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HomeMy WebLinkAbout2019-12-19 Summit II-A-min Financial Summit Meeting II-A Board of Selectmen, School Committee, Appropriation Committee and Capital Expenditures Committee December 19, 2019 A Financial Summit was held on Thursday, December 19, 2019 at 7:13 p.m. at the Hadley Public Services Building Cafeteria, 201 Bedford Street, Lexington, MA. The purpose of the meeting was to continue discussions regarding FY2021 financial projections. Summit I and II took place on October 30 and November 21, 2019. Present for the Board of Selectmen (BOS) were Mr. Lucente (Chair); Ms. Barry; and Mr. Sandeen. Mr. Malloy, Town Manager; Ms. Axtell, Deputy Town Manager; Ms. Kosnoff, Assistant Town Manager for Finance; Ms. Hewitt; Budget Officer; and Ms. Katzenback, Executive Clerk. Present for the School Committee (SC) were Ms. Jay, Chair, Ms. Colburn, Vice Chair, Mr. Bokun; Ms. Lenihan; Dr. Hackett, Superintendent of Schools; and Mr. Coelho, Assistant Superintendent for Finance and Operations. Present for the Appropriation Committee (AC) were Mr. Parker, Chair; Mr. Bartenstein, Mr. Levine; Mr. Michelson; Mr. Nichols; Mr. Padaki, Vice Chair; Ms. Yan; and Ms. Muckenhaupt. Present for the Capital Expenditures Committee (CEC) were Mr. Lamb, Chair; Ms. Beebee; Mr. Kanter, Vice Chair; Ms. Manz and Mr. Smith. ITEMS FOR INDIVIDUAL CONSIDERATION 1. FY2021 Revenue Allocation Update At Summit II, it was revealed that the FY2021 Revenue Allocation model, as proposed, does not provide sufficient funds to cover costs. Ms. Kosnoff said after that meeting, the Town Manager and Town Staff revisited the budget in an effort to “meet the School halfway” by making reductions and adjustments to the FY2021 Revenue Allocation model. The goal was to find approx. $700,000 in additional funds for the Schools. Ms. Kosnoff presented the following list of potential changes. First, due to an oversight, this adjustment to the model needed to be made:  Reduce available Free Cash by $800,000 in order to pay the like amount into the Overlay account. The effect of this reduction reduces the Schools’ Revenue Allocation by $589,759 and the Town’s Revenue Allocation by $210,241. Second, Lexington’s Minuteman High School assessment has increased by $275,212 making this adjustment necessary: Lexington’s total Minuteman assessment is now $2,992,356. Splitting the additional amount 1 proportionately as a Shared Expense, the School side will pay $202,886 and the Town side will pay $72,326. Ms. Kosnoff said due to the number of withdrawals from the Minuteman High School district, Lexington’s assessment will be higher than anticipated going into future budget years. In order to increase available Revenue to bridge the now larger gap, these actions were proposed:  Reduce Appropriation Reserve Fund from $900,000 to $750,000, liberating $150,000 ($110,80 Schools; $39.420 Town);  Reduce the Unanticipated needs line item from $500,000 to $250,000, liberating $250,000 ($18,300 Schools/$65,700 Town). Note: This line item was already reduced from $1M to $500,000 prior to Summit II;  Put no monies into the Capital Stabilization Contribution Fund from Tax Levy, liberating $863,540 ($636,601 Schools/$226,939 Town);  Reduce Capital Stabilization Fund contribution by $811,659 (from Free Cash): ($598,354 Schools; $213,305 Town); Combined, these reductions and adjustments yield addition funds of $737,190 for the Schools and $262,797 for the Town. Therefore, the revised Revenue Allocation to the Schools for FY2021 would be $4,853,637 and for the Town $1,730,255. Mr. Kanter (CEC) said he felt disheartened by the proposal to take funds from the Capital Stabilization Fund. He suggested the assessment may go down if Minuteman reduces expenses, as it is trying to do. Ms. Kosnoff agreed, saying the assessment a worse-case scenario but since the number could hold, it was important to prepare for the expense. If the assessment comes down, ultimately, the funds would be dedicated to the Capital Stabilization Fund, not split between School and Town. Looking at the adjusted Revenue Allocation model, both School and Town will now see a 4.3% increase in their budgets over FY2020. The following year, the FY2022 model projects a 3.0% increase for School and Town budgets. Although Revenue is not expected to be diminished, available Free Cash is likely be less than the $13.5M available for FY2021. After FY2022, the Land Purchase loans will be payed off, freeing $2.4M for other budgetary needs, Ms. Kosnoff said. Mr. Lamb (CEC) expressed concern about “drastically reducing” the Capital Stabilization Fund allocation because it would leave Lexington less prepared to absorb the shock of paying for a new high school. Ms. Beebe (CEC) asked, since newly liberated monies increase available funds for the Town budget, how the delta would be allocated. Mr. Malloy said the Town’s intent, after reviewing the Town departments’ PIRs, is to go forward with the original budget and turn back the additional funds to the General Fund. Ms. Kosnoff added that turn-backs are likely to go into the Capital Stabilization Fund. Mr. Kanter (CEC) expressed concern that more funds over the prior year’s amount are being 2 allocated to OPEB. He would prefer that discretionary monies be dedicated to the Capital Stabilization Fund. Mr. Parker (AC) reported that Committee members discussed reducing the Appropriation Committee Reserve Fund and agreed it was a reasonable thing to do. Mr. Michaelson (AC) reminded the group that, historically, once the New Growth figure has been established, excess funds are often allocated to the Capital Stabilization Fund at Special Town Meeting. Ms. Yan (AC) asked if Minuteman member towns subsidize non-member towns. Mr. Michaelson said Lexington has a larger share than most of other member towns due to the number of Lexington students who attend the school. After Arlington, Lexington is the largest sending municipality. Mr. Padaki (AC) asked if it will be sufficient to keep only $250,000 in the Unanticipated Needs fund. Ms. Kosnoff said over time there have been varying amounts in the fund. Last year there was $1M and none of it was used. A few years before, it was in the $600,000 range. Any part of the funds that are unused revert to Free Cash at the end of the fiscal year. It is not ideal to decrease it but at this point in the budget process, not many reasons could arise to tap the fund. Mr. Nichols (AC) said, in reality, reducing the Unanticipated Needs line item is essentially reducing the next year’s Free Cash. With all of the future needs coming up, he is not sure reducing Free Cash is a good idea. Ms. Coburn (SC) expressed concern about decreasing the Capital Stabilization Fund, saying that at the last Summit, many participants did not think doing this was a good idea because it would impact the high school project. She asked if the Board of Selectmen agreed to taking this action. Mr. Lucente (BOS) said this is the first time the Board has heard the proposal being presented tonight. Ms. Coburn (SC) said that transitioning Free Cash out of Operating was thought to be a five-year process. The amount could be revised. Making such a substantial OPEB contribution, beyond the baseline allocation, was discretionary and could also be revisited. Ms. Kosnoff said the intention of setting aside the $700,000 in Free Cash from Operating was to use it for Cash Capital so projects would not be bonded. If Cash Capital grows, debt service is eased. This has the effect of freeing up more of the Tax Levy. She believes the case has been made to continue increasing OPEB contributions. It meets with the approval of the bonding agencies and keeps the Town’s rating high, reducing the cost of borrowing. Mr. Levine (AC) said he believes the Town Staff have done a good job of balancing the pros and cons what to do as there are only so many ways to achieve the desired result. It would be his preference to reduce the OPEB contribution, but not drastically. Mr. Bokun (SC) also agreed that the OPEB contribution could be lowered modestly without hurting the bond rating. He is concerned to see how low the Capital Stabilization Fund is in 3 FY2022. Ms. Jay (SC) said the new forecasts for the Capital Stabilization Fund cause substantial concern. She noted the small $16,829 projection for Capital Stabilization contribution in FY2022. Ms. Kosnoff explained how the budget is built, using assumptions and the strategies dictated by the model. She emphasized that Revenue in the future will grow at a slower rate than in the past few years. Because of that, Operating expenses need to be reigned in. Ms. Jay (SC) asked what other parts of the budget, besides the Capital Stabilization Fund, could be tightened. Mr. Bartenstein (AC) recalled that the Schools asked at the last Summit for time to revisit the School budget so that cuts would not be made immediately. He asked whether the Schools had begun to discuss the adjustments that could be made going forward. Mr. Sandeen (BOS) asked for some background on the assumption that Revenues would decrease in the coming years. Ms. Kosnoff said that in prior years, some efficiencies—such as moving to the State Health pool (GIC)-- had opened up room in the budget. Also, Chapter 70 State Aid increases were substantial for several years but have now leveled off. Property Tax liens were also settled. These sources provided higher Revenues for a number of years but those were only temporary. A reasonable, on-going annual municipal budget Revenue increase is closer to the 3.5% range. Ms. Barry (BOS) echoed concern about the Capital Stabilization Fund, given the projects being planned for the next few years. If not at this point in the budget process, she would like to see models in the coming months for how upcoming budgets might be handled differently, suggesting that the Town and Schools will need to revise budget expectations. Mr. Lamb (CEC) noted that one of the main uses for Cash Capital will be for investment in School Technology upgrades. Mr. Lucente, reading a comment submitted by Selectman Pato, said Mr. Pato was also concerned about the diminished amount being allocated to the Capital Stabilization Fund. Mr. Lucente said there are no perfect solutions: either Revenue must go up or Expenses must go down. Mr. Kanter (CEC) asked the Board of Selectmen to reconsider its OPEB contribution policy due the changed financial picture. Mr. Lucente (BOS) said that, with two members absent and the need for one present member to recuse from that discussion, the Board would not be able to make such a decision on the spot. For the record, Mr. Lucente (BOS) said he would want to look more carefully at how such a change would affect the rest of the model. Ms. Barry recused herself from comment because her husband is employed by the Town. Mr. Sandeen (BOS) said he wanted to hear more from Staff about how they arrived at the proposal made tonight. 4 School Presentation: Dr. Hackett said the Schools are willing partners in the effort to tighten the belt and they will look closely at the budget. Discussions about this occurred even before the Schools presented their original budget. Fees have recently been increased for athletics, transportation, food services, and for the Lexington Children’s Place. The Legal Services line item has been significantly reduced. Per pupil spending is the lowest it has been in a long time. Technology expenditures will decrease by $500,000 in FY2022 and by another $500,000 in FY2023. Staff is being reduced when/where it can be. However, the changes that will need to be made to stay within the confines of the budget will be significant. She believes there is flexibility in how OPEB is funded and a revision downward could alleviate some of the budgetary pressures. Dr. Hackett projected that the amount needed for staffing and services will continue to exceed the anticipated budget allocations. She presented graphs showing how enrollment and revenues have changed over time and noted that projections for FY2023 and FY2024 show growing enrollments will have to be served by smaller revenues. Dt, Hackett stated the majority of the school budget (84%) is dedicated to salaries. These are contractual. Salaries are also subject to step increases. State mandates, particularly for Special Education, are hard costs to reduce. If the total allocation is as projected, by FY2023 she anticipates a $3.95M shortfall in the School budget. Drastic measures would need to be taken overtime to address the gap. Dr. Hackett said she has sent a strong message to School supervisors that no new requests will be entertained for the foreseeable future; Staff have started to identify areas for reduction and efficiencies. Dr. Hackett shared the following strategies for FY2021 – 2023 to address the yearly shortfalls:  FY21: reduce fixed costs through attrition and reduction; offset budget utilizing Revolving and Enterprise funds; reduce supplies and software contracts; review Special Education placement; conduct Special Education audit; access Special Education Stabilization Funds at Town Meeting;  FY22: Begin to implement recommendations from Special Education audit; cut non- instructional personnel; increase use of Special Education Stabilization Funds;  FY23: Explore cutting electives and increasing class size; reexamine fees; increase use of Special Education Stabilization Funds. Because changing Special Education plans for students to make costs more sustainable is a negotiated process, it will require time. This is one of the main reasons Dr. Hackett and the School Committee have asked for a gradual budget reduction process. Mr. Malloy suggested that a more accurate way of looking at School finances would be to show the total budget percentage increase versus the total enrollment percentage increase. Mr. Parker (AC) distributed those comparisons in a handout. Mr. Malloy said the message is misleading that the Schools have seen a decrease in allocation. 5 His analysis is that increased budget percentages have continued year-over-year whereas enrollment has not increased commensurately. Mr. Parker (AC) said he regretted that the Schools’ data was not available before being presented at the meeting because it is hard to analyze the information on the fly. He said the allocation is not shrinking; the rate of allocation growth is shrinking. He noted that from FY2016 to FY2021, the average annual increase in the School budget was 6.4% but the average enrollment increase was 1%. The budget, in other words, had a faster growth rate than the enrollment. He agreed there can be unpredictable changes to things like Special Education or building maintenance and these could account for where the funding has been allocated. Mr. Levine (AC) said the School budget increases cannot be accounted for solely by looking at enrollment increases. All the drivers of the budget increases need to be examined. Drivers of the School and Municipal budgets are vastly different but both spend the lion’s share on salaries. He asked the Schools to provide insight into their budget drivers over the last 5-10 years so the everyone can discuss the issue intelligently. Mr. Michelson (AC) said he, too, would like to see the breakdown of School expenses. He noted that if the current shortfall is “solved”, the subsequent year shortfalls as shown would need to decrease by that same amount to be accurate. Dr. Hackett said the information requested can be readily shared. Mr. Lamb (CEC) noted that the Special Education Stabilization Fund is harder to access than the Reserve Fund and would probably require a Special Town Meeting unless it is addressed at the upcoming Annual Town Meeting. Since the Fund has been unused for 10 years, he believes it is time to use it. He said the process of addressing the budget shortfall should be done collaboratively, not combatively. Mr. Kanter (CEC) said Lexington needs to grapple with whether the current budget procedure is sustainable or not. Is an Operating override needed? Ms. Barry (BOS) emphasized that Lexington is one town with a School and Town side. The collaborative process has been in place for a long time. Phrases such as “drastic measures” or “shrinking allocation” contradict collaborative efforts and send alarming messages. She asked that everyone be careful with their word choices going forward because the situation, at this point, does not warrant alarm. Mr. Sandeen (BOS) agreed that looking at the root causes of these budget pressures is advisable. Mr. Lucente (BOS) noted that “override” was not a subject on the table at the last Summit. He asked everyone to tap into their resiliency to push forward to a resolution of the issue and to move on to the White Book phase of the budget cycle. Ms. Lenihan (SC) said that no matter which set of charts you look at, a $3.9M shortfall is not a small gap. Not finding a way to bridge the gap would mean that future students will get a lesser education. A lower quality school system would garner less support for funding a new high 6 school. Ms. Colburn (SC) said high-quality schools make Lexington the attractive town that it is. That, in turn, provides the Revenue that supports both the Schools and the Town. She feels the debate should be a healthy one, not a divisive one. She said that past Summits have not responded to concerns that should have been addressed. She asked the Selectmen to discuss the comments made about OPEB before the White Book phase of the budget. Rather than being unduly alarmed, she believes citizens are justifiably concerned by the possibility of School cuts. Ms. Jay (BOS) implored everyone to take the “one Lexington” sentiment to heart. She sees the period ahead as having a more difficult financial landscape. She believes Dr. Hackett has shown her willingness to tackle the hard choices ahead. The bigger solution may require making a more fundamental change than finding a little money here or there. Mr. Lucente (BOS) noted that many past Summit focused on policies. He is open to looking at these decisions again, if necessary. Everyone at past Summits, for example, agreed it was important to put aside money for the high school project. Mr. Kosnoff reviewed the following key dates:  January 10, 2020 White Book posted electronically  January 13 BOS will meet to conduct a brief overview of the White Book  January 16, 2020 Summit III Presentation of White Book  February 6, 2020 Summit IV (tentative)  February 21, 2020 Brown Book Published ADJOURN Upon a motion duly made and seconded, the Board of Selectmen voted 3-0 to adjourn the meeting at 9:01 p.m. The School Committee, Capital Expenditures Committee, and the Appropriation Committee followed suit. Attest: Kim Katzenback Executive Clerk Kim Siebert Recording Secretary 7