendthatLexingtontakethenecessary
stepstoenactthenewlocal-optionusertaxes (0.75percentmealstax, additional2percent
anddevelop revenue estimates forthesehoteltax) withtheearliest feasibleeffectivedate
sources forFY2011andbeyond. These newrevenuesourceswillhelptodiversify the
town’srevenuestreamandwillprovide abadlyneeded supplement totheexisting sources.
Webelieve thatthescale ofthese taxesissuchthattheyareunlikely toaffect thevitality or
competitiveness ofLexington’sbusinesses.
Grantandstimulus funding. Consistent withgood management practice, boththe
municipal departments andtheschoolsshould takeallreasonable measures topursue any
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grantfunding (particularly fromfederaleconomic-stimulus appropriations) thatcanassist in
covering costsofexisting programs andservices. Thetask forcedoesnotrecommend the
useofgrants toinitiate newprogramsthatmightrequire taxlevyfunding ifthegrant
fundinglaterterminates.
Useofstabilization fund. Werecommend thatthetown’sstabilizationfundreserves,
accumulatedforthepurposeofstrengthening thetown’sfinancialflexibilityandavoiding
disruptionduringaperiodofrecessionanddeclineinstatefinancialaid, bedrawnfrom
tosupport newservices, positions, facilities, orinitiatives (subject tothejudiciouslynot
caveatconcerning innovation below), buttohelp existing municipal andschoolmaintain
services andfacilities.
Thisrecommendation is self-implementing. Thetaskforcediscussed arangeofnot
policies forusingthestabilization fundtosupporttheFY2011budget, mindfulofthefact
thatinthecurrent uncertain fiscal environment, theneed forsuch appropriations maybe
inFY2012thaninFY2011 (arguing forbuilding insomemargin)—butthatsuchalarger
contingency isunknowable atpresent.
Without settling onadefinitive guideline forourrecommendation, wefeltthat
based ontheinformation available tothetaskforceasofJune2009, forFY2011, Lexington
mightdrawdownsomewherebetween $2millionand $3millionfromthestabilization fund
Theexactamount willdepend ontheactualFY2011 budget gap, toberefined asmore
information becomes available (asdiscussed above). Inaddition, thedecisionabout
stabilization funduseforFY2011 mustbeinformed byevolving information aboutFY
2010revenues andexpenses, aswellasabout thefiscalpictureforFY2012. Particularly
were thebudgetgapforFY2011 toworsen, wecouldenvision amaximum draw of $3
millioninFY2011. Thiswould stillallowfor asimilardrawfromthestabilization fundin
FY2012, whileretaining amodest balance beyondthatpoint. Theobjectiveistoattemptto
maintainlevelservicesduringtheperiodofanticipatedmaximumfiscalstress.
General Recommendations
Thetaskforceanticipates thatthepreceding listofrecommendations—presented inrough
orderofpriority—islikely toprovide sufficient tools toaddress thechallenges oftheFY
2011budget. Whilethissamesetofstrategies shouldagainplayacentralroleinplanning
forFY2012, thetaskforcerecognizes thatforthatyearandbeyond, abroader setof
questions remains andabroader rangeofissuesmustbeconsidered.
Exercising maximum restraint incompensation. Consistent withthe discussion
above, forthenextseveralyears, maximum restraint intotal employee compensation policy
willremaincritical.
Proposition 2 ½ operating overrides. Aftertheworstofthefinancial downturn
duringwhichwerecommend reliance onuseofthestabilization fundand theother
measures discussed above)—andifsuitable, structural, effectivechangesaremadethat
restrainthegrowthintotalcompensationcosts, itwouldthenbeappropriatetoask
Lexingtonvoters, throughthemechanismofaProposition2 ½ operatingoverride, whether
theywishedtoincreasetaxestomaintainservices, orinsteadtoreduceservices.
Consistent withitspastfiscalpolicies, Lexington hasrecognized thatthecostsof
providing localpublicservices—andproperty values, andresident incomes—increase over
timefaster thanthetax-levygrowthallowedunderProposition 2 ½, andsovotershave
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periodically beengiventheopportunity todetermine whether tofund services withan
operatingoverride. Obviously, thetimingofoverride issues matters; thetown wouldnot
ordinarily choosetopursueanoverrideduringperiodsofsevere financial stress—an
important rationale forestablishing astabilization fundorreserve, andforusingitina
timelyfashion.)
Rebuilding reserves. Wesupportapolicytorebuildthetown’sfinancialreserve
tothelevelof7% ofgeneralfundrevenues, asrecommended byfundsinatimelyfashion
the2006Financial PolicyReview Committee.
Replenishing reserveswillbeaprotracted, difficultchallenge, because:
the reservesweaccumulated earlier inthisdecade didnotreachtheabove-
mentioned benchmark of7% ofgeneral fundrevenues, giventheuntimely advent ofthe
creditcrisis andrecession;
thereserve accumulation wasmade easier byseveralsignificant, one-timefinancial
events (“windfalls,” ifyouwill; notethattheescrowed taxesonpolesandwires, discussed
above, represents apossiblefutureexample ofsuch awindfall); and
withthegrowth inthetown’sbudget, itwillbedesirable tobuildreservestoa
significant levelbeforethenextdownturn, i.e. toalevelprobably ontheorder of $10
million ormore.
Thepresentcircumstancesunderscoretheevidentwisdomofthetown’scommitment
whichwillhelpoverthepastseveralyearstobuildingasubstantialstabilizationfund,
Lexington weather theeffectsofthecurrent economic downturn, while surrounding
communities, andothersthroughout theCommonwealth, areslashingservices andlaying
offexperienced, valued membersoftheir workforces. Wehopeourfellowtownspeoplewill
recognizethevalueofthisimportant accomplishment, andwillembraceanongoing policy
ofestablishing, drawingdown, andrenewingreserve funds—eventhoughimplementingit
Thispolicy mayimpliesamultiyearperiodofdiscipline, sacrifice, andrestraint.
necessitate appropriating moneyintothestabilization fundeven inyearswhenother
operating expenses are contingent onaProposition 2 ½ override.
Service restructuring andinnovation. Thisreport hasmade muchoftheimperative
offinding abetter, more cost-effective waytoprovide employees withhealthbenefits. By
thesametoken, wewant toencourage therestructuring ofprograms toenhanceefficiency,
realizecost-savings, andimprove servicetothepublic. Asnoted, recentexamples of
successful programinnovations thatmeetdemanding costcriteria include investments inin-
house special-education programs andinbuildingenergyconservation. Thethresholds for
suchinvestments mustberigorous, butthetown isill-servedifweleave roomforno
continuous improvement throughapplication ofinformation technology, adoption ofbest
practices, consolidation orregionalization ofservice delivery, etc.
Preservation ofservices. Ourpremise isthatwewantto reducingservicesavoid
throughprudentuseofthevarious strategies discussedabove. Lexington public policy has
longbeen drivenbyacommitment togiveresidents avoiceindetermining whether
services aretobemaintained orreduced, when financialcircumstances dictate, throughthe
Proposition 2 ½ override mechanism. Weendorse continuation ofthisapproach.
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Remaining Long-Term Issues forFurtherDiscussion
Otherpressing issueswilldetermine whether Lexington’spresentmenu ofservices
issustainable overthelongterm. Todate, thetaskforcehashadonlylimited opportunities
toconsider theseissues:
Majorcapital projects. Majorprojects envisioned withinthenexthalfdecade are
estimated tocostatleastseveraltensofmillions ofdollars. Prioritization andtiming ofthe
principal ones—policeandfireheadquarters, roadreconstruction andrepair, school
renovation/capacity expansion, andperhapsasenior/community center—wouldpresent a
pressing anddaunting challengeeven inmorefavorablebudgetary circumstances.
While thetaskforceconsidered these issues atsomelength, their complexity
prevented usfromreachingconsensus onwhatadvice tooffer. Wewerealsoawarethat
significant additional information aboutanumber ofthesepotential projects willbe
available inthe nearfuture, particularly through thereportoftheschool department’sAd
HocFacility Committee which isexpected inthefall.
Therewasageneral sensethatparticularfocus should beplacedintheneartermon
instances wheredeferred maintenance wouldrepresent, ineffect, aninappropriate deferral
tothefutureofwhatwillsurelybehigher mandatory costs (suchasforrepair offurther-
deteriorated roads), andwherethecasecanfairlybemadetothepublic thatacting promptly
iscost-effective and appropriate, aspartoftheoverall objective ofmaintaining essential
community servicesandassets. Butthetaskforcedidnotarriveatconclusions concerning
howrapidly suchprojectsshould beadvanced, noronhow thetownshould prioritize the
fullrangeofmajorcapital projects that havebeen discussed.
Community Preservation Act (CPA). TheCPA, adoptedbyLexington votersin
5200, leviesa3percent surcharge onproperty-taxbillstopayforaffordable housing,
historic preservation, andopenspace/recreation projects, asdefinedbylaw. Thefunds
raisedlocallyarematched bythestate—initiallyat100percent, andcurrently atabout 33
percent. TheCPA levyitself currentlyraisesabout $3.1million annually. Theexistence of
thosefundshasenabledthecommunity totakeadvantage ofunusualopportunities—this
pastspring, topurchase twoparcelsforopen space, atacostof $7million—whichunder
othercircumstances likely could nothavebeenfunded inatimelyfashion.
Thetaskforceheldseveraldiscussions abouttheappropriate anddesirable rangeof
usesofCPAfundsandtheplaceofthislevyinthetown’soverallfiscalpicture. But, in
lightofthecomplexity oftheissues, therangeofreasonable perspectives, andthelimited
timeandinformation available tothetaskforce, wearenotinaposition tooffer
recommendations concerning theCPA revenues atthistime, beyond theadmonition thatthe
CPA fundsrepresent animportant townresource thatshouldbecarefully andeffectively
deployed wherereasonable andappropriate.
Long-term compensation policy. Whiletheshort-termapproach toward total
employee compensation mustbeone ofmaximum restraint, withaparticular emphasis on
reiningingrowth inhealth-benefitcosts, thetaskforcerecognizes thatthelonger-term
issues aremore multi-faceted. Thisisanother areainwhich weheldsomefruitful
discussions butdidnothavesufficientinformation nortimetoframespecific
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recommendations. Ourdiscussions didrecognize thepossible valueoffurtherresearch and
analysisrelatingtotheoperation ofourhealthbenefit programs. Inaddition, werecognize
theneed, overthelongerterm, tostrikeanappropriate balance between fiscal restraint and
ensuring thecontinuing competitiveness ofthetotal compensation thatweoffertotownand
school employees.
Program restructuring. Inordertopreserve services andfacilities whilemaintaining
fiscaldiscipline, itisessential thatthe townandschools aggressively pursue opportunities
thatwillallowformoreefficientprogram operation. Thiswillrequire ongoing attention to
opportunities forrestructuring, consolidation, andregionalization. Thisisatopicthatthe
taskforceonlyhadtheoccasion todiscuss briefly. Wedidnothavetheopportunity to
seriously consider how thetown canbest ensure thatthese opportunities arebeingfully
identified andexplored.
Thestatelegislative agenda. AsLexington TownMeeting, theSelectmen, thetown
manager, andothershaveindicated, thiscommunity andotherCommonwealth localities
haveaskedthelegislature forreformsthatwould facilitate moreefficient, cost-effective
operation ofmunicipal government. Therulesfornegotiating employee compensation,
particularly benefits, areonesignificant example. Thetaskforcehasnothadanopportunity
toreview specific proposals forlegislative reform, inthisareaorinothers, butrecognizes
thatthisisanimportant areaforfurtheranalysisanddiscussion.
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Appendix A
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Appendix B
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Appendix C
23 (pp.24-30areinseparate document: Appendix D)
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Exhibit E
AdHoc Fiscal TaskForce
Members: 7to11 members
Appointed by: Selectmen stLengthofTerm: Preliminary recommendations toSelectmen byJuly 1
th. FinalReport bySeptember 15
Appointments Made: AsNeeded
Meeting Times: oneevening perweek inMayand June (daytobe
determined)
Description: ToevaluatetheTown’slikely financialscenario fortheFY2010 toFY2014
period, identifyoptionsfordealingwiththesechallenges andrecommend policies and
actions tomaintain stableandvibrantTown serviceswhenfinancially feasible.
Thework oftheTaskForcewill include, butnotbelimited to:
1. Identifying thepotential significant changes totheTown’srevenue
base/financial condition resultingfrom thecurrenteconomic downturn;
2. Assessing thepotential lengthofthecurrent downturn asitapplies tothe
Town’sfinancialcondition; and
3. Propose options foraddressing theimpact oftherecession ontheTown’sability
tofundservices, including:
service reduction orelimination,
useofreserves, and
changes inthecapitalplan.
Criteria forMembership: TheTaskForcemembers shall consistoffiscallyinclined
citizens, withsufficient background toanticipate thefuturefinancialandpolitical
landscape.
Composition: Selectmen (2), School Committee (1), TMMA (1) andcitizens (upto7). Staff
support willbeprovidedbytheTown Manager, AssistantTownManager forFinance and
BudgetOfficer. TheSchool Superintendent orhisdesigneeshall beanon-votingmember.
RefCharge adoptedbytheSelectmen onApril 15, 2009. Members designated asSpecial
Municipal Employees onApril15, 2009.
Members:
PeterEnrich, Chairman PaulAsquith Charles Benson
George Burnell Thomas Diaz Andrew Friedlich
Catherine Gill Jeanne Krieger Joseph Rancatore
JohnRosenberg Herbert Wasserman
Liaisons:
Alan Levine, JohnBartenstein, Appropriation Committee
Charles Lamb, Capital Expenditures Committee
Staff:
RobAddleson, Comptroller, MicahNiemy, Budget Officer, CarlValente, TownManager
DeniseCasey, HRDirector, PaulAsh, Superintendent ofSchools, Maryellen Dunn,
Assistant Superintendent
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