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HomeMy WebLinkAbout2008 AC RptAPPROPRIATION COMMITTEE TOWN OF LEXINGTON REPORT TO THE 2008 ANNUAL TOWN MEETING Released March 19, 2008 Appropriation Committee Members — Fiscal Year 2008 Alan M. Levine Chair • Deborah Brown Vice Chair • John Bartenstein Secretary Robert N. Addelson (ex- officio; non - voting) • Rod Cole (to December 2007) • Richard Enrich Pam Hoffman • Michael J. Kennealy • Susan McLeish • Eric Michelson APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Summary of Warrant Article Recommendations Abbreviations: GF = General Fund; EF = Enterprise Fund; RF = Revolving Fund FC = Free Cash; CPA = Community Preservation Act Fund An entry of "Indefinitely Postpone" in the right -hand column merely signifies our expectation. Ar- Funds Requested Funding Committee ticle Title Source Recommendation 4 Appropriate FY2009 $134,539,985 GF + others Approve (8 -0) Operating Budget Appropriate FY2009 5 Enterprise Funds $15,269,904 EF Approve (8 -0) Budgets 6 Appropriate for Senior $45,000 GF Approve (8 -0) Service Program 7 Appropriate for Street $24,000 Disapprove (0-8) Trees Continue and Approve 8 Departmental Revolving $2,010,000 RF Approve (8 -0) Funds Appropriate the FY2009 $2,978,886 Community Preservation CPA Approve (8 -0) 9 Committee Operating $3,052,886 except (a) (1 -6 -1) Budget and for CPA $75,000 (q) pending Projects GF 10 Land Purchase — Off none at press time Marrett Road 11 Land Purchase — Off none at press time Hartwell Avenue 12 Land Purchase — Off none at press time Lowell Street Land Purchase — Off 13 Cedar Street and Off none at press time Hartwell Avenue Appropriate for 14 Recreation Capital $177,000 GF Approve (8 -0) Projects Appropriate for $3 ,410,350 + GF Approve (8 -0) 15 Municipal Capital Chapter 90 Projects and Equipment amount TBA EF except (d) pending Page 2 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Ar- Title Funds Requested Funding Committee ticle Source Recommendation Appropriate for Water 16 Distribution $1,800,000 EF Approve (8 -0) Improvements 17 Appropriate for Sewer $1,300,000 EF Approve (8 -0) Improvements Appropriate for School 18 Capital Projects and $835,000 GF Approve (8 -0) Equipment Appropriate for Public Approve (8 -0) 19 Facilities Capital $2,188,750 GF Except (j) & (1) Projects pending Appropriate for 20 Affordable Housing $50,000 FC Approve (8 -0) Purposes Appropriate Money – 21 Laconia Street (Citizens' $3,650 GF Pending Petition) 22 Appropriate for Post $400,000 FC Approve (8 -0) Employment Benefits 23 Rescind Prior Borrowing none at press time Authorizations Establish and 24 Appropriate to Specified $415,093 See text Approve (8 -0) Stabilization Funds 25 Appropriate to $1,000,000 FC Approve (8 -0) Stabilization Fund 26 Appropriate for Prior none at press time Years' Unpaid Bills 27 Amend FY2008 $750 TBD pending Operating Budget Appropriate for 28 Authorized Capital $60,000 FC Approve (8 -0) Improvements 29 Use of Funds to Reduce none at press time the Tax Rate 32 Amend General Bylaw – none n/a Approve (8 -0) Abatement of Interest Amend General Bylaw – 33 Terms for Certain none n/a Approve (8 -0) Contracts 37 Amend Tree Bylaw none n/a Approve (7 -1) Page 3 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Ar- ticle Title Funds Requested Funding Source Committee Recommendation Reconfirm Votes 44 Petitioning the General none n/a Approve (8 -0) Court 48 Munroe School none at press time Disposition Page 4 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Contents Summary of Warrant Article Recommendations ........................................................... ..............................2 Introduction ......................................................................................................................... ..............................7 Warrant Article Analysis and Recommendations ......................................................... .............................12 Article 4: Appropriate FY2008 Operating Budget ............................................ .............................12 Article 15: LexingtonPublic Schools ........................................................................... .............................12 Minuteman Regional High School ............................................................. .............................15 Appropriate for Water Distribution Improvements ......................... .............................34 SharedExpenses ......................................................................................... .............................17 Article 17: Article 5: Appropriate FY2008 Enterprise Funds Budgets ............................... .............................19 Article 6: Appropriate for Senior Service Program .......................................... .............................24 Appropriate for School Capital Projects and Equipment ................ .............................38 Article 7: Appropriate for Street Trees ............................................................. .............................25 Article 19: Article 8: Continue and Approve Departmental Revolving Funds ................... .............................26 Article 9: Appropriate the FY2008 Community Preservation Committee Operating Budget and for CPA Projects .............................................................................................................. .............................28 Article 21: Article 10: Land Purchase —Off Marrett Road ................................................. .............................32 Article 11: Land Purchase —Off Hartwell Avenue ........................................... .............................32 Appropriate for Post Employment Benefits .................................... .............................41 Article 12: Land Purchase —Off Lowell Street ................................................. .............................32 Article 23: Article 13: Land Purchase —Off Cedar Street and Off Hartwell Avenue ......... .............................32 Article 14: Appropriate for Recreation Capital Projects ................................... .............................32 Article 15: Appropriate for Municipal Capital Projects and Equipment ........... .............................33 Article 16: Appropriate for Water Distribution Improvements ......................... .............................34 Article 17: Appropriate for Sewer Improvements ............................................. .............................36 Article 18: Appropriate for School Capital Projects and Equipment ................ .............................38 Article 19: Appropriate for Public Facilities Capital Projects .......................... .............................39 Article 20: Appropriate for Affordable Housing Purposes ............................... .............................40 Article 21: Appropriate Money - Laconia Street (Citizens Article) .................... .............................41 Article 22: Appropriate for Post Employment Benefits .................................... .............................41 Article 23: Rescind Prior Borrowing Authorizations ........................................ .............................42 Article 24: Appropriate to Specified Stabilization Funds ................................. .............................42 Article 25: Appropriate for Stabilization Fund ................................................. .............................43 Article 26: Appropriate for Prior Years' Unpaid Bills ...................................... .............................43 Article 27: Amend FY2008 Operating Budget ................................................. .............................43 Article 28: Appropriate for Authorized Capital Improvements ........................ .............................44 Article 29: Use of Funds to Reduce the Tax Rate ............................................. .............................45 Article 32: Amend General Bylaw– Abatement of Interest ............................. .............................45 Article 33: Amend General Bylaw – Terms for Certain Contracts ................... .............................45 Article 37: Amend Tree Bylaw (Citizens' Petition) .......................................... .............................46 Article 44: Reconfirm Votes Petitioning the General Court ............................. .............................46 Article 48: Munroe School Disposition ............................................................ .............................47 APPENDIX A: 3 -Year Budget Projection Page 5 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Preface Every year presents a new challenge in regard to producing a report to Town Meeting. This year the budget calendar was revised to achieve a very worthy goal, i.e., to conclude Town Meeting action on the operating budget as early as possible. This is intended to become an annual practice so that, in years when positions in the Schools are at risk in an override referendum and the proposed tax increase receives approval from the voters, the Schools can make offers to fill those positions earlier than has been the case in previous override years. The financial articles are currently scheduled to be taken up on March 24. Since the Warrant was not released until early February and the budget to be presented to Town Meeting was not finalized until February 13, this did not give us a lot of time to prepare our report. Nonetheless, we have made our best effort; we hope you find this report informative. This report is primarily intended to document our recommendations; we do not always attempt to present information that is already easily available to Town Meeting members. In particular, the Town Manager and staff have given an excellent overview of the estimated revenues and proposed expenditures for FY2009 in the "FY2009 Recommended Budget & Financing Plan," dated February 22, 2008 (the `Brown Book ") which has been distributed to all Town Meeting members and is available online at http:// ci .lexington.rrkt.us/TownManager /Bud e�getrecommended09.htm The recommended Lexington Public Schools budget is available online at http: / /lps.lexingtonrna.org . Overviews from the Town Manager and Superintendent, as well as many details on the nuts and bolts aspects of the budget, may be found in these materials. In addition, the Brown Book summarizes relevant budget laws and bylaws (see Appendix B therein) and includes a glossary of financial terms (in Appendix D therein). The "TMMA Warrant Information Report" (March 2008) is also an important reference for this Town Meeting and the forthcoming report of the Capital Expenditures Committee (CEC) is essential. Continuing a useful practice, this year we participated with the Board of Selectmen, School Committee, and CEC in five budget collaboration/summit meetings. These meetings were excellent opportunities to discuss the most salient budget issues and for us to give preliminary advice to the members of the other boards and committees. It has again been a pleasure to work with Town Manager Carl Valente, Assistant Town Manager for Finance Rob Addelson, Budget Officer Michael Young Superintendent of Schools Dr. Paul Ash, and Assistant Superintendent for Finance and Operations MaryEllen Dunn, the Board of Selectmen, the School Committee, the CEC, and the Community Preservation Committee (CPC). We also thank the many other municipal and school staff, Town officials, and citizens who have contributed to our work in a wide variety of ways. ' The recommendations herein are those of the eight members as of March 1, 2008. Page 6 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Introduction In this Introduction, we give an overview of financial developments since the 2007 Annual Town Meeting, the proposed FY2009 budget, the current status of the Town's financial reserves, and the financial outlook for FY2010 and beyond. In the following sections, we provide our analysis and recommendations on individual articles. Finally, the Appendix presents our projections of the Town's finances in future years. The "Report of the Town Manager" in the FY2009 Brown Book (see link in the Preface) is useful to read before this Introduction. Developments since adoption of the FY2008 budget The approval of both the operating override to cover increased school expenses and the debt exclusion for the new DPW facility last June set the stage for a fiscal year that has, perhaps, presented lesser financial difficulties than those we have faced in many recent years. The success of the override allowed the schools to avoid severe personnel and program cuts; indeed, a number of people had to be hired following the successful approval and this proved to be difficult to accomplish satisfactorily so late in the hiring season. After the success of the debt exclusion for the new DPW facility, a bid was accepted at a favorable price. The DPW vacated the old facility around the end of October. It was demolished over the next few months, and construction of the new facility is under way. The approval of the override and the debt exclusion has created surpluses in the unemployment compensation and debt services parts of the budget. These funds will not need to be used for their stated purposes in FY2008, because the success of the override precluded a number of layoffs and the debt exclusion covers the debt service on funds previously appropriated and borrowed for DPW facility planning and design work. At the Special Town Meeting in October 2007, the Town Meeting approved a Tax Increment Financing (TIF) agreement with Shire HGT, a division of a pharmaceutical company. Shire recently announced that it is proceeding with its proposed development in Lexington since it has received assurances that it can count on State legislation that will allow Shire to receive certain State incentives. The Special Town Meeting also made minor revenue and expense adjustments to the FY2008 operating budget, made minor adjustments to the water and sewer enterprise fund budgets, and approved a resolution in regard to legislation enabling the formation of new municipal electric utilities. Please see the Appropriation Committee report to the Special Town Meeting for further details (this report and others are available at http:// ci. lexington. ma .us /townmeeting /townmeeting.htm or http: / /www.lexingtontmma.orR - click on "Documents "). In the fall, the State certified Lexington's Free Cash at the healthy amount of $4,861,516. There was no need to use any of this Free Cash at the fall Special Town Meeting, e.g., to cover a deficit from FY 2007 snow and ice removal expenses, for unpaid bills for which no funds were encumbered, or, indeed, for any FY 2008 deficits. New growth for FY2008 was certified at $2,485,650; the appropriated FY2008 budget assumed it would be $1,600,000. The Lexington Public Schools ended FY2007 with a surplus of $464,049. While this surplus only came after and is smaller than the sum of the supplementary appropriations at both the fall 2006 Special Town Meeting No. 1 and at the spring 2007 Annual Town Meeting, it is nevertheless a positive development. There were also surpluses in Shared Expenses ($885,137) and the municipal part of the budget ($617,456). These surpluses became part of the current certified Free Cash balance. In contrast to the last few years, the School Superintendent and Assistant Superintendent for Business and Finance are not projecting that any supplementary appropriations will be needed this spring. Rather, they are confidently projecting that the Lexington Public Schools will finish the year with a sizable surplus. In January, the best estimate projected a surplus of as much as $1.7M though it was noted that five or six months is ample time for costs to unexpectedly increase, e.g., if additional students need out -of- district Page 7 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 placements. This has led to a plan in which the FY2008 operating budget will be revised downward by $350,000 and the "proceeds" transferred to the proposed Special Education Stabilization Fund under Article 24. We understand that the surplus is due to four main factors: 1) the new in -house special education programs, including those aimed at students suffering from autism - spectrum disorders, attracted more students than projected last spring, reducing the number of required expensive out -of- district placements; 2) more staff retired or otherwise left and were replaced by more junior people at lower salaries; 3) more positions than usual became vacant and have taken or are taking a long time to fill; and 4) energy costs were lower than projected. The magnitude of the currently- projected surplus gives us confidence that some funds will remain unspent and flow to Free Cash next fall and thereby be available to support the FY2010 budget or other financial needs. We should hardly need to state that as of early March, snow removal has already cost the Town about $1.34M which is far in excess of the budgeted amount of $610K by about $730K. A snow removal budget update will be presented at Town Meeting. As noted above, there will be unexpended balances in the unemployment compensation and debt service parts of the budget that toad approximately $400,000 at the end of FY2008. Under Article 27, the unexpended balances will be transferred to other budget lines to help cover any FY2008 deficits including that for snow removal. The remaining snow removal deficit will be covered at the end of the fiscal year by other unexpended balances in the FY2008 budget, in the fall by the $300K in revenue offsets that were built into the budget for that specific purpose, and, also in the fall, by unprojected revenue increases or by the use of Free Cash. Of the $469,868 put into the Reserve Fund this year ($19,868 was added at the fall Special Town Meeting to the original appropriation of $450,000), $100,000 has already been transferred out to cover legal expenses related to collective bargaining and employee grievances. It is anticipated that an additional amount will also be needed to cover associated legal expenses. At the Fall 2006 Special Town Meeting No. 1 and at the 2007 Annual Town Meeting, articles were approved that enabled the school and municipal facilities efforts to be combined into a single Public Facilities Department. The Department has now been created but (in FY2008) facilities expenses are still budgeted in multiple line items. For FY 2009 the relevant budgetary items have been collected and will be presented as a Department budget line (line item 2400). Prompted by an alert Town Meeting Member, this winter we asked the Assistant Town Manager for Finance about the Town's exposure to investment losses in the wake of the sub -prime mortgage crisis. We were assured that the Town is prevented by law from investing its operating money and reserves in risky investments such as those with the greatest exposure. The Pension Board is not subject to the same legal restrictions but has reviewed its portfolio and confirmed that it has no direct exposure (other than the effect on the market generally) resulting from the sub -prime crisis. Of course, some of the Town's and the Pension Board's investments may be indirectly affected by this crisis, especially as the stock market as a whole is affected. FY2009 The budget to be presented to Town Meeting is the first in some years that does not depend on the approval of an override, but this does not imply that overrides will not be needed to support future budgets, since expenses continue to grow faster than revenues. The budget depends on the levels of estimated revenues. While the lion's share of the latter, i.e., the revenues from the property tax and available funds, are definite, the amounts of state aid and local receipts that will be received are uncertain to some degree. New growth, i.e., the property tax on newly constructed buildings and new commercial equipment, is estimated at $1,681,000. Part of the new growth revenue, i.e., $300,000, is earmarked to be applied to any snow removal deficit remaining from FY2008; this amount is carried in the budget as a revenue offset. The recommended budget assumes that the Town will receive State aid totaling $9,670,275 which is less than what the Governor has proposed by approximately the amount that the Governor's proposal assumes would be raised from new gaming Page 8 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 sources (casinos) in place of lottery proceeds. If the Town ultimately receives more than this, as indicated by recent actions of the State legislature, all or part of the additional amount may be needed to help cover the FY2008 snow removal deficit. In his "Report of the Town Manager" the Town Manager gives a good description of the development of the recommended budget. Among other parts of the process, he tells about the allocation of "new" revenue to the schools and municipal budgets in a 71.5/28.5 ratio. One comment is in order. This has now been the practice for two or three years in a row, and should continue to be regarded as a starting point for discussions and not as an inviolable end point. Indeed, if Town officials find that circumstances demand that the new revenue be allocated in a different way, e.g., because of differing priorities of unfunded programs, then the revenue allocation should be adjusted accordingly. The newly created Department of Public Facilities that combines the maintenance of all the school and municipal buildings is now largely funded through a single line in the operating budget (2400). Please see the relevant section in the Brown Book and the discussion herein under Article 4. The Minuteman Regional High School assessment has increased 25% since last year and 70% since FY 2007, due principally to an increase in the number of Lexington students at the school together with a decrease in the overall school enrollment. This year's increase is examined herein under Article 4. The Town Manager, with the support of the Board of Selectmen, has recommended the use of $2,618,766 of Free Cash for FY2009 operating expenses. In addition, the recommended budget includes the use of $842,000 to support the recommended capital expenditures (in Articles 9, 14, 15, 18, 19, and 28), the transfer of $1,000,000 from Free Cash to the Stabilization Fund, and the transfer of $400,000 from Free Cash to the Post - Employment Insurance Liability Fund. The transfer to the Stabilization Fund has no material effect upon the Town's fiscal condition because, from a reserves - balance perspective, the differences between Free Cash and a Stabilization Fund are minimal. Two of the procedural differences are: (1) Free cash is not available during the annual certification process from July 1 until the Town is notified by the Commonwealth of the certified value, whereas the Stabilization Fund provides a continuously available reserve with a definite value; and (2) The appropriation of funds from Free Cash requires a simple majority vote whereas that from the Stabilization Fund requires a 2/3 majority. The transfer of $400,000 to the Post - Employment Insurance Liability Fund includes about $300,000 that was received in FY2007 from reimbursements for Medicare Part D expenses of the Town's retirees. This Fund is the account set up within the last few years under State law to enable the Town to save funds to help cover its liability for future health insurance costs of retired employees. The liability is currently roughly of the magnitude of $100,000,000. The Town has been and is paying for current -year retiree health insurance liabilities through the health insurance line in the Shared Expenses section of the operating budget. Whether the Town really should change its current practice and start prefunding the liability is debatable; there is currently no compulsion to fund the future liabilities. Achievement of full funding over, e.g., 30 years would require putting perhaps $7M plus or minus a million or two into the Fund annually. Needless to say, this would have a huge impact on annual budgets until full funding is reached. The modest amount proposed is a sensible way to start building this fund. See the discussion under Article 22 below for further information. As noted above, the recommended budget includes the transfer of $350,000 from the FY2008 school budget surplus to the proposed Special Education Stabilization Fund. These changes to Free Cash, the Stabilization Funds, and the Post- Employment Insurance Liability Fund are summarized in Tables 14. Page 9 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Table 1: Anticipated Free Cash Changes-2008 AnnnaI Town Meeting Certified Free Cash, July 1, 2007 $4,861,516 Less use for FY2008 (Article 27) ($750) Less use for operating budget (Article 4) ($2,618,766) Less use for capital (Arts. 9, 14, 15, 18, 19, 28) ($842,000) Less transfer to Post-Employment Fund (Article 22) ($400,000) Less transfer to Stabilization Fund (Article 25) ($1,000,000) Remaining balance at end of Town Meeting$0 Table 2: Anticipated Stabilization Fund Changes Balance July 1, 2007 $5,461,674 Balance December 31, 2007 $5,571,158 Transfer in (Article 25) $1,000,000 Approx. projected balance July 1, 2008* $6,655,000 *Assumes an interest rate of 3.0 %for January through June 2008 Table 3: Anticipated SPED Stabilization Fund Changes Balance July 1, 2007 $0 Transfer in (Article 24) $350,000 Pro balance July 1, 2008 $350,000 Table 4: Anticipated Post - Employment Insurance Liability Fund Changes Balance July 1, 2007 $0 Transfer in (Article 22) $400,000 Pro balance July 1, 2008 $400,000 A question has been raised about whether it would be acceptable to use a larger amount of Free Cash to support the operating budget rather than build reserves or to use more of the anticipated FY2008 school budget surplus to support the operating budget. The recommended FY2009 operating budget is to be supported by an amount of what may reasonably be considered to be nonrecurring sources of funds that borders on a level that makes this Committee uncomfortable – thus we do not recommend further increases in the operating budget. A few years ago, the Town's financial reserves policies changed following the receipt of a "negative outlook" note with respect to the Town's Aaa bond rating. In particular, the Selectmen's Ad Hoc Financial Policy Committee recommended that reserves be built up for a number of purposes. This Committee generally concurred with those recommendations and continues to support reserves growth. Therefore, we are pleased to see the recommendations for this Town Meeting in regard to reserves represented by the transfers to the Stabilization Funds and the Post - Employment Insurance Liability Fund, by the continuation and development of revolving funds, and by the increase in the appropriation for the Reserve Fund. The growth in reserves puts the Town in a better position to cope with State aid or local receipts decreases from an economic downturn, with occasional unexpected increases in SPED costs, or with other short -term financial problems. In the Brown Book, the Town Manager notes that the recommended FY2009 budget includes about $14M for capital expenditures which is about $2.5M more than was appropriated in FY2008. The proposed amount of General Fund cash is roughly double that in the FY2008 budget. The proposed total General Fund expenditures for capital, i.e., both cash and debt, exceed $7M (see page XI -3 in the Brown Book); this is more than 5% of the total General Fund revenues (about $131M; see page II -1 in the Brown Book). Page 10 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 We are gratified to see that the Schools and the Public Facilities Department are planning to conduct studies of facilities needs (see Articles 18 and 19). This is important for the accuracy of projections of future needs for capital investments. Such studies should be extended in future years to other aspects of the Town's facilities and equipment. We also note that this Committee strongly supports the use of Community Preservation Act (CPA) funds to maintain Town buildings and facilities to the extent that the proposed projects qualify for CPA funds and make sense. FY2010 and bevond Our projection of expenses and revenues in FY2010 is presented in the Appendix. It shows that the maintenance of the current level of services will likely cost some millions more than the revenues that will be available. We have not quantified the uncertainties in the growth of each of the major components of expenses and revenues. Indeed, recent experience teaches us that it is difficult to predict the size of a budget gap more than a year in advance with a precision of better than $1M or even $2M. Nonetheless, the lesson is that we should be wary of letting operating costs grow too fast. In the spirit of this lesson, concern about the sustainability of increases in the operating budget was expressed by members of this Committee during the budget development this year. We wonder whether a similar amount of Free Cash and other non - recurring sources of funds can be expected to be available to support the FY2010 operating budget as is being used for FY2009. The amount recommended to be used this year, i.e., just over $2.6M, is large enough that there are real risks that a similar amount may not be available in FY2010, especially in light of the current economic slowdown. Continuation of the street reconstruction and resurfacing program at the FY2009 level will not meet the Town's long -term needs (and possibly even the short -term needs) for street and sidewalk maintenance and new sidewalk construction. Rather, the Town will need to approve a debt exclusion or override in order to keep up; the DPW has floated a preliminary figure of $15M to cover eight years of street maintenance work. A debt exclusion for street paving could also cover the $700K General Fund debt financing proposed this year for the reconstruction of Woburn St. The precise parameters of a supplemental street maintenance program should become a topic of conversation starting late this spring or this summer. Sidewalk work should be part of the discussion. Among the other factors affecting FY2010, we need to keep in mind that the in -levy debt service for that year will be about $500K higher than it is in FY2009 (see page XI -3 in the Brown Book). The estimate for FY2010 debt service was done prior to the recent (February) issuance of about $20M in bonds wherein the Town, with the help of its Aaa rating, received a very favorable interest rate of 3.75 %. Nonetheless, the debt service in FY2010 will still increase significantly. A three year perspective here might be valuable. If one compares the FY2009 budget to FY2006, one would see that, factoring out the successful override for FY2008, the town's principal and recurring sources of revenue (tax levy, state aid, and local receipts) grew at 3.8% while general fund expenses grew at 7.8 %. Assuming that the town does not desire to see major cuts in services nor build budgets predicated on non - recurring revenues, and projecting into the future this 4% difference between expense growth and revenue growth, one inevitably is led to the conclusion that future budgets can only be balanced through (1) passing operating overrides; (2) finding significant new sources of revenue, and/or (3) finding ways to deliver services at lower cost. Initiatives such as the agreement with Shire and the new programs in our schools to reduce special education expenses are examples of the latter two methods, respectively, and should be applauded. Given the large increases in the Town's expenses for health insurance over the last ten years, initiatives in that area should be considered. However, as has been stated many times, such initiatives need to be approved by the Town's collective bargaining units in order to be put into effect. The Town will probably need to consider any and all options as we approach FY2010 and/or later fiscal years where expenses may exceed available revenues by millions of dollars. We hope that the projections in the Appendix and this discussion will promote a multi -year view as each of the specific financial articles is acted upon at this Town Meeting. Page 11 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Warrant Article Analysis and Recommendations Article 4: Appropriate Funds Requested Funding Committee FY2008 Operating Requested Source Recommendation Lexington Public Schools $64,548,189 GF Budget GF +others Approve (8 -0) Description Amount Funding Committee Recommends Requested Source Lexington Public Schools $64,548,189 GF Approve (8 -0) Overview As stated in the introduction to this Report, the FY2008 budget for the Lexington Public Schools will result in a surplus at the end of the fiscal year. This is due to a number of factors that are described in the document "2n Quarter Financial Report for Fiscal year 2008 – Operating Budget." It can be found on -line at http: / /Ips.lexingtonrrkt.org /. Therefore, the FY2008 appropriated school budget was not used as the base for the FY2009 budget. Instead, the School Administration built the FY2009 budget starting with the actual experience as of the date the budget was formulated in terms of the number of employees and their salaries and wages, actual Special Education expenses including out -of- district tuition and transportation costs, and other expenses and revenues. The accounts that were over - estimated for FY2008 and are therefore contributing to the surplus have, in effect, been adjusted downward in the FY2009 budget. In the past, the school budget included the school crossing guard positions that have now been transferred to the Law Enforcement line (4170) in the municipal budget. In addition, the salaries & wages and expenses associated with maintaining school facilities have been moved to the Department of Public Facilities (DPF) budget line (2400) within Shared Expenses. The FY2008 budget has been restated to $61,335,221 to reflect these changes and allow for an accurate comparison with the FY2009 budget request of $64,548,189. Since the crossing guards (headcount 18) and school facility employees (60 FTEs) have been transferred out of the school budget and into other accounts, the restated number of school employee FTEs for FY2008 is 851.35. The FY2009 school budget request adds 20.28 net FTEs, resulting in a toad of 871.63 FTEs in the coming year. For details of the FTE's refer to the forthcoming document "Fiscal Year 2009 School Committee Recommended Budget" dated March 19, 2008. Please refer to pages III -2 through III -9 in the Brown Book for current and background information about the FY2009 school budget along with comparisons to a restated FY2008 budget. Enrollment has shown a modest decline across all grades from 6,195 actual students as of October 1, 2007 to 6,092 projected for FY2009. Page 12 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Grades FY2008 Actual (as of 10/01/07) FY2009 Projected Change % Change K-5 2,649 2,592 -57 -2.15 6-8 1,552 1,501 -51 -3.29 9-12 1,994 1,999 +5 +0.25 Total 6,195 6,092 -103 -1.66 The original FY2008 budget projected that 30 students in grades K – 5 would come from Avalon at Lexington Hills, the partially complete new development at the former Metropolitan State Hospital Site. However, as of November 1, 2007, less than half that number of students had materialized in those grades. Enrollment projections for FY2009 and beyond, when the new development will be fully occupied, have now been revised downwards. Grades Avalon Bay FY2008 Actual Students (as of 11/01/07) Projected Student Count on Completion of Avalon Ba K -5 14 23 6 -8 5 9 9 -12 6 9 Toad 25 41 The School Administration, with the support of the School Committee, has created a proposal for full day kindergarten in Lexington that would be funded by a Department of Education kindergarten implementation grant, some money from the town's annual METCO Grant, and fees to be paid by parents. The operating budget could be impacted by the financial assistance program, which School staff estimate will likely not exceed $30,000. However, the actual impact on the FY2009 budget, if any, cannot be known until the program is implemented and the number of families requiring financial assistance is determined. In an ongoing effort to track the volatile special education out -of- district tuition and transportation costs and minimize their impact on the rest of the school budget, the School Committee met with the Burlington School Committee and Board of Selectmen to understand their budgeting technique of carrying these costs as a line item separate from the rest of the school budget. While this seemed viable in theory, the `Burlington Plan" was not adopted because of questions about the legality of a separate line item for school expenditures. Per request of the School Committee, however, the School Administration has delivered a new report that reflects the school budgets for in- district and out -of- district program expenses separately. (See below for more information about Special Education expenses.) Special Education Expenses Because Special Education expenses are such a significant and challenging part of the school budget, we have elected to discuss these expenses in a separate section. This section deals in particular with three elements of the Special Education budget – out -of- district tuitions, transportation, and new programs. Out -of- district tuitions When the Town is unable to meet the needs of a Special Education student within the Lexington Public School system, State law requires that the student be sent to a program outside of Lexington to receive services and the Town must pay for these services. Tuition for students requiring out -of- district services is projected to increase by $226,977 in FY2009 compared to the FY2008 budget, an increase of 4.6 %, net of reimbursement received under the circuit breaker program (discussed below). Since the budgeted Page 13 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 number of students is less than the original budget for FY2008, the budgeted increase in spending is the result of an assumed 5% inflation rate in tuition expenses for this student population as well as expense increases incurred when students change from one form of out -of- district school to another (usually more expensive) school. The FY2009 projection takes into account students currently in an out -of- district placement that are assumed to also start the FY2009 year out of district as well as an assumption about new out -of- district placements. The budget assumes that the number of out -of- district students in FY2009 will be less than the number recorded in January 2008, as the school administration expects that the in -house programs described below will continue to result in fewer students going out -of- district and some returning into the district. Out -of- district FY2008 FY2008 FY2009 % Increase budget budget estimate budget FY2008 Jan -9 -08 budget - FY2009 budget Total # students 111 107 100 -9.9% Total cost $6,912,198 $6,074,464 $6,988,951 +1.1% Circuit breaker $1,954,739 $2,047,607 $1,804,515 -7.7% Net cost to town $4,957,459 $4,026,857 $5,184,436 +4.6% Annually, the State reimburses Lexington for some of the costs associated with out -of- district placements - in other words, the assumed circuit breaker revenue in the FY2009 budget represents reimbursement of expenses incurred in FY2008, for which the Town will submit a claim in July 2008. The State will reimburse Lexington for 72 - 75% of the costs incurred above approximately $35,684 for each child placed out -of- district; transportation, however, is not currently eligible for reimbursement. The State allocates up to 75% if the claims do not exceed the State budget for such claims. The FY2009 budget assumes reimbursement of 72 %. Transportation Expenses for transportation of Special Education students are projected to increase by 19.3% to $1,252,602 in FY2009, from the FY2008 budgeted amount of $1,050,179.. The budgeted increase is the result of an anticipated increase in the number of both in- district and out -of- district students who will require transportation from 151 in the FY2008 budget to an assumed 168 in FY2009, inflation in the cost of transportation, plus assumptions about the nature of the transportation required for each student. Some students have changed from residential to day placements, for example, resulting in lower tuition costs but more frequent transportation requirements (daily vs. weekly). New programs As reported last year, the school administration initiated or expanded new programs in FY2008 aimed at increasing the ability of the schools to educate students within the system and therefore mitigate the increase in out -of- district expenses. An Intensive Learning Program (ILP) to serve students with autism was planned for each of the middle school and high school levels, while a third program, a Multidisciplinary Support Team (MST) for students identified as having emotional disabilities, was planned at the high school level. Students with these disabilities account for the majority of the out -of- district expenses, and the school administration projected that these programs would prevent a number of out -of- district placements in the future as well as bring students currently placed out -of- district back in- district. The programs were projected to cost $511,147 and result in savings of $1,376,454 million, for a net savings of $865,307 in the first year of the programs. Page 14 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 In FY2008, however, the school administration (1) expanded the three programs mentioned above, (2) launched a new middle school Developmental Learning Program (DLP), and (3) expanded a high school Language Learning Program (LLP). These five programs combined are now projected to cost $796,724 in FY2008 while saving $2,611,359, for a net savings of $1,814,635. This savings is $949,328 more than originally projected. The Committee unanimously (8 -0) supports this request. Description Amount Funding Committee Recommends Requested Source Minuteman Regional High $1,510,598 GF Approve (8-0) School Over the last three years there has been significant annual growth in the Minuteman Regional High School (MRHS) assessment. The FY2007 growth was 15 %, the FY2008 growth was 18% and the FY2009 growth is 26 %. The growth is due to increases in the number of Lexington students attending MRHS and to decreases in the overall in- district and out -of- district student populations. It is not due to extraordinary growth in the district's expenditures. Enrollment figures as of October 1, 2007 (in the 2007 -2008 school year) are used for the FY2009 school year (2008 -2009) assessments. On that date there were 648 full -time students, a decrease of 45 students (- 6.5 %). The school served a total of 847 full -time equivalent (FTE) full and part -time students, down from 882 FTEs (4%). The school population is roughly 65% from in- district towns and 34% from out -of- district towns. There are no "Choice" students attending. In- district enrollment decreased by 24 students (- 5.4 %). Out -of- district enrollment levels decreased by 21 students (- 8.5 %). Special Education students comprise 40.7% of the FTE enrollment. The MRHS School Committee has accepted a budget for FY2009 of $17,446,884. This year the costs of the Middle School Literacy program are being directly charged to the five participating communities (Lexington is not one), leaving an operating budget of $17,001,622 (a $255,853 or 1.5% budget increase over current year). Last year's increase was 3.8 %. Salaries, which make up 61% of the budget, decreased $142,010 (- 1.3 %). Due to reduced enrollment, the school has reduced academic staff by 4.5 FTEs, yet in response to higher Special Education demands, academic competency reporting, and mandated student occupational certification; it has had to maintain support and administrative staffing levels. Higher energy prices continue to affect heating, power, and student transportation. The school continues its commitment to infrastructure renewal with an annual capital budget of $250,000. Member towns' assessments are used to fund the portion of the budget that is not funded by the combination of: 1) all other projected revenues and 2) member towns' State Required Minimum (SRM) per - student payments. Member towns are assessed for the upcoming year based on their student enrollment in the current year. This year the unfunded portion of the after - school education program offered to middle school students will be absorbed inside of the regular assessment, and not assessed based on use. The students who use this program are charged a $20 user fee, and the remaining $16,000 will now be paid by the in- district communities based on the regular assessment formula. This year's assessments are based on a MRHS budget funded with projected Chapter 70 money of $2,268,584 and $983,837 in transportation aid. This is a slight increase in expected funding of Chapter 70 aid ($10,531) and level funding of transportation aid compared with FY2008. Out -of- district enrollment and its associated tuition revenue are anticipated to continue to decline over the long term; the FY2009 enrollment was 44 students below the October 2004 level of 270. This is mainly due to the State's current Chapter 74 rules restricting the number of non - resident students eligible to enroll. Although the State caps Page 15 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM -March 19, 2008 the non - resident student tuition rate, that rate is now set using the actual in- district average cost as a factor. The non - resident tuition rate for FY2007 was set at $16,250 per student. Minuteman officials have lobbied both the Legislature and the State's Commissioner of Education on this issue for years and FY2008 rates were increased 4.5 %. The FY2009 non - resident rates have yet to be set by the State, but they are anticipated to increase 3 % -5 %. Minuteman's budget assumes level per -pupil funding with decreased out -of- district enrollment. Of course, all of these figures are preliminary until final approval of the State's FY2009 budget. The preliminary assessment for Lexington for FY2009 is $310,160 ( +25.8 %) higher than the FY2008 actual assessment. The main portion of this assessment is based on Lexington's FY2008 Base Enrollment (as of October 1, 2007) of 59.8 full -time regular students in grades 9 -12, 8 (16 %) more than last year. However, while Lexington's enrollment has increased, the overall MRHS in- district enrollment has continued to decline, raising our Town's share of in- district enrollment by 22.2 %. This has increased our total full -time student operating -share assessment by $137,561 ( +51.7 %) to $403,430, a per -pupil increase of 31.2 %. In addition, Lexington's total SRM payment increased $172,640 ( +24.3 %). This increase is due to our increased enrollment as our per - student SRM payment stayed fairly level. A breakdown of the full assessment is: Minuteman's Projected Assessment - based on the unapproved House -2 Budget PROGRAM Grades 9 -12: Regular Day Students Special Education Assessment State Minimums for Lexington Totals, grades 9- 12(ine. SPED) Special Programs: "Reduced Charge" Pupils "Afternoon" Pupils Totals, Special Programs TOTAL OPERATING Capital Assessment (based on enrolled 9 -12) TOTAL ASSESSMENT FTE BASIS ENROLLMENT* AVE PER PUPIL CHG ASSESSMENT FY2008 FY2009 FY2008 FY2009 FY2008 FY2009 51.7 30 54 59.8 29 67 $5,143 $4,250 $13,145 $6,746 $4,250 $13,171 $265,869 $127,500 $709,843 $403,430 $123,250 $882,483 51.7 59.8 $21,339 $23,565 $1,103,212 $1,409,163 9 4.86 13 6.17 ** $5,174 $4,457 $5,077 0 ** $46,570 $21,663 $66,000 0 ** 13.86 19.17 $4,923 $3,443 $68,233 $66,000 67.86 78.97 $17,868 $18,680 $1,171,445 $1,475,163 $561 $593 $28,993 $35,435 $18,311 $19,273 $1,200,438 $1,510,598 percentage increase over prior year 20.03% 4.47% 17.90% 25.84% * prior year's enrollment as of October I ** the district wide cost of the "afternoon" pupil program ($16,000) distributed across the district based on grade 9 -12 enrollment The Committee unanimously (8 -0) supports this request. Page 16 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Description Amount Requested Funding Source Committee Recommends Shared Ex enses $39,860,457 GF, EF, RF Approve (8-0) Shared Expenses (see Brown Book, pp. IV -1 to IV -17) encompasses four basic categories: (1) Line 2100, Employee Benefits; (2) Line 2200, Debt Service; (3) Line 2300, Reserve Fund; and (4) Line 2400, Public Facilities. Employee Benefits This portion of Shared Expenses includes the costs for current and future pensions for retired employees; health (self- insured) and dental (insured through a group policy) insurance for current and retired employees; premiums for property and liability insurance policies; and potential unemployment and workers compensation liabilities. It does not include any sums for the funding of health benefits for future retirees. Pursuant to changes to the Government Accounting Standards Board (GASB) requirements, and beginning with the FY2007 audit, the Town began reporting the unfunded liability in its financial statements. Although there is as yet no obligation for Lexington to fund this liability, nonetheless the Town proposes to begin to do so in FY2009 under Article 22 (see the discussion of that Article in this Report). Health benefits for both municipal and school employees (line 2130) are included in this section of the budget, an approach that began with the FY2007 budget. The estimated expense for all health benefits (including medical and dental) to be paid by the Town totals $22,140,749, by far the largest portion of this section. This figure represents an 11.43% increase over the adjusted FY2008 budget and continues a trend of escalating health costs that has confronted the Town since 2000. This increase results from higher health costs, higher premiums, and the increasing enrollment of employees and their families in the various health care phuis offered by the Town. For a further explanation of the multiple reasons underlying this continuing increase, see page iii of the Town Manager's Report in the Brown Book, Section 11 (a). Of the total budget amount of $22,140,794, employee /retiree health insurance is $20,473,125; dental insurance is $772,000; $855,464 is for the Medicare tax; and $40,000 is for life insurance. Consistent with the FY2008 budget, the budget for FY2009 identifies the portions and percentages of the projected health benefit costs attributable to municipal, school and retired employees (see Brown Book, p. IV -4). The projected percentage increase of health costs for municipal employees is 10.39% and for school employees is 12.85 %. This difference appears to be attributable to a percentage increase in enrolled school employees (2.0 %) that is larger than the increase in enrolled municipal employees (0.8 %). The percentage increase in health costs attributable to retired employees (which includes spouses) is 10.17 %; the number of enrolled retirees increases by 1.5 %. Most retirees have individual rather than family plans. Individual plans for retirees are less expensive than individual phuis for active employees. The total dollar amounts of the FY2009 estimates for municipal ($3,594,410) and school employees ($10,836,828) differ because a significantly greater number of individuals are employed on the School side. The estimate for health costs in Line 2130 assumes increases, totaling 44, in the numbers of municipal employees, school employees, and retirees (see Brown Book, footnote on p. IV -4). To accommodate the possibility that last year's override might fail, the FY2008 budget included a larger than ordinary allocation of funds to Line 2140, Unemployment Benefits, to fund the Town's statutory liability for unemployment compensation payments for employees whose positions were at risk. The current budgeted amount for Line 2140, $100,000, is more consistent with prior years. Page 17 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 The second largest figure in this section of Shared Expenses is Line 2110, $3,446,236. It represents the amount to be paid by the Town to the Lexington Retirement Trust Fund, managed and overseen by the Lexington Retirement Board, to continue an ongoing program to fund the Town's liabilities for current and future pension payments to retirees. The Commonwealth of Massachusetts requires that municipalities fully fund all such liabilities by 2028. Based on the annual payments the Town has made, and is projected to continue to make, the Trust Fund should be fully funded by 2015. Debt Service Debt service includes interest and principal payments for within -levy long -term debt (bonds) and for temporary borrowing. The budgeted debt payment recommended for FY2009 is $4,017,541, which is $219,404, or 5.78 %, higher than in FY2008. The total amount is broken down as follows: temporary - borrowing interest payments of $243,818; long -term debt interest payments of $663,723; and long -term debt principal payments of $3,110,000. The long -term debt principal payment is 9.74% higher than in FY2008, offsetting percentage decreases in long -term debt interest and temporary- borrowing payments. It is anticipated that this section of the budget will increase by approximately $500,000 in FY2010, when additional long -term within -levy debt is issued. Reserve Fund The amount recommended for appropriation to the Reserve Fund (Line 2310), from which the Appropriation Committee approves transfers and payments for extraordinary and unforeseen expenses, is $550,000. This is $100,000 more than was appropriated at the 2007 Annual Town Meeting for FY2008 (an additional $19,868 was added to that appropriation at the Fall 2007 Special Town Meeting). This continues a pattern over the last several years of increasing appropriations to the Reserve Fund to accommodate volatility in certain expenses in the operating budget, a policy consistent with the recommendations of the Selectmen's Ad Hoc Fiscal Policy Committee. An appropriation of $150,000 for FY2005 was approved by the 2004 Annual Town Meeting, but then was increased to $300,000 by means of a supplemental appropriation at the 2005 Annual Town Meeting. The 2005 Annual Town Meeting also appropriated $350,000 for FY2006. The 2006 Annual Town Meeting increased the FY2007 appropriation to $400,000. As noted in the Brown Book, p. IV -12, this increase, in conjunction with other measures, effectuates the Town's intent to build "... sufficient contingency funds into the budget without having to rely upon the Stabilization Fund reserve that was largely established to offset revenue losses that typically occur during a recessionary period" The purpose of this Reserve Fund is to provide contingency funds in the budget to deal with unexpected and substantial cost overruns in areas such as snow removal, overtime expenses for police and fire personnel, and Special Education. Budgeting an adequate Reserve Fund relieves individual municipal and school departments from the need to include reserves in their respective individual budgets. Public Facilities Unlike past years, Shared Expenses now includes a new entry, Public Facilities. At a Special Town Meeting on November 29, 2006, Town Meeting voted to accept MGL Chapter 71, §37M, allowing the Town's School Department to consolidate administrative functions with the Town's municipal operations. At the 2007 Annual Town Meeting, that acceptance was revoted and ratified. Consolidation of the facilities management and maintenance functions in FY2008 created a single, unified, facilities department to administer major capital projects, building maintenance and custodial services. The goal is to house this department's administrative and some common maintenance activities at the renovated DPW complex. Page 18 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 The Town Manager and Superintendent of Schools, with the guidance of the Board of Selectmen and School Committee, worked to develop the organizational structure of the Facilities Department and then translated that into an operating budget. The consolidation of coordination and care of all town -owned buildings creates an opportunity for the Town to develop a consistent facilities maintenance program as well as find savings through operating efficiencies and economies of scale. The Department of Public Facilities is under the direction and control of a Public Facilities Board composed of the Town Manager and the Superintendent of Schools. A Director of Public Facilities, Patrick Goddard, was hired in August 2007 to supervise the services for the buildings. The transition to the consolidated structure is not yet complete. The structure for the department has been developed (see Brown Book, p. IV -15), however 2 key positions, the Project Manager and the Facility Engineer, are currently being recruited. (Note – there is a Project Manager currently on board who is retiring.) When the positions have been filled, a transition to the new structure will occur where the current school department employees (facilities and custodial services) and the municipal employees will start to report to the consolidated department. Bundling of purchases has begun for bids currently being issued. The FY2007 and FY2008 financial information presented on page IV -17 of the Brown Book was pulled together from data in the School Department and the municipal financial records as a basis for comparison to the FY2009 Recommended Budget. The information did not exist in consolidated form in those periods so it was necessary to provide this "pro forma" financial information. Overall, the department expenses are projected to increase by 0.59 %. This reflects an increase of 2.72% in personal service costs and a 0.74% decrease in expenses. Please note that the Town has fixed rate contracts for natural gas and electricity through December 2009, which contributes to the effective level - funding of departmental expenses. The full extent of efficiencies and economies of scale will be determined as the Department gets up and running. Article 5: Appropriate FY2008 Enterprise Funds Budgets Funds Requested Funding Source Committee Recommendation $6,545,020 Water EF Approve (8 -0) EF + $7,148,801 Wastewater EF + $1,576,083 Recreation EF Page 19 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 FUNDS REQUESTED: Enterprise Fund FY2007 Actual FY2008 Appropriated* FY2009 Re uested ** 1. Water Personal Services $558,368 $585,708 $606,952 Expenses $679,714 $569,900 $463,845 Debt Service $358,301 $490,833 $850,350 MWRA Assessment $4,032,517 $4,117,775 $4,623,873 Total Requested in Article 5 $5,628,900 $5,764,216 $6,545,020 Indirect Expenses * ** $883,964 $859,728 $820,952 Total Water Enterprise Budget $6,512,864 $6,623,844 $7,365,972 2. Wastewater Personal Services $240,146 $245,512 $251,864 Expenses $473,405 $430,272 $385,565 Debt Service $333,899 $473,256 $569,971 MWRA Assessment $5,633,833 $5,630,873 $5,941,401 Total Wastewater Enterprise Fund $6,681,283 $6,779,913 $7,148,801 Indirect Expenses * ** $753,950 $737,309 714,536 Total Wastewater Enterprise Budget $7,435,233 $7,517,222 $7,863,337 * This column reflects adjustments made at the 2007 Special Town Meeting on October 10, 2007 to use the final MWRA water and sewer assessments for FY2008 and to make certain other minor expense changes. '* The amounts requested have been updated since the issuance of the Warrant to reflect the M WRA's preliminary estimate of Lexington's FY2009 assessments for water and sewer(originally budgeted at an assumed increase of 10% ) and certain other minor adjustments. (See Brown Book pp. V -25, V -29) * ** Indirect expenses are for Retirement (2110), Health Benefits (2130), General Liability Insurance (2160), Municipal Salary Adjustment (2320), DPW (3100- 3500), Town Manager (8200), Finance Department (8400), and MIS (8600) Page 20 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Enterprise Fund FY2007 Actual FY2008 Appropriated FY2009 Requested* 3. Recreation Personal Services $498,234 $571,546 $611,794 Expenses $832,833 $960,668 $958,089 Debt Service $172,013 $ 3,917 $ 6,200 Total Requested in Article 5 $1,503,080 $1,536,131 $1,576,083 Indirects ** $234,401 $255,848 $275,399 Total Recreation Enterprise Fund $1,737,481 $1,791,979 $1,851,482 * The amounts requested have been amended slightly from the amounts set forth in the Warrant. (See Brown Book, p. VII -9, for details.) ** Indirect costs include $100,000 for DPW Parks Division operations (Line 3310), $100,000 for debt service for the Lincoln Park Recreation project, and $75,399 for benefits for the five full -time employees of the recreation department. DISCUSSION The Town of Lexington has maintained Water, Wastewater (Sewer), and Recreation Enterprise Funds since shortly after legislation authorizing the creation of such funds, G.L. c. 44, §531 was enacted by the State Legislature in 1986. The Water and Wastewater Enterprise Funds do not rely on tax -levy revenues, but cover their complete operating and capital needs with user charges and fees. The Recreation Enterprise Fund covers its complete operating costs with user charges and fees and also contributes to the debt service on certain recreation capital projects. What is an Enterprise Fund? As explained by the Massachusetts Department of Revenue (DOR), "an enterprise fund establishes a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. Under enterprise accounting, the revenues and expenditures of the service are segregated into a separate fund with its own financial statements, rather than commingled with the revenues and expenses of all other governmental activities. Financial transactions are reported using standards similar to private sector accounting. Revenues are recognized when earned and expenses are recognized when incurred, under a full accrual basis of accounting [unlike the modified cash basis of accounting typically used for municipal accounting]. An enterprise fund provides management and taxpayers with information to: [m]easure performance, [a]nalyze the impact of financial decisions; [and] [d]etermine the cost of providing a service." [DOR Enterprise Funds Manual (June, 2002)] Establishing the Enterprise Fund Budgets At the Annual Town Meeting each year, Town Meeting appropriates a budget for each of the three enterprises for the following fiscal year. Later in the year (generally in the late summer or early fall in the case of the Water and Wastewater Enterprise funds), user charges are set that are designed, based on projections of usage for the fiscal year, to be sufficient to cover the appropriations made by Town Meeting to run the enterprises. Depending on the accuracy of the usage projections, the actual revenue realized by the enterprise during the year may exceed or fall short of the appropriated amount. Any operating surplus must be retained in reserve in the enterprise fund, and the funds accumulated in that reserve (sometimes referred to as `retained earnings ") may be applied only to meet the capital needs of the enterprise or to reduce user charges. If an enterprise fund sustains an operating loss (after applying Page 21 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 any accumulated reserves in the fund), such loss must be made up in the succeeding fiscal year's appropriation. Since FY2007, the Annual Town Meeting Warrant has contained a separate Article for the appropriation of the enterprise fund operating budgets. Previously, enterprise fund operating costs —both the direct expenses of running the enterprises and indirect charges from other Town departments —were appropriated as part of the vote on the municipal operating budget. The various enterprise fund appropriations were scattered among related line items in the operating - budget motion, making it difficult to understand and keep track of the complete costs and operations of each of the various enterprise funds. The new presentation makes it easier to understand the operating budgets of the enterprise funds. However, the indirect costs that are charged to these enterprise funds are still appropriated as part of the municipal operating budget (this year, in Article 4). For the complete operating costs of the enterprise funds, including indirect costs, see the Brown Book, pp. V -25 (Water), V -29 (Wastewater) and VII-9 (Recreation). To help present a more meaningful picture of the complete enterprise fund operating budgets, the tables included above have been expanded from those presented in the Warrant to show the indirect as well as the direct costs of the funds. Appropriations for the capital needs of the enterprises continue to be addressed in separate capital warrant articles. (See Article 14 - Recreation Capital Projects, Article 16 - Water Distribution Improvements, and Article 17 - Sewer Improvements.) Water/Wastewater Fund Issues The largest component of the Water and Wastewater Enterprise Fund budgets is the charge imposed by the Massachusetts Water Resources Authority (MWRA) for water and wastewater disposal. These are assessments over which the Town has no control. The requested appropriation is based on the MWRA's preliminary estimate of its anticipated assessments for Lexington for FY2009, of about $4.6 million for water and $5.9 million for wastewater. Generally, the final assessments, which are rendered later in the spring or early summer, are lower than the preliminary assessments, and the final budget used to set rates for FY2009 will be adjusted to reflect the final, actual costs. (At last fall's Special Town Meeting, the original appropriations for water and wastewater were lowered by approximately $320,000 and $570,000 respectively to reflect the reduced final assessments.) The Water and Wastewater Fund budgets include direct costs, which are primarily for: (1) the wages and salaries of the employees in the DPW's Water and Sewer Divisions, (2) the expenses of the water and sewer maintenance activities and equipment, and (3) debt service on prior borrowings for water and sewer enterprise capital improvements. Note that debt service costs are steadily increasing, since over the past several years most of the capital improvements have been financed with debt rather than with a combination of debt and cash as had been the previous practice. While the use of debt financing will help to better spread the costs of projects over their useful life, the effect of the transition has been a temporary lowering of capital costs which will eventually return to the original higher levels. In addition, the Water and Sewer Enterprise Funds will be expected to bear approximately 25% of the debt service costs for the new DPW facility that is being constructed (17% and 7% respectively, based on their expected usage of the new building). It may be possible to mitigate some of the rate pressure the increased capital costs will generate in the future with a judicious application of retained earnings to capital improvement projects (see discussion below of reserves). The budgets also include indirect costs, which are for services provided to the Enterprise Funds by other departments, such as the Engineering Department, for insurance costs (health and liability), retirement funding, utilities, and support services such as Comptroller, Management- Information Systems (MIS), and the Revenue Department. In the fall of 2006, following up on a recommendation made in the final report of the Water and Sewer Rate Study Committee in 2005, the Town staff conducted an analysis of the basis for the indirect charges, and concluded that the level of indirect expenses that was being charged to the Water and Wastewater Enterprise Funds was significantly higher than could be justified. To address this issue without causing undue disruption to the Town Budget, the Town Manager recommended a gradual phase -down of the indirect expenses charged to the Water and Wastewater Funds to the levels Page 22 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 supported by his analysis over a period of five years. Consistent with this multi -year phase -down plan, the recommended budget for FY2009 contemplates modest reductions in the levels of indirect expenses charged to the Water and Wastewater Funds, as set forth on pages V -22 and V -26 of the Brown Book. For a number of years, the budgets for the Water and Sewer Enterprise Funds included charges, which were recovered in the water and sewer rates, for payments in lieu of taxes (PILOTS)— $500,000 for the Water Enterprise Fund and $250,000 for the Sewer Enterprise Fund. These were amounts that Town Meeting had authorized to be paid from the Enterprise Funds to the General Fund for unspecified Town services, in addition to the identified indirect costs, as though the Enterprise Funds were separate entities subject to taxation. Because of uncertainties about the appropriateness and validity of these charges, and at the recommendation of the Water and Sewer Rate Study Committee, the Board of Selectmen began phasing out these charges in FY2007 at the rate of 25% per year. The PILOT charges in the FY2009 budget, which are included in the Expenses line item for "contractual services," are $125,000 for the Water Enterprise Fund and $62,500 for the Sewer Enterprise Fund. These charges represent a 75% reduction from the amounts charged prior to FY2007. Finally, the Town Manager and stiff have given consideration over the past year to the levels of reserves that are appropriate to maintain in the Water and Wastewater Enterprise Funds. For purposes of last fall's water and sewer rate - setting for FY2008, the Town Manager proposed to the Board of Selectmen (acting in its capacity as Water and Sewer Commissioners) the use of $362,570 in water enterprise retained earnings to mitigate the FY2008 water rates. The effect was to lower the projected reserves from the current amount of about $2.5 million as of the end of FY2007 to a little over $2 million at the end of FY2008. With this draw on retained earnings (down from $500,000 applied the previous year), no increase in the water rates was required for FY2008. In the Sewer Enterprise Fund, the reserves stood at only $450,000 as of the end of FY2006, an amount considered to be inadequate. However, favorable operating results in FY2007 and a significant non- recurring increase in cash (resulting from a lien program that increased collections) increased the retained earnings in the sewer fund by nearly $1.7 million to a toad of over $2 million as of the end of FY2007, an amount now considered to be adequate. Accordingly, the Town Manager proposed to the Board of Selectmen during last fall's rate - setting that they neither add to, nor draw from, reserves when setting the FY2008 sewer rates. Even without a draw on retained earnings, no increase in the sewer rates was required for FY2008. Data provided to the Board of Selectmen in connection with this year's rate - setting indicates that the Town's ability to forecast water usage, and thereby to anticipate revenues and reserve levels, has improved substantially. Following up on a recommendation of the Water and Sewer Rate Study Committee, the town staff plans to develop a policy that defines the appropriate level of retuned earnings to be maintained for emergency purposes for both funds. The policy would provide that any amounts in excess of those levels be used to mitigate future rate increases or finance capital projects. As previously noted, one potential use of the retained earnings will be to help mitigate the effect of increased capital costs, including debt service costs to be incurred for construction of the new DPW facility, on the need for future rate increases. Recreation Fund Issues This budget represents an increase of $59,503 (3.32 %) from last year, primarily due to a 7% increase ($40,248) for wages. Fund wages and salaries total $563,120 for 5 full -time staff and 175 + /- seasonal staff. $38,517 of this increase is in seasonal wages, and is a result of the increase in the State minimum wage law as well as bringing a summer youth program in- house. Contractual services has a net reduction of $29,259, in part due to a reduction of $15,138 for this program change, a $30,000 reduction for the conclusion of a one -time Old Res water quality study, and a $7,024 expansion of the Pine Meadow Lease Agreement. Electricity expenses are reduced $11,900, based on a three year average of usage. Page 23 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 60% of the revenue for the Recreation Enterprise Fund operating budget, $1,091,482, will come from user fees for fields and registration fees for programs. All programs offered by the Recreation Department are designed to be revenue neutral with charges to users matching the program's operating costs. The other main source of revenue, $750,000, is from golf course fees, and is projected to be level funded. Golf course expenses include a management contract base fee of $345,000 as well as an additional payment for course management of 5% of collected course fees. This contract will expire on December 31, 2008, and a 10% contingency has been added to the budget for the last half of FY2009, producing a projected annualized contract rate of $362,250. In FY2009, indirect, shared, and capital charges against the Recreation Enterprise Fund will total $286,599. Under Article 4 (Operating Budget), $100,000 will be used for indirect costs to cover DPW field maintenance, and $75,399 will be used for employee benefits. Under Article 5 (Enterprise Funds Budgets), $100,000 of the Enterprise Fund revenue will be used to continue funding the Lincoln Field debt service and $6,200 for other debt service. Under Article 9 (CPA Capital), $5,000 will be appropriated for the Old Reservoir Management project. The Committee unanimously (8 -0) supports these requests. Article 6: Appropriate Funds Requested Funding Committee for Senior Service Source Recommendation $45,000 GF Approve (8 -0) Program This Article proposes an appropriation of $45,000 for the Senior Service Program. The requested amount is believed to be sufficient to permit all eligible applicants to take advantage of the program under the current guidelines adopted by the Board of Selectmen. In the spring of 2006, Town Meeting voted to rescind its acceptance of the statewide senior property tax work -off program under Chapter 59, §5K of the General Laws, and to substitute in its place a new, locally controlled Senior Service Program. The purpose of replacing the pre - existing program was to free the Town of the restrictions imposed by the State statute on age, wage rate, and credit amount, and in particular to give the Town the flexibility to: • Allow participation by persons under age 60, such as the disabled and handicapped, who might be able to benefit from the program, • Pay a wage higher than the minimum wage, and • Allow more than $750 to be credited against a participant's property tax bill. The new program was to be funded by direct appropriation from the tax levy rather than through the Town's overlay account. The original funding amount of $25,000 was established at a level only slightly higher than the amount that had been expended from the overlay account during the three preceding fiscal years (ranging from $20,034 in FY2004 to $23,706 in FY2006). The guidelines adopted by the Board of Selectmen increase eligibility and enhance benefits in the following respects, compared to the State program: • Income eligibility was set at $46,300 for single taxpayers or $52,950 for a couple (versus $36,750 if single, $42,000 if married under the State program) Hourly rate was set at $8.50 (versus minimum wage under the State program, which was then $6.75 and increased to $7.50 on January 1, 2007 and $8.00 on January 1, 2008) • Maximum credit was set at $850 (versus $750 under the State program). Page 24 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 On the other hand, eligibility under the new program was restricted, in comparison with the State program, by limiting participation to one enrollee per taxable household in the interests of equity. Although the Board of Selectmen has the ability to expand eligibility to persons under age 60 who are disabled or handicapped, it has not yet done so. When these guidelines were set, it was believed that the $25,000 originally appropriated by Town Meeting would be adequate to fund the program. In fact, applications to the program exceeded expectations. A total of 43 eligible applicants applied, compared with prior participation of 31 in FY2004 and 37 in each of FY2005 and FY2006. In order to make it possible for all eligible applicants to participate, Town Meeting voted at the November 29, 2006 Special Town Meeting to increase the FY2007 appropriation by $11,000 to $36,000. At the 2007 Annual Town Meeting held the following spring, Town Meeting voted to further increase the appropriation for FY2008 to $40,000. Although the eligibility criteria, hourly rate and maximum credit so far have not been changed, this additional cushion has given more individuals a chance to participate. A total of 31 individuals qualified to participate in the program in FY2008 (applications were accepted between July 15 and September 15, 2007, so that number is now fixed). If all participants work the full number of hours (100) necessary to earn the maximum credit ($850), the total cost of the program in FY2008 will be $26,350. This requested appropriation of $45,000 for FY2009 would be sufficient to accommodate everyone who participated in FY2008, and would also allow some flexibility to admit additional applicants to the program, to increase the hourly rate, and/or to increase the amount of the allowable credit. If all eligible participants do not in fact earn the maximum possible credit, then any surplus that remains in the program will be carried over as a "continuing balance" for potential use in the following fiscal year. In its report on the original article creating this program in 2006, this Committee observed that: "The ... cost of the proposed program is amply justified, indeed a bargain. Not only does it provide participating residents a productive way to become involved in the community, while at the same time alleviating some of the burden of their local property taxes, it also provides the Town with valuable and necessary services.... Making a direct appropriation for this program, rather than funding it through the overlay account, [increases] transparency and [gives] Town Meeting more control over the budget" These observations continue to apply. The Committee unanimously (8 -0) supports this request. Article 7: Appropriate Funds Requested Funding Committee for Street Trees Source Recommendation $24,000 GF Disapprove (0-8) At the 2001 Town Meeting, $50,000 from Free Cash was appropriated to fund the beginning of a multi- year program for the planting, care, management and maintenance of Town trees, it being understood that future expenditures would come from State grants and/or be funded as a line item in the DPW operating budget. MASS Releaf Grants from the Massachusetts Department of Environmental Management were obtained in FY2004, FY2005 and FY2006. State grants for planting of trees were not available for FY2007, FY2008 or FY2009. The proposed operating budget for FY2006 submitted to Town Meeting included $5,000 for the ongoing tree planting program. As a result of the FY2007 override, each successive budget, for FY2007, FY2008, and the proposed FY2009 budget, has included $5,000 for tree planting (see Brown Book, p. V- 12). In FY2007, at the request of the Tree Committee, the DPW requested an additional $25,000 to fund Page 25 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 the program. Similarly, the DPW requested an additional $24,000 in FY08. However, because of budgetary considerations, the requests were not approved. The budgets proposed in those years, accepted and approved by Town Meeting, did not include those amounts. This year's budget includes $5,000 for the program (see Brown Book, p. V -12). The DPW, at the request of the Tree Committee, sought an additional $24,000. That request was categorized by staff as a program improvement, and as such had to compete with higher- priority items within a limited budget. It consequently failed to displace those items and was not included in the budget by the Town Manager and Selectmen. A small amount of additional funds, beyond those in the budget and those available in State grants, exists in the Tree Revolving Fund, which is part of Article 8. The sources of monies for that Fund are private contributions and mitigation contributions under the Town Tree By -Law. A majority of the Appropriation Committee believes this request, in combination with the budgeted $5,000, is a reasonable minimum funding level for the Town's tree program. However, the Committee cannot support this request at this time in the absence of: (1) an appropriate and sufficient funding source, and (2) a consensus that this is the first priority claim on these funds. The Committee, by a vote of (0 -8), disapproves this request. Article 8: Continue Funds Requested Funding Committee and Approve Representative or Source Recommendation Board to Spend Departmental See table below RF Approve (8-0) Revolving Funds Director Burial Vaults Program or Purpose Authorized Departmental Receipts FY2008 Representative or Authorization Board to Spend DPW Burial Containers Public Works Sale of Grave Boxes and $35,000 Director Burial Vaults DPW Compost Operations Public Works Sale of compost and loam, $252,000 Director yard waste permits LexMedia Operations Board of Selectmen License fees from cable TV $400,000 and Town Manager providers Trees Board of Selectmen Gifts and fees $20,000 Minuteman Household Public Works Fees paid by consortium $175,000 Hazardous Waste Program Director towns Health Programs Health Director Medicare reimbursements $7,000 Council on Aging Social Services Program fees and gifts $100,000 Programs Director School Bus Transportation School Committee School bus fees $830,000 Public Facilities Director of Public Building rental fees $191,000 Revolving Fund Facilities Departmental Revolving Funds are an important part of the Town's overall finance structure. Ordinarily, revenue received by any municipal department must be deposited in the General Fund, and cannot be expended for any purpose without further appropriation by Town Meeting. The Revolving Fund allows Town Meeting to dedicate in advance a specific source of anticipated revenue from fees and charges, on Page 26 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 an ongoing basis and without the need for further appropriation, to pay expenses for rendering the services for which those fees and charges are collected. Revolving Funds managed by municipal departments are generally governed by G.L. c. 44, § 53E1/2. (There are also a number of Revolving Funds managed by the School Department, such as the School Lunch Fund, which are governed by other statutes and are not within the control of Town Meeting.) Under Section 53E1/2, a municipal Revolving Fund can be established only by vote of Town Meeting. That authorization must be renewed prior to each succeeding fiscal year. The authorization must specify: • the purpose(s) for which monies deposited in the fund may be used; • the source(s) of funds to be deposited; • the board, department or officer authorized to expend monies from the fund; and • a limit on the total amount that may be expended from the fund in the ensuing fiscal year. Expenditures may not be made, nor liabilities incurred, in excess of the balance of the fund. If a Revolving Fund is reauthorized, any balance in the fund may be carried over to the next fiscal year. If a Revolving Fund is not reauthorized, or if the purposes for which the money in the fund may be spent are changed, the balance in the fund reverts to the General Fund at the end of the fiscal year unless Town Meeting votes to transfer the funds to another duly established Revolving Fund. Seven municipal Revolving Funds are proposed to be reauthorized this year: the DPW Burial Containers Fund and the DPW Compost Operations Fund (which were formerly combined in a single fund); the LexMedia Operations (formerly CATV Operations) Fund; the Trees (formerly Tree Planting) Fund; the Minuteman Household Hazardous Waste Program Fund; the Health Programs Fund; and the Council on Aging Programs Fund. The spending limit proposed for each of the funds is based on a reasonable estimate of the fees and charges likely to be received, as well as of the expenditures likely to be required. The final fund balances that will carry over from FY2008 to FY2009 won't be known until the end of the fiscal year. As of December 31, 2007, the fund balances were as follows: DPW Burial Containers $53,150 DPW Compost Operations $192,077 LexMedia Operations $618,109 Trees $2,224 Minuteman Household Hazardous Waste Program $19,507 Health Programs $1,240 Council on Aging Program $17,815 It should be noted that interim increases in the spending limit for Revolving Funds may be authorized by joint action of the Board of Selectmen and the Appropriation Committee when necessary. In January of 2008, the Appropriation Committee acted favorably on a request by the Town Manager and the Board of Selectmen to approve a one -time increase in the FY2008 spending limit for the LexMedia Operations Fund (also sometimes referred to as the PEG Access Revolving Fund) by an additional $400,000 over the $400,000 spending limit set at the 2007 Annual Town Meeting. This additional amount will be more than adequately covered by the fund's anticipated cash flow from legally required payments made by the Town's cable providers. It will be transferred in the form of a grant by the Town to LexMedia for the build -out of the space in Kline Hall that has been made available at Avalon at Lexington Hills (the former Metropolitan State Hospital Property) to be used for LexMedia's PEG Access cable television operations. The proposed spending authorization for the LexMedia Operations Fund for FY2009 is the sane as the $400,000 amount originally approved for FY2008, and is the amount needed to cover LexMedia's ongoing operations. Page 27 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Town Meeting is also being asked to approve the creation of two new departmental Revolving Funds: the School Bus Transportation Fund and the Public Facilities Revolving Fund. These additional Revolving Funds have been proposed so that the relevant departments can better and more transparently manage and account for the fees, charges and other revenues they collect or receive, some of which were previously accounted for in special revenue funds off - budget, and so the unexpended balances of funds collected can be carried over from year to year. Fees collected for school bus services will be deposited into the School Bus Transportation Fund. It is important to not commingle these funds with other funds since the School Department is trying to manage on a no -profit no- subsidy basis all school transportation costs that it is not required by law to provide free of charge. The Public Facilities Revolving Fund, which was contemplated in the 2007 memorandum between the Board of Selectmen, the Town Manager and the School Committee providing for the joint Department of Public Facilities, will be used to account for all fees collected by the Department for the use of school and municipal buildings other than the Cary Memorial Library. The Committee unanimously (8 -0) supports the reauthorization of each of the existing Revolving Funds, and the creation of the two new Revolving Funds. Article 9: Appropriate the FY2008 Community Funds Requested Funding Source Committee Recommendation (a) Survey and Define Preservation Affordable Housing $25,000 CPA Committee Details in table Operating Budget below CPA see below and for CPA (b) Belfry Hill Tree Projects Restoration $9,850 CPA Project Description Amount Requested Funding Source Committee Recommendation (a) Survey and Define Affordable Housing $25,000 CPA Disapprove (1 -6 -1) Assistance Programs (see Brown Book, p. XI -17) (b) Belfry Hill Tree Restoration $9,850 CPA Approve (8 -0) (see Brown Book, p. XI -17) (c) Hancock - Clarke House Restoration $600,000 CPA Approve (8 -0) (see Brown Book, p. XI -17) $55,000 from CPA funds; (d) Old Reservoir Management $60,000 $5,000 from Approve (8 -0) (see Brown Book, p. XI -15) Recreation Fund retuned earnings Page 28 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Project Description Amount Requested Funding Source Committee Recommendation (e) Vynebrook Village Windows $158,686 CPA Approve (8 -0) (see Brown Book, p. XI -17) (f) Archive Record Management and $150,000 CPA Approve (8 -0) Conservation (g) Parker Manor Condo Purchases $652,800 CPA Approve (8 -0) (see Brown Book, p. XI - 18) (h) Senior Center Design, Renovation and Expansion unknown CPA (see Brown Book, p. XI -15) (i) Harrington Pre- School Playground $75,000 CPA Approve (8 -0) (see Brown Book, p. XI -12) 0) School Administration $330,000 from Building /Old Harrington $400,000 CPA funds; $7 from Approve (8 -0) (see Brown Book, p. XI -12) free cash free c (k) Town Office Complex Building Envelope $95,000 CPA Approve (8 -0) (see Brown Book, p. XI -16) (1) East Lexington Fire Station $47,000 CPA Approve (8 -0) (see Brown Book, p. XI -16) (m) ADA Accessible Bathrooms and Signs for $70,000 CPA Approve (8 -0) Town Office Building (see Brown Book, p. XI -16) (n) Town Office Building Use Study and Renovation $80,000 CPA Approve (8 -0) Design (see Brown Book, p. XI -15) (o) Stone Building unknown CPA Renovation (p) Land Acquisition unknown CPA (q) Munroe Fire Prevention System Replacement $579,550 CPA Pending (see Brown Book, p. XI -15) (r) Administrative Expenses $50,000 CPA $50,000 (8 -0) Page 29 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Background The Community Preservation Act (CPA) is a State statute that allows municipalities to raise a surcharge on property taxes for local use for purposes related to historic preservation, open space (including recreation), and affordable housing. The State provides matching funds (originally 100% but varying according to monies available and demand from adopting communities) from fees imposed on real estate transactions including mortgage refinancing. While the statute provides some broad guidance on the appropriate use of CPA funds, it allows for a considerable measure of local control, including (1) the establishment of a local Community Preservation Committee (CPC) to review and make recommendations on potential CPA project candidates to Town Meeting, and (2) establishing Town Meeting's authority to vote CPC - recommended projects up or down. Town Meeting cannot amend CPC - recommendations to increase an appropriation but may amend to decrease an appropriation. Accordingly, communities adopting CPA have each adapted their implementation of the statute to leverage the State matching funds and the locally- raised surcharge in a way that reflects local opportunities, priorities and needs. One of Lexington's opportunities lies in the inventory of municipal and school buildings that qualify as historic buildings and therefore are eligible for CPA funding, including the State matching funds. This is a win for the taxpayer, who benefits from leveraging State matching funds, and a win for the Town, which has a backlog of capital projects that compete each year for limited resources within the tax levy and would benefit from the availability of an alternative funding source. The CPA allows this opportunity to be accommodated, if the CPC and Town Meeting so choose, along with other opportunities for historic preservation, acquisition and preservation of open space and land for recreational use, and providing affordable housing. Indeed, at the 2007 Annual Town Meeting, the Appropriation Committee expressed its disappointment that more Town capital projects had not been submitted for possible funding with CPA monies. We commend municipal and school staff for accelerating their planning schedules this year to bring projects forward on a timely basis to the CPC, and we commend the CPC for adjusting its schedule to facilitate this process. The Appropriation Committee (AC) is pleased that Town Meeting will have an opportunity to consider CPA funding of most of the municipal and school projects submitted to the CPC for consideration. One item did not achieve majority support on the CPC ($40,000 for a utilization /design study of the Fire Headquarters on Bedford Street) and is therefore recommended for funding from Free Cash under Article 19. Lexington's CPC has published a useful document (available on -line at http: / /ci.lexington.nut.us/ Committees/ CommunityPreservationCommittee /CPCneedsassessment 10-4 - 07.pdf) that provides a description of local goals and opportunities and the criteria our local CPC is considering as it reviews project proposals for CPA funding. The AC, along with the Capital Expenditures Committee, has encouraged the CPC to continue to interpret its charter this broadly so the larger community (through Town Meeting) has the opportunity to leverage the CPA for municipal and school capital projects as well as the many other worthwhile opportunities for promoting open space, historic preservation, and affordable housing. This Year's Requests Town Meeting is being asked to appropriate $2,978,886 of Community Preservation Act (CPA) money and an additional $75,000 of cash capital. There is an estimated $9,993,913 of CPA funds available for appropriation at this Town Meeting: $5,648,271 in carry - forward reserves and $4,345,642 from FY2009 anticipated revenues. These revenues include FY2009 surcharge collections of $2,754,960, $40,000 of investment interest, and a State match of $1,550,682 (anticipated to be 60% of the collected FY2008 surcharges). Page 30 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Of the eighteen projects summarized in the table above, the Appropriation Committee supports thirteen. Three projects (h, o, p) were not ready for consideration at press time, one project (a) is not supported by the Committee (see below), and the Committee's recommendation on one project (q) is pending (see below). The Committee also has some comments below regarding item (n). (a) Survey and Define Affordable Housing Assistance Programs: This request, proposed by the Lexington Housing Partnership and LeXHAB, would provide funds to hire a consultant to survey homebuyer assistance programs in other Massachusetts communities and recommend what program(s) might be feasible in Lexington. A majority of the committee is unable to support this request. Our first objection is that, as far as we know, there is no comprehensive Town policy that lays out in detail the goals of the Town's affordable housing program, what methods or resources are appropriate for malting progress toward each goal as well as their advantages and disadvantages, and the relative priorities of the various approaches. We suspect that, when the foundations of the Town's affordable housing program are reviewed, there will be substantial concerns about funding a program to benefit relatively well -off households when there are so many lower income households in the area that cannot even consider buying homes. To elaborate, we also suspect that any funds put toward an ownership program are funds that could have been put toward the Town's successful rental program. Our second objection is closely related to the first, but is more specific, i.e., we do not see an adequate justification for the use of property tax dollars to further the financial interests of people who can afford decent housing even though they may not be able to afford to buy a home in Lexington. The intended recipients would likely be better off financially than many current Lexington taxpayers. A third objection is that a survey of the general approaches in a small number, e.g. half a dozen, of other Massachusetts towns could be undertaken as a project by the Housing Partnership and other affordable housing proponents. Perhaps a consultant would be useful to get nut - and -bolts details completely straight, but that doesn't appear to be an important goal of the requested survey. We believe that volunteers could accomplish most of the goals of the proposed survey over the course of the next year. The proponents of this expenditure argue that the fact that the failure of two home ownership proposals to advance should be taken as a reason to approve this appropriation. We believe this history suggests otherwise, that such projects are unlikely to succeed. The proponents also argue that a consultant is needed to get ideas beyond those tried earlier. We agree that new ideas may be in order, but that it is not necessary to engage a consultant to find them. The above discussion suggests to us that ideas that identify funding that does not come directly from Lexington tax revenue might be the most likely to be productive. Finally, while we acknowledge that it would be desirable to see more economic diversity among Lexington homeowners and to make it possible for certain people employed in town to live here, we do not see that as justifying a home ownership affordable housing program. (n) Town Office Building Use Study and Renovation Design: The Committee joins the Capital Expenditures Committee in asking that there be a "pause" in the project after the use study and design development activities are completed but before construction drawings are begun to allow the opportunity for the finance committees to evaluate the results of the use study and design development and the direction these suggest for the scope of the building renovation. (q) Munroe Fire Prevention System Replacement: The Committee's recommendation is pending further information about the eventual disposition of this Town -owned building. It is important to note, however, that although either the Town or a private owner could apply for and receive CPA funding for this project, if CPA funding is approved under this article for the Town -owned asset, that funding appropriation is not transferable to subsequent owners. Page 31 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 10: Land Funds Requested Funding Committee Purchase —Off $77,000 Source Recommendation None at press time CPA Pending Marrett Road Article 11: Land Funds Requested Funding Committee Purchase —Off $77,000 Source Recommendation None at press time CPA Pending Hartwell Avenue Article 12: Land Funds Requested Funding Committee Purchase —Off $77,000 Source Recommendation None at press time CPA Pending Lowell Street Article 13: Land Funds Requested Funding Committee Purchase —Off $77,000 Source Recommendation Renovation Cedar Street and Off Hartwell None at press time CPA Pending Avenue See below See below Article 14: Funds Requested Funding Committee Appropriate for $77,000 Source Recommendation Renovation Recreation Capital (b) Park Improvements — $100,000 GF (Debt) Projects $177,000 See below See below Project Description Amount Requested Funding Source Committee Recommendation (a) Center Complex Restroom $77,000 GF (Cash) Approve (8 -0) Renovation (b) Park Improvements — $100,000 GF (Debt) Approve (8 -0) Athletic Fields These requests are well described in the Brown Book on pp. XI -17 and XI -8, respectively. The Committee unanimously (8 -0) supports these requests. Page 32 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 15: Funds Requested Funding Committee Appropriate for $1400 Source Recommendation (see Brown Book, . XI -5) ,,000 Chapter 90 ($700,000) Municipal Capital GF (Debt) Projects and (b) DPW Equipment Replacement See below See below Approve (8 -0) mount T TB D amount Balance of prior capital Equipment articles Project Description Amount Requested Funding Source Source Committee Recommendation (a) Woburn Street Reconstruction $1400 GF Debt ($700,000) Approve (8 -0) (see Brown Book, . XI -5) ,,000 Chapter 90 ($700,000) GF (Debt) (b) DPW Equipment Replacement $510,000 Compost Fund (Debt) Approve (8 -0) (see Brown Book, p. XI -6) Balance of prior capital articles (c) Sidewalk Improvements $275,000 GF (Debt) Approve (8 -0) (see Brown Book, p. XI -6) (d) Central Business District (CBD) Sidewalks $370,000 GF (Debt) Pending (see Brown Book, p. XI -6) (e) Geographic Information System $129,045 GF (Debt) + (GIS) $184,350 $33,183 Water EF RE + Approve (8 -0) (see Brown Book, p. XI -6) $22,122 Wastewater EF RE (f) Storm Drain Improvements $160,000 GF (Cash) + Balance of Approve (8 -0) (see Brown Book, . XI -7) prior capital articles (g) Hydrant Replacement Program $50,000 $25,000 GF Cash Approve (8 -0) (see Brown Book, . XI -14) $25,000 Water EF RE (h) Street Improvements $500,000 GF (2000 (see Brown Book, p. XI -14) $525,000 Override Set - Aside) Approve (8 -0) $25,000 (GF Cash) (i) Traffic Mitigation $50,000 GF (Cash) Approve (8 -0) (see Brown Book, p. XI -14) 0) Replacement of Rescue 2 $200,000 GF (Debt) Approve (8 -0) (see Brown Book, . XI -6) (k) Police &Fire/EMS Mobile Computerization $156,000 GF (Debt) Approve (8 -0) (see Brown Book, p. XI -7) (1) Permit Tracking Software $100,000 GF (Debt) Approve (8 -0) (see Brown Book, p. XI -7) (m) Town/School Phone System Needs Assessment $30,000 GF (Cash) Approve (8 -0) (see Brown Book, p. XI -16) Page 33 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Project Description Amount Requested Funding Source Source Committee Recommendation (n) Head End Equipment Source Recommendation Replacement $60,000 GF (Cash) Approve (8 -0) (see Brown Book, p. XI -16) EF Approve (8 -0) Improvements These 14 requests are well described in the Brown Book (page references indicated above). The Committee has additional comments on items (a) and (d): (a) Woburn Street reconstruction: At the 2007 Annual Town Meeting, $120,000 was appropriated for the design of a complete reconstruction of Woburn Street (Article 31 -d, 2007 ATM). The FY2009 request is for $1,400,000 to carry out this reconstruction, of which $700,000 is proposed from GF debt and $700,000 from Chapter 90 funds. This is the type of project that is more appropriately funded by seeking a debt exclusion override (price tag exceeding $1 million; reconstruction rather than repair /maintenance). However, the following circumstances have convinced the Committee to accept the proposed financing plan: • the extremely poor condition of Woburn Street, • the political reluctance to bring forward a debt exclusion override question this spring • the Engineering Department's assurances that this one -time diversion of Chapter 90 funds from the annual street resurfacing program will not have too great of an adverse effect on that program, and • the possibility of including the $700,000 General Fund debt in a future debt exclusion. We strongly recommend that future road reconstruction projects be planned as debt exclusions to prevent crowding -out pressures on the annual operating and capital budgets. (d) Central Business District sidewalks: The Committee's recommendation is pending review of the completed first phase installation of wire -cut bricks on Massachusetts Avenue in the Central Business District. Factors the Committee will consider include: • feedback from the Committee on Disabilities, • how well the initial instillation has withstood winter weather and snow removal, and • the weighing of costs and benefits of wire -cut bricks as opposed to other sidewalk materials. The Committee unanimously (8 -0) supports these requests, with the exception of (d), on which a recommendation is pending. Article 16: Funds Requested Funding Committee Appropriate for Source Recommendation Water Distribution $1,800,000 EF Approve (8 -0) Improvements This Article addresses proposed capital expenditures to be made during FY2009 as part of a continuing program to upgrade and keep current the assets of the Water Enterprise Fund. For general background on Page 34 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 the Enterprise Funds, and the relationship between the budget process and the water rate setting process, please see the discussion under Article 5, which addresses the Enterprise Fund operating budgets. As part of a multi -year project to upgrade aging water infrastructure, a total of $1,800,000 is requested this year to replace approximately 7,500 linear feet of obsolete, unlined pipe or other pipe with high repair records. The details of the project, including the locations where work is expected to be done in FY2009, can be found in the Brown Book (p. XI -10). According to the Brown Book, at the current `rate of funding, it is anticipated that no unlined water pipe will remain after 2011" After the pipe replacement program is completed, there will still be a need for ongoing capital expenditures "to keep pace with the regular deterioration and any needed modifications to the system." Presumably, however, the amounts required for this purpose each year will be smaller absent extraordinary circumstances. The costs of this year's proposed pipe replacement project will be funded entirely by borrowing. The costs of the debt service for this borrowing will be home by the operating budgets for the Water Enterprise Fund in FY2008 and future years until the debt is retired (see the debt service schedule contained on the same page in the Brown Book), and will be included each year as an element of the water rates. Capital appropriations for similar purposes, have been made in most years since the Water Enterprise Fund was established (except for FY2006 when engineering studies were not completed in time), as illustrated in the table below. The goal is to keep the system current so the Town can assure "dependable high water quality, pressure, and volume for domestic needs, commercial needs, and fire protection as well as minimization of water main breaks." Fiscal Year Purpose Cash Borrowing Total 2003 Water Dist. Improvements $340,000 $560,000 $900,000 2004 Water Dist. Improvements $400,000 $500,000 $900,000 2005 Water Dist. Improvements $400,000 $450,000 $850,000 2006 None $0 $0 $0 2007 Water Dist. Improvements Water Meters $0 $0 $900,000 $250,000 $1,150,000 2008 Water Dist. Improvements $0 $1,800,000 $1,800,000 2009(rec) Water Dist. Improvements $0 $1,800,000 $1,800,000 Prior to FY2007, as shown in the table above, capital expenditures for water distribution improvements were funded by a combination of Enterprise Fund cash capital and borrowing. Since then, there has been a transition to funding these ongoing improvements exclusively with debt. As the Committee noted in last year's report, this transition to exclusive debt financing has helped to mitigate the need for rate increases in the short term; however, it will also increase the future debt service costs of the Water Enterprise Fund —as illustrated in the Brown Book, p. XI -10, Table II and sumrrkrrized below —which in turn is likely to create greater rate pressure in the future. Water Enterprise Fund Debt Service Costs Fiscal Year 2008 2009 2010 2011 Amount $490,833 $834,481 $1,193,526 $1,362,358 Page 35 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 As can be seen, past borrowings and this year's borrowing alone will more than double the annual debt service costs between FY2008 and FY2011 to a level that represents a significant portion of the overall Water Enterprise Fund operating budget (currently about $7 million). Future borrowings for water distribution improvements will continue to increase the annual debt service costs until a new equilibrium between issuance and retirement of debt is reached, and the planned 17% contribution to the financing of the new DPW facility will add to the fund's debt burden. As noted in the discussion under Article 5, it may be appropriate in the future to make judicious use some of the fund's accumulated retuned earnings to help defray the impact of these growing capital costs on the rates. The Committee unanimously (8 -0) supports this request. Article 17: Funds Requested Funding Committee Appropriate for Source Recommendation Sewer $1,300,000 EF Approve (8 -0) Improvements This Article addresses proposed capital expenditures to be made during FY2009 as part of a continuing program to upgrade and keep current the assets of the Wastewater Enterprise Fund. For general background on the Enterprise Funds, and the relationship between the budget process and the water rate setting process, please see the discussion under Article 5, which addresses the Enterprise Fund operating budgets. A total of $1,300,000 is requested this year: $1,200,000 as part of a multi -year plan to rehabilitate 7,000 linear feet of sanitary sewer infrastructure per year for the foreseeable future, and $100,000 for year two of a five year program to upgrade Lexington's ten sewer pumping stations. The details of the projects, including the locations where the work is expected to be done, can be found in the Brown Book (p. XI- 11). Both amounts will be funded entirely by borrowing. The costs of the debt service for this borrowing will be borne by the operating budgets for the Wastewater Enterprise Fund in FY2009 and in future years until the debt is retired (see Brown Book, p. XI -11, Table III), and will be included each year as an element of the sewer rates. Capital appropriations for similar purposes have been made in most years (except for FY2006 when engineering studies were not completed in time) since the Wastewater Enterprise Fund (formerly the Sewer Enterprise Fund) was established, as illustrated in the table below. Page 36 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Fiscal Year Purpose Cash Borrowing Total 2003 Storm Sewer Improvements $100,000 $0 $100,000 2004 San. /Storm Sewer Improvements $225,000 $0 $225,000 2005 San. /Storm Sewer Improvements $750,000 $0 $750,000 2006 None $0 $0 $0 2007 Sewer Improvements Water Meters $0 $0 $300,000 $250,000 $550,000 2008 Sewer Improvements $0 $1,300,000 $1,300,000 2009(rec) Sewer Improvements 1 $0 1 $1,300,000 1 $1,300,000 Prior to FY2007, as shown in the table above, capital expenditures for sewer distribution improvements were funded primarily by enterprise -fund cash capital. Since then, there has been a transition to funding these ongoing improvements exclusively with debt. As the Committee noted in last year's report, this transition to exclusive debt financing has helped to mitigate the need for rate increases in the short term; however, it will also increase the future debt - service costs of the Wastewater Enterprise Fund— as illustrated in the Brown Book, p. XI­ 11, Table III and summarized below —which in turn is likely create greater rate pressure in the future. Wastewater Enterprise Fund Debt Service Costs Fiscal Year 2008 2009 2010 2011 Amount $473,256 $496,531 $885,877 $772,348 As can be seen, past borrowings and this year's borrowing alone will nearly double the annual debt service costs between FY2008 and FY2011 to a level that represents a more significant portion of the overall Wastewater Enterprise Fund operating budget (currently about $8 million). Future borrowings for water distribution improvements will continue to increase the annual debt service costs until a new equilibrium between newly incurred and retired debt is reached, and the planned 7% contribution to the financing of the new DPW facility adds to the fund's debt burden. As noted in the discussion under Article 5, it may be appropriate in the future to make judicious use some of the fund's accumulated retained earnings to help defray the impact of these growing capital costs on the rates. The Committee unanimously (8 -0) supports this request. Page 37 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 18: Funds Requested Funding Committee Appropriate for Source Recommendation $465,000) and School Capital $835,000 See below Approve (8 -0) Projects and Program rogram Article 30 - Equipment $135,000) Project Description Amount Requested Funding Source Committee Reeommendaton GF (Debt - $465,000) and School Technology $600,000 GF (2005 Approve (8 -0) Program rogram Article 30 - $135,000) (b) Pre-K-12 Master Plan $155,000 GF (Free Cash) Approve (8 -0) (c) Food Service Equipment & $55,000 GF (Free Approve (8 -0) Software Cash) (d) Classroom Furniture $25,000 GF (Free Approve (8 -0) Cash) The requests listed for this article are those approved by the School Committee on January 23, 2008. Each of these projects is described on the following pages in the Brown Book: School Technology Program, p. XI -8 (Note that the Brown Book should be amended to include $10,000 for printer replacements.); Pre -K -12 Master Plan, p. XI -13; Food Service Equipment & Software, p. XI -13; and, Classroom Furniture, p. XI -14. The Committee unanimously (8 -0) supports these requests. Page 38 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 19: Funds Requested Funding Committee Appropriate for Source Recommendation Remodeling (Student Lockers) $160,000 GF (Debt) Public Facilities (Bowman/Estabrook) Capital Projects $2188,750 See below See below Project Description Amount Requested Funding Source Committee Recommends (a) Extraordinary Repairs and Remodeling (Student Lockers) $160,000 GF (Debt) Approve (8 -0) (Bowman/Estabrook) (b) Phase 2 Mechanical System $1,290,000 GF (Debt) Approve (8 -0) Replacement (Clarke) (c) System -wide School $200,000 GF (Debt) Approve (8 -0) Buildings Roofin Renovations (d) Auditorium Remodeling $125,000 GF (Debt) Approve (8 -0) (Diamond) (e) Extraordinary Repairs $65,000 GF (Debt) Approve (8 -0) (Clarke & Diamond) (f) Multi - Disciplinary Support Team (MST) Construction (High $80,000 GF (Cash) Approve (8 -0) School) (g) Safe Parent Pick Up and $65,000 GF (Cash) Approve (8 -0) Parkin (Bridge & Estabrook) (h) Remove Estabrook Oil Tank $50,000 GF (Cash) Approve (8 -0) (i) Building Envelope $153,750 GF (Cash) Approve (8 -0) Munroe Fire Prevention $579,550 [if not System CPA- funded GF (Debt) Pending under Art 9(g)] (k) Fire Headquarters Redesign $40,000 GF (Cash) Approve (8 -0) (1) Senior Center Design, Unknown [if not Renovation and Expansion CPA - funded TBD Pending under Art. 9(h)] As a result of votes at the fall, 2006 Special Town Meeting and the 2007 Annual Town Meeting, the Town has combined the management, maintenance and administrative functions associated with both school and municipal facilities into one single, unified, facilities department. In addition to having supervision and authority over maintenance and custodial services, this Department oversees and administers major capital projects. Consequently, for the first time, Town Meeting is presented with this Article, requesting appropriations for a number of capital projects to be implemented and conducted under the aegis of the Public Facilities Department. The total amount requested under this Article is $2,228,750. Not included in this figure are appropriation requests for the Munroe fire prevention system (item (j)) and for the Senior Center design, renovation and expansion study (item (1)). CPA funding for these projects has been requested under, respectively, Article 9(q) and (h). If CPA funding for either of these two projects is not recommended, or not approved by Page 39 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Town Meeting, either or both may then be presented under this Article and the amount of funds requested will increase accordingly. Section XI of the Brown Book and the forthcoming report of the Capital Expenditures Committee contain detailed descriptions, explanations and analyses of each of the requests comprising this Article. They can, essentially, be broken down into three component elements: (1) items (a) through (e) which request debt financing; (2) items (f) through (h) which are cash funded school projects; and (3) items (i) and (k) which are cash funded municipal projects. An appropriation in the amount of $1,840,000 is requested under M.G.L., c. 44, sec. 7(3A), for remodeling, reconstructing or making extraordinary repairs. Included in this request are the purchase and installation of lockers at Bowman and Estabrook ($160,000), phase 2 of the mechanical system replacement at Clarke for conversion from electric heat to natural gas ($1,290,000), system -wide school roof extraordinary repairs ($200,000), auditorium repairs at Diamond ($125,000), and various extraordinary repairs at Clarke and Diamond ($65,000). All of these items are to be funded through debt financing. More detailed information concerning each of these projects can be found in the Brown Book, pp. XI4, 5 and 8 -10. A total of $195,000 is requested for items (f) through (h). These requests seek appropriations for the construction of three rooms at Lexington High School for private consultation as part of the MST program ($80,000), the study of traffic patterns at Bridge School and the design of improvements to enhance safety ($65,000), and the removal of an aged underground fuel oil storage tank at Estabrook ($50,000). These items are to be funded from Free Cash. More detailed information concerning each of these projects can be found in the Brown Book, pp. XI4, 12 and 13. Finally, $193,750 is sought for items (i) and (k), which seek, respectively, $153,750 for remodeling, reconstructing and making extraordinary repairs to Town buildings (an additional $212,500 in CPA funds is sought under Article 9(k), (1) and (m)) and $40,000 for a study to determine the best utilization and redesign of space at the Fire Station at 45 Bedford Street. These items are to be funded from Free Cash. More detailed information concerning these two projects can be found in the Brown Book, pp. XI4, 12, 14 -15 and 16. The Committee unanimously () supports requests (a) through (i) and (k). Recommendations are pending on 0) and (1). Article 20: Funds Requested Funding Committee Appropriate for Source Recommendation Affordable $50,000 FC Approve (8 -0) Housing Purposes The 2004 Annual Town meeting approved a zoning article allowing expansion at Brookhaven at Lexington. As part of the development plan, Brookhaven agreed to make two $50,000 payments to the Town for the purpose of supporting affordable housing. The first of the two payments was made to the General Fund in October, 2006 and the second was received in FY2008 and resides in a special reserve fund. The Board of Selectmen is recommending that this payment be appropriated by Town Meeting for use by LeXHAB. The Committee unanimously (8 -0) supports this request. Page 40 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 21: Funds Requested Funding Committee Appropriate Source Recommendation Money- Laconia $400,000 FC Approve (8 -0) Street (Citizens $3,650 GF Pending Article) Article 24 of the 2004 Annual Town Meeting, a citizen article, requested Town Meeting to authorize the Town to take and accept Laconia Street as a public way and, so that it would qualify for acceptance, to approve an appropriation to upgrade and reconstruct the street. After Town Meeting's approval, the Town began the acceptance process. This required a legal description of the land to be accepted, for which an engineering survey was necessary. Town staff requested the Article's citizen sponsors to orange for the survey. The survey was undertaken and completed in the summer of 2004. The engineer's invoice of $3,650 was paid by two Laconia Street families. The Town did not reimburse the families and the survey cost was not included in the betterment charges assessed by the Town on all Laconia Street abutters in 2007. There are 30 abutters. This Article seeks reimbursement of the $3,650. All Laconia Street abutters benefited from the Town's taking and acceptance. They also benefited from the survey since, without it, the taking and acceptance could not proceed. Had the Town reimbursed the two families for the survey cost at the time it was paid, that amount would have been proportionally shared in the betterments assessed in 2007. There appear to be two alternatives to deal with this: (1) reimburse the two families and then subsequently impose a new, or adjusted, betterment on all abutters, or (2) reduce the betterments assessed to the two families to reflect their payment of the engineer's invoice. The Appropriation Committee believes that the former is preferable. Town Counsel has agreed that the requested reimbursement is a permissible and legal expense. At press time this committee was not aware of a specific funding source so its recommendation is pending. Article 22: Funds Requested Funding Committee Appropriate for Source Recommendation Post Employment $400,000 FC Approve (8 -0) Benefits Retired Lexington employees receive two types of post- employment benefits: a pension and health insurance. Annual appropriations to the pension fund and to the health care trust fund (under the Shared Expenses portion of the municipal operating budget article) cover the costs of current retirees' benefits (with the exception of teachers, who receive their pension from the State pension fund; their health benefits, however, are provided by the Town). In the case of both types of benefits, there is a future liability (for current and past employees who have not yet reached retirement age) that is being incurred. The annual appropriation for the pension fund includes an amount for the funding of the future pension liability, but up to now, no similar provision has been made for the future health benefit liability. The Government Accounting Standards Board (GASB) Statement 45 (GAS1345) dictates that municipalities begin reporting the unfunded liability for retiree health benefits. This is not a requirement Page 41 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 to begin funding the liability, but simply to determine the amount of the liability and record it as part of the annual audit. Lexington was required to being reporting its circa $100 million liability this year (FY2008). This article requests that $400,000 of Free Cash (which includes $281,966 in Medicare Part D rebate receipts) be applied towards funding this liability. These are funds Lexington has received, from the Federal government in FY2007, to partially offset the prescription drug benefit we provide to retirees in place of the Medicare Part D prescription benefit. It is expected that this will be an annual payment to the Town as long as we continue to offer a prescription drug benefit to retirees. The Committee unanimously (8 -0) supports this request. Article 23: Rescind Funds Requested Funding Committee Prior Borrowing Source Recommendation Special Education Authorizations None See below Pending Information on potential rescissions of bond authorizations was not available at the time of this report. The Committee will issue a supplemental report when information becomes available. Article 24: Appropriate to Specified Funds Requested Funding Source Committee Recommendation $350,000 for Stabilization Funds Special Education Stabilization Fund See below Approve (8 -0) and $65,093.11 for TDM/Public Transportation Stabilization Fund This article will establish a new Special Education Stabilization Fund. This fund is intended to provide a vehicle for setting aside reserves to help cover unexpected out -of- district Special Education expenses that exceed budget. A related goal is greater transparency around the out -of- district Special Education budget component by segregating this expense item and bringing budget overruns to Town Meeting for a two - thirds vote (required for appropriations from a Stabilization Fund). This article requests an initial appropriation of $350,000 into this new stabilization fund. The source of funds is an identified surplus in the FY2008 School budget. The Superintendent and Town Manager have indicated a goal of building a $1,000,000 reserve to help buffer the regular education budget from extraordinary and unforeseen increases in out -of- district Special Education expenses. This article also requests the transfer of $65,093.11 from the Lexpress Transportation Demand Management (TDM) Special Revenue account to the Transportation Demand Management/Public Transportation Stabilization Fund. These are payments received year -to -date from Patriot Partners and Avalon Bay that are being deposited, under this article, into the appropriate stabilization fund so they are available to support the FY2009 operations for Lexpress under Article 4. The Committee unanimously (8 -0) supports these requests. Page 42 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 25: Funds Requested Funding Committee Appropriate for Source Recommendation Green Guides; Stabilization Fund $1,000,000 FC Approve (8 -0) This Article seeks to transfer $1,000,000 of the $4,861,516 in certified Free Cash to the unrestricted Stabilization Fund. This will bring the balance of the Stabilization Fund to $6,571,158 (not including interest for the period January 1, 2008 through June 30, 2008), representing 5.17% of the prior year's General Fund revenues. The target balance for the Stabilization Fund, as recommended by the Selectmen's Ad Hoc Fiscal Policy Committee and endorsed by Town staff, is 7% of General Fund revenues, an amount intended to be sufficient "to buffer the General Fund from the impact of two to three years of reduced state aid and declining local receipts." (March 15, 2006 report of the Ad Hoc Fiscal Policy Committee.) The Committee unanimously (8 -0) supports this request. Article 26: Funds Requested Funding Committee Appropriate for Source Recommendation Green Guides; Prior Years' None at press time To be determined Pending Unpaid Bills not known at press Article 27: Amend FY2008 Operating Budget Funds Requested Funding Source Committee Recommendation $750 for Battle Green Guides; additional amounts To be determined Pending not known at press time This is an annual placeholder in the Warrant to allow Town Meeting to fund unforeseen expenses in the current fiscal year budget (FY2008). Appropriations under this article are one of several mechanisms available for dealing with budget surprises during the course of a fiscal year. Monies in the Reserve Fund (funded in FY2008 at $469,868) are also available, with the approval of the Appropriation Committee, to cover extraordinary, unforeseen expenses. Payments from this fund are typically made in the last few weeks of the fiscal year. (For further information about the Reserve Fund, see the discussion under Shared Expenses.) Municipalities may also now make end -of -year transfers of unexpended balances in one departmental line item to cover overages in other line items in the same department, provided that an individual transfer does not exceed 3% of the source line item. Page 43 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 There are no requests for School budget appropriations under this article, however, Municipal budget requests, amounts yet to be determined, are anticipated in addition to the $750 requested for Battle Green Guides. Article 28: Funds Requested Funding Committee Appropriate for Source Recommendation Authorized Capital $60,000 FC Approve (8 -0) Improvements At the 2007 Annual Town Meeting, a motion was made and approved under Article 29 to appropriate $265,000 for Recreation Capital Projects as follows: a) Center Basketball Court Reconstruction - $85,000 to engineer and reconstruct the double basketball court at the Center Recreation Complex. The project will include grinding down the existing basketball courts, address drainage, court reconstruction and install new standards, backboards, rims and site amenities. b) Valley Road Tennis Court improvements - $130,000 to grind and rebuild the Valley Road tennis courts, replace the tennis court fence and to purchase site amenities. c) Park Improvements - Athletic Fields - $50,000 for funds to rehabilitate the athletic fields at Bowman School. The Capital Expenditures Committee was notified in September 2007 of the need for a supplemental appropriation to accomplish the work for which funds had been appropriated under subsections (a) & (b) of Article 29. The October 24 minutes of the Capital Expenditures Committee include: [2007 Annual Town Meeting Article] 29(b) Valley tennis courts and 29(a) Center Basketball courts will need a supplemental appropriation in FY09 since the bids all came in too high. $215K was appropriated, but the bids came in at 230 -257AK (Center BBall @ $149K, Valley TC @ $108K). Some of the $215K appropriation has already been spent on architects' fee. They estimate an additional $60K to $70K will be needed. We asked if Valley could be done on its own since the appropriation covers that, but since the projects were consolidated, it can't be broken out without rebidding and there are economies of scale involved. The projects have been put out for rebid with a close date of April 24, 2008. The Committee unanimously (8 -0) supports this request. Page 44 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Article 29: Use Of Funds Requested Funding Committee Funds to Reduce Source Recommendation N/A N/A N/A the Tax Rate Each year, the Department of Revenue certifies a Free Cash number for each municipality in the State. This number represents the available General Fund balance as of July 1, after the close of the prior fiscal year. Lexington's Free Cash balance as of July 1, 2007 is $4,861,516. In the FY09 budget, approximately $2.6 million of Free Cash is earmarked to fund recurring operating budget expenses. Another $1 million is proposed for appropriation to the General Stabilization Fund, approximately $842,000 is proposed for use for Capital projects, and $400,000 is proposed for initial funding of the Post- Employment health benefit liability. In prior years, this Article has been the vehicle for appropriating Free Cash. This year, as in the last two years, all appropriations of Free Cash have occurred under the relevant budget articles: Article 4 (Operating Budget), various Capital articles (15, 18, 19, 28), Article 22 (Post - Employment Benefits), Article 25 (Stabilization Fund) and Article 27 (FY2008 Operating Budget). Accordingly, no funds are requested under this article. This article will be indefinitely postponed. Article 32: Amend Funds Requested Funding Committee General Bylaw — Source Recommendation Abatement of Contracts None N/A Approve (8 -0) Interest The warrant article seeks an amendment to Chapter 107 (Reports and Fees) of the Code of the Town of Lexington to grant the Board of Selectmen the authority to abate interest charges on overdue town charges if circumstances warrant it. There are situations, primarily water and sewer, where bills are contested and ultimately adjusted. Interest has accrued during the resolution period and the Board of Selectmen would like the ability to also abate the interest that accrued during the resolution period, when appropriate. The Committee unanimously (8 -0) supports this bylaw change. Article 33: Amend Funds Requested Funding Committee General Bylaw — Source Recommendation Terms for Certain Contracts None N/A Approve (8 -0) For the most part, contracts with terms extending beyond 5 years have to be approved by Town Meeting. Approvals by Town Meeting have been given in the past to extend those terms – as an example, the 2007 Page 45 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 Town Meeting approved Article 11 authorizing terms for certain contracts for rental of town buildings and for transportation services for more than five years. These approvals have not been incorporated into the Town bylaws. Additionally, the timing of Town Meeting does not facilitate the ability to finalize contracts as the town contracts are on a fiscal year basis. This article seeks to provide flexibility in negotiating maximum lengths of vendor contracts as well as to codify terms for which certain contracts can be issued by the Town Manager by an amendment to Chapter 32 of the Code of the Town of Lexington. It is also important to note that all multi -year contracts contain a provision that they are subject to annual appropriation, so Town Meeting does retain rights with respect to the ultimate length of the contracts. The Committee unanimously (8 -0) supports this bylaw change. Article 37: Amend Funds Requested Funding Committee Tree Bylaw Source Recommendation (Citizens' Petition) None N/A Approve (7 -1) The Town incurs expenses every year to comply with the tree bylaw, and we believe that some level of revenue should be raised to cover these expenses. Furthermore, the fee may provide at least a modest incentive to preserve trees. The Committee, by a vote of 7 -1, supports this bylaw change. Article 44: Reconfirm Funds Requested Funding Committee Votes Petitioning Source Recommendation the General Court None N/A Approve (8 -0) Each legislative session of the Massachusetts Legislature, also known as the General Court, runs for two years. The Senate has adopted a Rule that ". . . whenever a new [Home Rule] petition for local legislation is filed in a new Legislature, it ordinarily must be based upon a new local approval – not the old local approval used to file a bill in a previous legislature." This necessarily means that, if a Home Rule petition filed during a legislative session is not enacted into law by the end of that session, then it will not be considered or taken up during any following session. Consequently, it is necessary, once the legislative session comes to an end, that the petition be presented and refiled in the next session if the Town wishes to pursue it. A prerequisite for that filing is a new vote by Town Meeting readopting and confirming its earlier action. The four Home Rule petitions, previously approved by Town Meeting, are as follows: a. Municipal Lighting Plant (Article 14 approved at 2005 Annual Town Meeting) b. Amend referendum scheduling provisions for approving or reversing a Town Meeting vote (Article 11 approved at 2006 Annual Town Meeting) c. Deleting separate mail notice to Town Meeting Members (Article 8 approved at 2007 Annual Town Meeting) Page 46 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 d. Ease Income and age limits for property tax deferrals (Article 23 approved at 2007 Annual Town Meeting) The Appropriation Committee supported Article 14 at the 2005 Annual Town Meeting and Article 23 at the 2007 Annual Town Meeting. The Committee continues in its support of these petitions and therefore, unanimously (8 -0) supports this request. Article 48: Munroe Funds Requested Funding Committee School Disposition Source Recommendation None at press time Pending Page 47 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 APPENDIX A: 3 -Year Budget jection This appendix is included to provide a multi -year perspective of town finances. The numbers we use to project revenue and expenses are not meant to be targets or goals, but are our best guesses as to how they may play out over the coming years. The projections can help us understand the challenges that Lexington will face if, as anticipated in the numbers below, revenue does not grow as fast as the expenses for "same service" budgets. The projections are also an opportunity to obtain a better quantitative understanding of known trends and cost drivers. Table A -2 shows actual, appropriated, budgeted, and projected amounts for the town budgets for FY2007 through FY2012. While we have provided actual, appropriated, and budgeted amounts for all sectors we have not projected revenues and expenses for budget lines that have direct offsets, i.e., exempt debt, enterprise fund direct expenses, and grants and revolving funds, as they do not affect the bottom line. These projections show a $4.5M deficit in the FY2010 budget. That gap will need to be closed by revenue additions and/or by expense reductions. Table A -1 illustrates how differences in the annual growth of certain budget items by 1% of the amount for the corresponding item in the previous fiscal year would affect the projected budgets. For example, the Table shows that a 1% change in the cost of Lexington Public School personal services from FY2009 to FY2010 is equivalent to a change of that line item in FY2010 by $544,080. The expenses for this particular item are projected to grow by 5.75% which is made up of a 3.5% increase due to step and lane changes and, for projection purposes because there is not a settled contract, a 2.25% COLA increase. So, if the contract for FY2010 is settled with a COLA of 1.25%, i.e., 1% less than we projected, then the LPS personal services line would decrease by $544,080 relative to what we have shown. Revenue growth, excluding any override amounts, in most years is largely limited to Proposition 2 1 /2 allowed growth: 2.5% of the tax base excluding exempt debt, projected to be about $2.7M in FY2010. Tax growth from new /improved real estate and personal property — projected to be about $1.6M in each of the next few years plus an additional amount attributed to the anticipated Shire development. Note that the projected amount is $300,000 lower than that actually expected to provide in part for the snow and ice deficit that occurs in most years. Other assumptions in revenues are: A slight growth in local receipts —while FY2010 anticipates an increase, the uncertain economy is anticipated to adversely affect motor vehicle excise tax, building permits and investment income. Available Funds are projected to be $4.05M. It is made up $1.5M of recurring Free Cash and $550K of recurring Parking Meter, Cemetery, and other small funds; and is applied to operating expenses. $2M of non - recurring Free Cash is used for building the stabilization funds, for funding the OPEB liability, Senior Tax write -off program, and capital. Free Cash represents the unexpended and unencumbered balance from previous years. It may come from the receipt of more revenue than expected, or year -end close outs of line items with unspent appropriations. This level of recurring vs. non - recurring funds roughly mirrors the levels in FY2009. State Aid is expected to grow for FY2010 and FY2011 as the later phases of the Chapter 70 Aid "catch -up" payments are implemented. However, uncertainty of lottery payments and a faltering economy temper our projection of the growth of State Aid and so we show level funding in FY2012. Page 48 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 The Town continues to experience expense growth in a number of areas that exceeds the typical annual growth in revenues. These include the following growth factors, as estimated by the Appropriation Committee: • School cost of living and step increases: 5.75% • School general expenses: 2.5% • Out of district SPED: 10% • Minuteman Regional High School: 12% • Municipal cost of living and step increases: 3.55% • Municipal general expenses: 3% • Benefits and Insurance: 8.6% • Utilities: 7% Debt Service: jumps in FY2010 to cover Woburn St., and then drops as debt is retired and smaller projects are funded. Together, these revenue and expense factors lead to an imbalance between available revenues and expenses for level services. This imbalance is shown in line 60 in the Balance (Deficit) line. It should be noted that these gaps could be closed by an override, service reductions, suspending appropriations to the stabilization fund, new efficiencies, increases in revenues other than by an override, or some combination of these methods. Table A-1: I% Variation The effect of a 1% variation in the cost assumptions above Page 49 of 50 FY10 LPS Personal Services $ 544,080 LPS General Expenses $ 39,981 Municipal Personal Services $ 180,960 Municipal Expenses $ 75,089 Shared Expenses - Benefits $ 217,421 Facilities Personal Services $ 33,033 Utilities $ 32,582 Page 49 of 50 APPROPRIATION COMMITTEE REPORT TO 2008 ATM —March 19, 2008 I able A -2: 3 -Year Budget Projections from the Appropriations Committee Revenue Summary 1 Tax Levy FY 2007 Actual Appropriated FY 2008 FY 2009 Budget $ 18.738.453 FY2010 projected $ 20.092.498 FY2011 projec FY2012 projected 6.738.101 $ 7.242.747 $ 7.508.949 $ 7.703.940 $ 7.951.259 $ 8.198.579 3a sub -total Municipal z Property Tax Levy $ 89.868.589 $ 96.012.202 $ 104.879.746 $ 109.181.083 $ 113.907.502 $ 119.496.247 3 Allowable 21/2 %inc. $ 2.246.715 $ 2.400.305 $ 2.620.337 $ 2.729.527 $ 2.847.688 $ 2.987.406 a New Tax levy Growth $ 2.036.789 $ 2.485.650 $ 1.681.000 $ 1.996.892 $ 2.741.058 $ 2.764.476 s Voter Approved Override $ 1.858.435 $ 3.981.589 s Taxkv Tenit $ 96.010.528 $ 104.879.746 $ 109.181.083 $ 113.907.502 $ 119.496.247 $ 125.248.129 e Exempt Debt $ 5.127.256 $ 5.372.874 $ 5.691.229 direct offset direct offset direct offset io sub -iota /Tax Levy $ 101.137.784 $ 110.252.620 $ 114.872.312 $ 113.907.502 $ 119.496.247 $ 125.248.129 i1 State Aid $ 8.304.953 $ 9.064.275 $ 9.670.275 $ 10.070.275 $ 10.470.275 $ 10.470.275 iz Local Receipts $ 12.910.181 $ 9.173.000 $ 10.156.258 $ 10.207.039 $ 10.258.074 $ 10.309.365 13 Available Funds $ 4.923.000 $ 4.216.097 $ 5.620.168 $ 4.050.000 $ 4.050.000 $ 4.050.000 14 Revenue Offsets $ (1.530.137) $ (1.897.006) $ (1.798.686) $ (1.825.995) $ (2.349.571) $ (1.873.148) 15 Total General Fund $ 125.745.781 $ 130.808.986 $ 138.520.327 $ 136.408.821 $ 141.925.025 $ 148.204.622 15 Other Revenues v Revolving Funds $ 635.992 $ 976.742 $ 2.012.000 direct offset direct offset direct offset 1e Grants $ 173.390 $ 122.732 $ 122.732 direct offset direct offset direct offset 19 Enterprise Funds (Direct) $ 15.445.321 $ 14.205.160 $ 15.374.904 direct offset direct offset direct offset zo Enterprise Funds (Indirect) $ 1.772.313 $ 1.752.885 $ 1.710.887 $ 1.683.936 $ 1.666.065 $ 1.750.511 u sub -iota /other Re venues $ 18.027.016 $ 17.057.519 $ 19.220.523 $ 1,683,9361 $ 1,666,0651 $ 1.750.511 a Total Revenues $ 143.772.797 $ 147.866.505 $ 157.740.850 $ 138.092.757 $ 143.591.090 1 $ 149.955.133 23 Expense Summary za Education FY 2007 Actual Appropriated FY 2008 FY 2009 Budget FY2010 pro ectetl FY2011 projected FY2012 projected zs Lex. Pub Schools Compen. $ 46.254.686 $ 50.936.007 $ 54.407.961 $ 57.536.419 $ 60.844.763 $ 64.343.337 25 Lex. Pub Schools Expenses $ 5.284.264 $ 4.526.318 $ 3.998.058 $ 4.098.009 $ 4.200.460 $ 4.305.471 zJ Out -of- District SPED $ 5.183.579 $ 6.007.636 $ 6.142.170 $ 6.758.020 $ 7.095.638 $ 7.450.794 26 sub- tota/Lex. Fub. Schools $ 56.722.529 $ 61.469.961 $ 64.548.189 $ 68.392.448 $ 72.140.860 $ 76.099.602 29 Minuteman Reg. School $ 1,024.817 $ 1.200.438 $ 1.510.598 $ 1.695.700 $ 1.917.371 $ 2.139.043 3o sub -total Educabm $ 57.747.346 $ 62.670.399 $ 66.058.787 $ 70.088.148 $ 74.058.232 $ 78.238.645 31 Municipal 32 35 Shared Expenses 35 Benefits & Insurance $ 21.720.931 $ 24.669.043 $ 26.793.252 $ 28.634.045 $ 31.061.622 $ 33.722.799 37 Debt (within -levy) $ 3.760.126 $ 3.798.137 $ 4.017.541 $ 4.545.587 $ 4.350.000 $ 4.350.000 3e Reserve Fund $ $ 469.868 $ 550.000 $ 550.000 $ 550.000 $ 550.000 39 Facilities $ 8.139.593 $ 8.639.773 $ 8.499.664 $ 8.903.150 $ 9.328.508 $ 9.777.057 40 sub - total Shared Expenses $ 33.620.650 $ 37.576.821 $ 39.860.457 $ 42.632.782 $ 45.290.130 $ 48.399.856 al Revolving Funds $ 635.992 $ 976.742 $ 2.012.000 direct offset direct offset direct offset az Grants $ 173.390 $ 122.732 $ 122.732 direct offset direct offset direct offset 43 Capital & Reserves as Cash Capital (inc of roads) $ 1.195.000 $ 1.355.000 $ 1.520.750 $ 1.600.000 $ 1.600.000 $ 1.600.000 as Stabilization Fund $ 2.650.000 $ 1.000.000 $ 1.000.000 $ 1.000.000 $ 1.000.000 $ 1.000.000 as Other (SrWorkOff,OPEB) $ 86.000 $ 40.750 $ 495.000 $ 795.000 $ 795.000 $ 795.000 m sub -total Ca ital & Reserves $ 3.931.000 $ 2.395.750 $ 3.015.750 $ 3.395.000 $ 3.395.000 $ 3.395.000 46 Enterprise Funds ae $ 5.628.900 $ 5.764.116 $ 6.545.020 direct offset direct offset direct offset 30 ewer $ 6.681.282 $ 6.779.913 $ 7.148.800 direct offset direct offset direct offset ;i MCapital $ 1.637.103 $ 1.636.131 $ 1.676.083 direct offset direct offset direct offset 32 ital $ 75.000 $ 25.000 $ 5.000 direct offset direct offset dire ct offset 33 rise Funds $ 14.022.285 $ 14.205.160 $ 15.374.903 direct offset direct offset direct offset 34 Exempt Debt 35 Municipal 1.299.188 $ 1.445.451 $ 2.631.247 direct offset direct offset direct offset ss School 3.828.068 $ 3.927.423 $ 3.059.982 direct offset direct offset direct offset 33 s�- totalExempt Debt $ 5.127.256 $ 5.372.874 $ 5.691.229 direct offset direct offset direct offset se Total Expenses $ 137.809.073 $ 147.821.203 $ 157.740.850 $ 142.558.322 $ 150.098.288 $ 158.324.577 so Balance (Deficit) $ 5,963,724 $ 45,302 $ - $ (4,465,566) $ (6,507,198) $ (8,369,444) Municipal Compen. $ 15.813.054 $ 17.257.978 $ 18.096.043 $ 18.738.453 $ 19.403.668 $ 20.092.498 33 Municipal Expenses $ 6.738.101 $ 7.242.747 $ 7.508.949 $ 7.703.940 $ 7.951.259 $ 8.198.579 3a sub -total Municipal $ 22.551.154 $ 24.500.725 $ 25.604.992 $ 26.442.392 $ 27.354.927 $ 28.291.076 Page 50 of 50