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HomeMy WebLinkAbout2020-01-16 Summit III-min Financial Summit III Select Board, School Committee, Appropriation Committee, Capital Expenditures Committee January 16, 2020 Financial Summit III was called to order on Thursday, January 16, 2020 at 7:04 p.m. in the Hadley Public Services Building Cafeteria, 201 Bedford Street. The purpose of the meeting was threefold: to review the FY2021 Preliminary Budget & Financial Plan, otherwise known as The White Book; to review the list of proposed Capital projects; and to preview a list of 2020 Annual Town Meeting articles. Present for the Select Board (SB): Mr. Lucente, Chair; Mr. Pato; Ms. Hai; Mr. Sandeen; and 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): Ms. Jay, Chair; Ms. Colburn, Vice Chair; Mr. Bokun; Ms. Lenihan; Ms. Sawhney; and Dr. Hackett, Superintendent of Schools; Mr. Coelho, Assistant Superintendent for Finance and Operations. Present for the Appropriation Committee (AC): Mr. Parker, Chair; Mr. Bartenstein; Mr. Levine; Mr. Michelson; Ms. Muckenhaupt; Mr. Nichols; Mr. Padaki; and Ms. Yan. Capital Expenditures Committee (CEC) members: Mr. Lamb, Chair; Mr. Kanter; Ms. Beebee; Mr. Cole, Ms. Manz; and Mr. Smith. Mr. Lucente made a statement about the tenor of last meeting, Summit IIA, recognizing that emotions ran high. He asked participants to remember that the budget and policy-making process is most successful when everyone maintains a collaborative attitude. ITEMS FOR INDIVIDUAL CONSIDERATION 1. FY2021 Preliminary Budget & Financial Planning Mr. Malloy stated that the budget he and the Superintendent present is now balanced. Revenues and Expenditures are equal at $237,751,451. Summarizing the changes made to the model since Summit IIA, Mr. Malloy pointed out that the $750,000 taken from the Appropriation Committee Reserve Fund, plus the $250,000 reduction from the Unallocated Needs line item, represent $900,000 that would otherwise be available in FY2022 as Free Cash. Other changes to the budget model consist of reductions in contributions from Free Cash and from the Tax Levy to Capital Stabilization. These actions together provide additional Revenue Allocations of $1,326,949 for the Schools and $473,038 for the Town. Regarding General Fund Revenue projections versus actuals, Mr. Malloy noted that between FY2014 and FY2018 neither the Town nor the Schools used their full Allocations. Those unused 1 funds came back to the Town. There have been no turn-backs in more recent years, and there are not likely to be any in upcoming years, which means there are less funds available for subsequent Operating and Capital budgets. Mr. Malloy highlighted several on-going Selectmen goals/priorities, many of which carry a considerable price tag: Construction Funds for the Police Station Facility; Pedestrian, Bicycle and Vehicle Safety on Town Roads ($3,839,022); Cemetery Building Construction ($3,290,000); and Community Mental Health Programs and several newer Goals include Improving Transportation (($17,910 + $50,000); Sustainability; and a Facilities Master Plan ($100,000).. Policy issues for consideration include:  Appropriate into the CSF: Whether to support the appropriation of $1,536,759 into the CSF to replenish the fund for future school construction projects.  Appropriate from CSF for Within-Levy Debt Service: Whether to continue to use funds from the Capital Stabilization Fund to offset within levy debt service. For FY2021 $105,000 is recommended for this purpose; inFY2020, $0 was used.  Appropriate from CSF for Excluded Debt Service: Whether to appropriate $3,500,000 from the CSF to mitigate excluded debt service.  Appropriate into Other Post-Employment Benefits (OPEB): Whether to support the appropriation of $1,935,486 into the OPEB Trust Fund ($1,179,721 -Free Cash, $750,000 - Health Insurance Claims Trust Fund and $5,765 enterprise funds).  Unallocated Revenues for Contingencies; reduction/eliminating use of Free Cash: the recommended budget includes $250,000 in unallocated revenues to fund programs, balance the budget if state aid is less than projected, health insurance is more than projected, etc.  Reduce use of Debt Service for Capital projects: The FY2021 budget includes a reduction of $700,000, with $2.2 million being used to balance the budget. The proposed use of the $700,000 is to increase the use of free cash for capital expenditures and reduce the reliance on debt issuances for capital items. Ms. Kosnoff noted two key questions: How to deal with funding OPEB and the CSF in FY2021 going forward; and whether to modify the current strategy. So far, the recommendation for FY2021 is to appropriate $1,935,486 into OPEB (current balance $18.16 million/liability through 2047 $150M) and to appropriate into the CSF $1,576,899 (current balance $24,8M. However, this action can be modified this year and in future years. Ms. Kosnoff noted the rate of return on the OPEB fund investment is far higher than the investment vehicle used for the CSF. Regarding the Land Purchase Debt to acquire 171 Bedford Street and the Pelham Road property, 2 Ms. Kosnoff said the Town made the decision to issue a 5-year note rather than a longer-term bond. The note is scheduled to be amortized in FY2022. Once it is, $2M in Free Cash can be put toward another purpose. Regarding Exempt Debt, the CSF has been utilized to mitigate taxpayer debt burden and soften debt peaks as they arise. The CSF was able to grow substantially in years when there were substantial surplus revenues. At previous fiscal policy Summits, Ms. Kosnoff presented a recommendation to put an increasing amount from the Tax Levy into the CSF, instead of primarily using Free Cash to feed the CSF. The reasoning behind this is that Free Cash is a one-time revenue; while as much as $30M could be accumulated by the time the high school project debt hits the budget, it would not sufficiently mitigate the debt service impact. Ms. Kosnoff acknowledged that it will be a challenge to adhere to the plan of using Tax Levin instead of Free Cash now that the budget has become tighter, but she recommended putting as much aside as possible nonetheless. Ms. Kosnoff stated that the goal is still possible of holding tax bill impact of Excluded Debt to within a 3.2%-3.7% range, including Prop 2½ increases. She noted, for the purpose of calculation, that the model assumes an average home’s value remains unchanged; in the past, including valuation increases, tax bills have risen in the 4.5-4.8% range. Also for the purpose of calculation, the residential and commercial tax split remained at 80%/20% and the New Growth variable was not included. Capital Projects: Mr. Malloy said the projects below are included in the FY2021 Capital budget plan: Westview Cemetery Building ($3,290,000): Police Station Reconstruction ($ 28,757,151); Water/Sewer Enterprise Programs ($2.2M for water main replacement; $1.401M for sewer mains and pump stations). Since water and sewer Capital projects will be on-going, Mr. Malloy proposed building these costs into the budget over the course of the next ten years, one-tenth a year, rather than th continuing to borrow for them. After the 10 year, the cost of the program would be 22% less. For the calendar, Mr. Malloy provided these next steps: •Summit IV – Final Budget Deliberations (if needed) – February 6, 2020 •Approve Final Recommended Operating and Capital Budget –February 10, 2020 •Transmit BOS recommended budget to financial committees/town meeting members – February 21, 2020 •Earliest Date for Town Meeting to Consider Financial Articles –March 23, 2020 (first night of Town Meeting Mr. Kanter (CEC) asked how the financial impact of the high school project was calculated. Ms. Kosnoff said the calculation assumes that a feasibility study will be authorized at Annual Town 3 Meeting in 2021; design funds will be authorized at Annual Town Meeting 2022, and construction funds will be authorized at Annual Town Meeting 2023. Construction is expected to take a three-year period so debt was factored in incrementally over the course of those years, peaking the first year in FY2028. Mr. Kanter (CEC) asked why so much of the CSF is being withdrawn to service Within Levy Debt. Ms. Kosnoff said past practice has been to keep Within Levy service within a 5% increase over the previous year. This, however, could be up for discussion. It has been done to stabilize the Operating budget so that Within Levy Debt service does not crowd out the other operational School and Town needs. Because of two large projects—the Visitors Center and Center Streetscape—Within Levy Debt will peak in coming years and CSF is intended to mitigate that impact. Additional Within Levy Debt projects are also assumed to be authorized within the timeframe. Mr. Levine (AC) said he does not like the high CSF use projected in FY2022-2025. He asked this to be reconsidered. Alternative strategies might include using Free Cash, over and above projections, to pay down Within Levy Debt rather than putting the Free Cash into CSF. Another alternative would be to put less into OPEB and more into CSF, while maintaining enough of an OPEB contribution to preserve the AAA bond rating. Mr. Pato (SB) said one of the biggest benefits of putting Tax Levy funds into CSF is that it would keep the Operating budget from growing too much, thus providing a lower base upon which to add debt from the new high school. Building up the CSF itself is a secondary consideration. Mr. Pato said that one-time funds will not solve a long-term structural problem. Mr. Nichols (AC) noted that OPEB contributions earn interest at four times the rate of the CSF, so paying into OPEB now maximizes fund growth. By 2025, OPEB contributions could be pulled back. Mr. Malloy believes it is warranted to look at the current financial guidelines, given the challenges being discussed; pulling back from OPEB might be possible, actuarily, as the fund draws nearer to its goal. Mr. Sandeen (SB) asked what assumptions are being used for the total cost of the high school project and the MSBA contribution. Mr. Malloy said the working cost of the high school is $350M. A 30% MSBA match is expected, and a 30-year debt bond issuance rate of 4% was used in the calculations. The total amount of $350M would be requested at Town Meeting; after cash and MSBA contributions, that full amount can later be adjusted using an underride. Ms. Colburn (SC) said, in her opinion, $350M gross is an unrealistic amount, given what other communities’ high school projects have cost. She agrees it would be ideal to fund more of the debt service from the Tax Levy but noted that it would present challenges to Operating budgets. Mr. Lucente (SB) agreed the trade-offs need to be weighed and balanced. It is clear to all that a new high school is needed. 4 Mr. Kanter (CEC) asked if there is a benefit to using a shorter-term ban or CSF monies, rather than a 30-year loan, to fund a portion of overall high school project costs, such as for the feasibility study. Ms. Kosnoff said this idea was worth consideration. Mr. Kanter asked to be kept apprised as the discussion goes forward.  School Presentation: Dr. Hackett presented information about how the School Operating budget is created. Salary and Wages take up about 84% of the budget. Due to contractual obligations and step increases, the percentage increase of Salaries and Wages in FY2021 is projected to be 3.66%. Expenses occupy the remaining 16% of the budget and are projected to increase 7.25%. This increase is driven by Out-of-District tuition costs—over which the Schools have no control— and some transportation cost increases. Dr. Hackett noted that the Expenses increase typically hovers around 8%. Dr. Hackett said that each time a position becomes vacant, an analysis will be done of whether a consolidation or adjustment can be made. In the coming year, the number of total base staffing FTEs (Full-Time Equivalent) will be reduced by 9.33 but increases in FTEs are also projected in Enrollment (3.57), Mandates (5.70), and Program Improvements (3.25). The net FTE increase is 3.19. Dr. Hackett also provided an historical analysis, starting in FY2016, of enrollment, budget, and FTE increases. She said the Schools will endeavor to keep additional FTEs to a minimum. Ways in which the previous $1.5M budget gap was bridged include: the Schools’ Revenue Allocation increase of $737.2K; adjustments to Special Education Out of District placements; reductions to legal expenses; reduction for not filling vacated positions; certain transportation adjustments; and a reduction to strategic planning funding. Mr. Padaki (AC) asked if the FTE reduction was a true reduction or a reassignment exercise. Dr. Hackett said the skills are often specialized but, in some cases, Staff was reassigned rather than reduced. Ms. Jay (SC) applauded Dr. Hackett’s efforts to reign in Staff increases but expressed concern over where the lines would be drawn in the future between acceptable cuts and harder sacrifices. She asked that the Town side and the School side remain cooperative for these discussions. Ms. Lenihan (SC) said Lexington Schools’ core values yield citizens the community appreciates. She asked that the impacts of budget choices be transparent so the community is clear on the trade-offs. She believes turning away from the practice of maintaining programs and services through level-funded budgets will diminish educational opportunities. The community will have to decide what is most important. Mr. Bokun (SC) acknowledged that a budget crisis has been averted for FY2021, but is something is not done, Staffing will be affected next year and Programming and Services will be 5 affected the year after. He believes that squeezing the School budget too hard will undermine what the community wants its Schools to be. He agreed that working on upcoming budgets should be a high priority. Ms. Sawhney (SC) said some of the investments the community makes in education are not easily quantified, although some measurements are— such as graduation rates and college acceptances. Nurturing the joy of learning is important to Lexington and Teachers and Staff are a big part of that. She believes that both Mr. Malloy and Dr. Hackett are well-qualified to help Lexington through difficult times. Mr. Kanter (CEC) said there appear to be some hefty shortfalls ahead. Ms. Kosnoff said she believes FY2022 may be the most challenging year when the difference between Revenue and Expenses shows a deficit of $6.9M. If a balanced budget is achieved in FY2022, the projected shortfalls will decrease in subsequent years.  Capital Expenditures Committee - Preliminary Report: FY2021 Proposed Capital Projects Mr. Lamb (CEC) said the majority of CEC members concur with the list of Capital projects included in the FY2021 budget:  Ambulance Replacement  Police Outdoor/Indoor Firing Range - Hartwell Ave  Lexington Police Station Rebuild  LHS Science Classroom Space Mining. Especially important in the light of the LHS Feasibility Study being deferred  Westview Cemetery Building  New Sidewalk installations  Pine Meadows Clubhouse Renovation  Center Recreation Complex Bathrooms & Maintenance Building Renovation  Transportation Mitigation  Margaret Lady of Lexington restoration CEC also concurs with the inclusion of the ongoing “programs” (as opposed to one−time) being proposed in the FY2021 Preliminary Recommended Budget and Financing Plan. CEC also concurs that the following projects should be deferred to FY2022 or later:  Lexington High School Feasibility  Parking Lot Consolidation and Repaving  Outdoor Pickleball Court Construction & Cricket Field Construction.  Street Acceptance  Community Center Expansion One disagreement with the Operating Budget is in regard to the lack of funding to hire a Recording Secretary for CEC and AC. 6 3. Review Preliminary List of 2020 Annual Town Meeting Articles Ms. Axtell reviewed and explained a preliminary list of articles for 2020 Annual Town Meeting. At this point, Mr. Lucente said he does not believe there is a need to hold Summit IV but he will keep everyone apprised. Upon motion duly made and seconded, the Select Board voted 4–0 at 9:28 p.m. to adjourn. The School Committee, Capital Expenditures Committee, and Appropriation Committee followed suit. A true record; Attest: Kim Katzenback Executive Clerk Kim Siebert Recording Secretary 7