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HomeMy WebLinkAbout2026-09-23 Finance Summit Financial Summit Select Board, School Committee, Appropriation Committee, Capital Expenditures Committee Wednesday, September 23, 2026 7:00 PM Hybrid Participation A Financial Summit was called to order by Select Board Chair Joe Pato at 7:00p.m. on Wednesday September 23, 2026 via zoom hybrid meeting platform in Estabrook Hall, Cary Memorial Building, 1605 Massachusetts Avenue. Present for the Select Board (SB): Mr. Pato, Chair; Ms. Hai, Mr. Lucente; Mr. Sandeen and Ms. Kumar as well as Mr. Bartha, Town Manager; Ms. Axtell, Deputy Town Manager; Ms. Kosnoff, Assistant Town Manager for Finance; and Ms. Katzenback, Executive Clerk. Present for the School Committee (SC): Mr. Freeman, Chair; Ms. Carter; Ms. Jay; Ms. Lenihan; and Ms. Roy; as well as Dr. Hackett, Superintendent of Schools. Present for the Appropriation Committee (AC): Mr. Levine; Mr. Bartenstein; Mr. Ahuja; Mr. Michelson; Mr. Osborne; Ms. Verma; Ms. Yan; and Mr. Padaki (arrived at 7:40pm) Present for the Capital Expenditures Committee (CEC): Mr. Lamb, Chair; Ms. Beebee; Mr. Boudett; Mr. Cole; Ms. Rhodes; and Mr. Rubenstein All boards and committee called their groups to order. ITEMS FOR INDIVIDUAL CONSIDERATION 1. Prior-year (FY2026) Year-End Results, FY2028 Preliminary Revenue Projections, Finance Policy Overview Ms. Kosnoff reviewed the FY26 operating results. Overall, the total general fund revenue projections for the year were approximately $307M, and the actuals came in at $314M, which is a surplus of just over $7M. Motor vehicle excise came in about $1M over, which was more than expected. In terms of operating expenses, for encumbered funds, the total education lines encumbered 99.99% of the budget. LPS carried forward approximately $1.5M and Minute Man reduced their assessment by $6,000 due to a surplus. The net total education turnback for the year was $20,000. On the shared expense side, the biggest turnback came from employee benefits, with the budget still coming in at 96.5% of what was budgeted. On the municipal side, approximately $1.16M was turned back. Overall, the total operating expenses turned back were $3.9M of the total budget of $278M, or 98.5%. There is a two-year lag on free cash, so the funding as appropriated in this free cash, $18M, was from the FY24 free cash certification, which was a peak year of $24M. The free cash estimate has not yet been finalized for this year and will not be certified until likely December or January. This is going to be a much lower certification than in prior years. There has been a much lower level of turn backs over the last three years, from FY24 -FY26. There have consistently been lower turn backs across all three of categories: education, municipal, and shared expenses over the last three years. This will become a bigger challenge in the budget because there will be less free cash, less investment in capital income and capital investments, and less money to put into reserve funds. From FY19 to FY23, there was a range of 3%-4% of turn backs every year. For the last three years, this has been approximately 1.5%. If interest rates decline dramatically, this can have a big impact on free cash going forward. The DOR's recommendation for free cash is to generate between 5%- 7% of the operating budget each year. The Town has been in that range for the last decade. However, for FY26, it dropped below the 5% mark, mostly due to investment income. Last year's ongoing programs were about $15M. The FY28 budget is also about $15M. The Town should be able to fund about half of that this year. The Town needs to start prioritizing and making decisions about what it wants to fund in the capital budget. Another thing that will be impacted is reserves. The Town has used free cash to fund its OPEB fund for the last several years, in the range of $2M. It has also occasionally put some surplus into the capital stabilization fund. Mr. Freeman (SC) stated that he would like to revisit the DOR's recommendation on total reserve. He believes the free cash stabilization and overlay reserves were included in that number and would like this confirmed. Mr. Bartha explained that free cash is a term that is unique to Massachusetts. It does not exist outside of the Commonwealth. It is considered an unassigned fund balance everywhere else. Free cash is basically the positive variance from expenditures and revenue. The DOR is essentially saying that a balanced budget should generate a 5%-7% positive variance each year. In the context of FY26, the Town’s revenue variance was 2.3% to the positive, and its expenditure positive variance was 1.4% for a total of 3.7% This is below what the DOR considers to be a balanced budget. In response to a question from Dr. Hackett (SC) regarding holding places in the budget for some increase in staff health care enrollment, Ms. Kosnoff explained that these are being held because there are many people that work for the Town who do not currently take the insurance but could elect to and placeholders are needed to be conservative. Ms. Kosnoff stated that the Town is currently in FY27, but staff is building the FY28 budget. The first step of the budget is for staff to estimate the projected revenues. Property tax levy is assumed to be taxed to the levy limit, at a 2.5% increase. $3M is also factored in for new levy growth, which is both from residential, commercial, industrial, and personal property additions to the tax levy The second category is state aid. This is primarily Chapter 70, which is school aid, and a bit of unrestricted government aid. This currently assumes $100 per student. The statutory minimum is $30 per student. Local receipts are primarily reflecting a 3-5 year average. Finally, under the category of available funds, free cash, which is the largest component of available funds, is removed because it is not used for the operating. The property tax levy is 86.2% of the Town's income. New growth for the current fiscal year, FY27, was originally projected at $3M. Commercial growth is not expected to turn around for FY27 or FY28. Conservative revenue projecting is a best practice and has been the foundation of building the Town’s budget. Getting more aggressive with revenue estimates could increase risk in the budget. This has already been done over the last three years. The Town needs to be careful about getting more aggressive with its revenue estimates. Balancing the budget for this coming year is not going to be solved by revenue. Adjusting some projections will help, but the Town needs to start looking at the expense side or considering going out for an operating override. Ms. Kosnoff presented potential considerations to bring in new revenue. Many of these options would still be paid by revenue generated by the taxpayers and residents of Lexington. These items will need policy discussion, community conversation, and longer implementation periods. The total revenue projected leaves the Town with remaining revenue that can be split between the municipal and school department for the operating budget of 2.2%. This is the lowest percentage seen in many years. The modest increase is mostly driven by the tax levy. Both the school and municipal departments will need to develop two budgets. Summit participants cannot wait until the end of November or January to determine if the Town should start advertising for an operating override. Staff needs to know this very soon in order to build a secondary budget. There needs to be a plan of how to execute that. If an override is sought and fails, there will need to be other conversations such as dipping into the reserves and by how much. Mr. Pato (SB) stated that the Select Board has had a standing policy objective of avoiding operating overrides. That remains the Board’s position. However, the Board would like to develop a budget based on no override and identify the critical impacts that a budget without an override might lead to. In the event of a compelling case, the Board will reconsider its position. Mr. Michelson (AC) stated that DLS has a web page for free cash, which states that DLS recommends communities understand the role free cash plays in sustaining a strong credit rating, and strive to generate free cash in amount equal to 5%-7% of its annual budget. Mr. Lamb (CEC) stated that the situation is dire. The Town already deferred an ambulance last year, and deferred firefighter turnout gear last year which was to comply with PFAS requirements. The current turnout gear has PFAS in it and this has to be fixed. In response to a question from Dr. Hackett, Ms. Kosnoff explained that the per student minimum for the last three years includes the student count, as of October 1. State aid is considered an ongoing revenue source. It is not expected to ever go backwards, though it may only increase slightly. Dr. Hackett suggested that a less conservative estimate per pupil would lead to more to return. The structural deficit has not been determined. She stated that other communities create an operating override study committee in which the community comes together and members of Summit work together on the data. Mr. Freeman stated that the School Committee does not necessarily want an override. It wants a budget amount that will meet the educational requirements for the district. If the municipal side is saying that there is not enough revenue to meet obligations, then an override would not be a School Committee pursuit. Mr. Pato stated that, unlike many other states and communities, there is not a separate taxation authority for school departments. There is a single municipal property tax that funds everyone. The choice to go out for an override would have to be approved by the Select Board, but it is the Summit group that would consider the impacts of potential budget items and whether or not there is a case to be made. Mr. Bartha explained that there is no additional revenue to cover spending at the trend that the Town has been expending budget dollars. Mr. Lamb asked if the School Committee has a number needed for the budget. Then the Town will know whether an operating override is needed or not. Mr. Pato stated that this may be a premature question. The Town and schools need to be preparing budgets that conform to the revenue that is expected, and consider what implications and cuts arise from that budget. Mr. Lucente (SB) stated that, before he would consider an override, he would need to know what things are at risk. He would need to know what the service levels are today, and what service levels the community is willing to put up with. Ms. Jay (SC) stated that the school district did a round of reductions last year. Some of those positions were due to reductions in enrollment. Some were chosen because they were good positions to have, but not absolutely necessary. She believes that these cuts may continue to get deeper, and the communication to the community will be important. An override study committee could be useful in establishing a sense of the thresholds and trigger points. Mr. Sandeen (SB) suggested developing low, medium, and high scenarios. There are major factors such as health insurance, compensation, union negotiations, and student enrollment that may be best addressed by considering low, medium, and high scenarios. Mr. Padaki (AC) stated that he will not be in favor of an operating override If this is decided on, he asked for clarification on the process. Mr. Bartha stated that it would require making a presentation at Town Meeting, a supportive vote from Town Meeting, and then putting the question before the voters, where it would also have to pass. Mr. Padaki noted that the Town uses GIC as its insurance provider. He asked if there are other carriers or insurance companies to consider. Mr. Bartha stated that there are other options in Massachusetts. The process requires working with representatives from each union and the retirees who take part in the health insurance plan, to come to an agreement. That that body is called the IAC (Insurance Advisory Committee). There is an agreement between the unions and the employer which governs how health insurance is negotiated and implemented in Lexington. The process would start with agreement from each of the unions through the IAC process in order to explore other options. Mr. Padaki stated that health insurance costs are a primary driver of the budget and increasing faster than the Town can support with revenue. Ms. Lenihan (SC) suggested a joint Town/School override study. Mr. Pato stated that this will be explored. The groups should develop a baseline budget to the revenue projection, which will then indicate which items are at risk. Mr. Levine (AC) stated that Mr. Parker, Chair of the AC, believes that the sense of the Committee is to support the continuation of the revenue allocation processes, as in previous years. The $625,000 that was added to the school budget from free cash should not be part of that process. Mr. Parker expressed deep concern about structural deficits to the extent they exist, and especially about the healthcare inflation budget driver. The school enrollment has gone down another 250+ students, and the school budget needs to be built to reflect that decrease. The Town just had a large debt exclusion vote to support the high school, and people are likely not interested in another tax increase right now. Ms. Lenihan stated that the reduction of students to staff is not always so simple. It depends on who the students are, the distribution of students, etc. Ms. Kosnoff noted that the Town was previously privately insured. There is a group insurance, MIIA, which is a potential competitor of GIC. Other than that, the Town would have to consider private insurance. Lexington's employees have an extremely high utilization rate. The Town is subsidized by all of the other members of the GIC. It is extremely unlikely that the Town would find a better deal elsewhere. Ms. Kosnoff stated that the Lexington High School construction project is still underway. The Town issued the first tranche of debt for this project. Overall, the Town is expected to issue about $530M. It will issue municipal bonds. The first tranche went out in early September. This was rated by Moody's, and it received an Aaa bond. There were nine competitive bids in going out to sale, all within ten points on the true interest costs. This was an incredibly competitive sale. Unfortunately, due to the way that the bond market is, the Town received a slightly higher rate than originally modeled. The Town had been holding a 4% interest rate, and it came in at about 4.33%. This is still better than the national average. The next issuance is slated for June. The bond proceeds will be earning interest income throughout the entire year, and a chunk of that will be available at the end of the year, either as free cash, or to pay down the rate. There will be future policy discussions on what to do with the interest earnings from that bond. Ms. Kosnoff reviewed the three planned actions for the upcoming Special Town Meeting. In terms of the stabilization fund, due to the bond issue being accelerated, there is a higher interest payment than anticipated for this year. This will shift the modeling a bit, and the Town will seek an additional drawdown from the capital stabilization fund to help cover some of that interest and keep the project on the taxpayer trajectory as planned. There is also new growth available. For FY27, the Town had projected $3M of new growth for the year, and this is expected to be closer to $4.2M. Thus, new levy growth needs to be appropriated. Lastly, there was a referendum on trash/refuse and recycling fees in the spring which passed. The intention was to implement those fees and put them into a refuse and recycling revolving fund. This fund, previously at Annual Town Meeting, had a $0 spending limit. This will now be increased to match the fees that are anticipated and the operating budget will have an offsetting reduction to reflect that those expenses will now come out of the revolving fund. nd Ms. Kosnoff stated that Summit II, is scheduled for Thursday, October 22. DOCUMENTS: FY2028 Summit I Indicators_9.18.2026.pdf; FY2026 Budget Monitoring – EOY_9.23.2026; Summit Presentation Slides_v2_9.23.26.pdf ADJOURN Upon a motion duly made and seconded, the Select Board voted 5-0 to adjourn the meeting at 8:55pm. The Appropriation Committee, Capital Expenditures Committee and School Committee followed suit. A true record; Attest: Kristan Patenaude Recording Secretary