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HomeMy WebLinkAbout2007 AC Rpt2 APPROPRIATION COMMITTEE TOWN OF LEXINGTON pvs MORi 1 a` UN \o /t4 N- y 'A a 44tal ;kN \3 \ APRIL IgTN tEx` 2nd REPORT TO THE 2007 ANNUAL TOWN MEETING (Supplement to 1"Report,Released April 4 2007) Released April 21, 2007 Appropriation Committee Members—Fiscal Year 2007 Alan M. Levine Chair • Deborah Brown Vice-Chair Robert N. Addelson (ex-officio:non-voting) • John Bartenstein • Rodney E. Cole Richard Enrich • Pam Hoffman • David G. Kanter • Michael J. Kennealy • Eric Michelson APPROPRIATION COMMITTEE 2nd REPORT April 21 2007 TO 2007 ATM Summary of Warrant Article Recommendations Abbreviations. GF= General Fund; EF =Enterprise Fund RF=Revolving Fund CPA = Community Preservation Act Fund;BAN=Bond Anticipation Note An entry of Indefinitely Postpone in the right-hand column merely signifies our expectation. Ar Funds Requested Funding Committee tide Title Source Recommendation (Lexington Public MultipleTo be addressed in a Schools) subsequent report $56,331,435 Appropriate FY2008 (Minuteman Regional 21 High School, Shared $56,331,435 ($794,544 Operating Budget g Expenses, & Multiple contingent on an Municipal) ($794,544 override)(7-0) contingent on an override) 36 Appropriate for Public TBD Excluded Debt To be addressed in a Works Facility subsequent report 37 Appropriate for Post GF Indefinitely Postpone Employment Benefits (7-0) 38 Rescind Prior Borrowing ($3,000,000) Debt No Position (7-1) Authorizations Indefinitely Postpone Establish and See details below 39 Appropriate to Specified regarding four new GF Approve(7-0) Stabilization Funds Stabilization Funds 40 Appropriate to $1,000,000 GF $1,000,000 (7-0) Stabilization Fund 41 Appropriate for Prior $50,531 GF $50,531 (7-0) Years' Unpaid Bills $40,000(Municipal; 42 Amend FY2007 Transfer)+ GF(Transfer) To be addressed in a Operating Budget TBD (Schools) subsequent report $625,538(Schools) $15,000 CPA Appropriate for Transfer + $15,000 (7-0)+ 43 Authorized Capital $15,000+ TBD TBD TBD (Pending) Improvements Additional Excluded Debt 44 Use of Funds to Reduce GF Indefinitely Postpone the Tax Rate (7-0) Page 2 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM Table of Contents Summary of Warrant Article Recommendations. 3 Introduction 4 Developments from the 2006 Annual Town Meeting Until Now 4 Reserves 5 FY 2008 7 FY 2009 and Beyond 8 Updated Committee Positions or Information Since 1"Report 9 Warrant Article Analysis and Recommendations 10 Article 21 Appropriate FY2008 Operating Budget. 10 (a) Lexington Public Schools 10 (hl Minuteman Regional High School 10 (C) Shared Expenses 12 (dl Municipal 14 Article 37 Appropriate for Post Employment Benefits 14 Article 38 Rescind Prior Borrowing Authorizations. 15 Article 19' Establish and Appropriate to Specified Stabilization Funds 16 Article 40 Appropriate to Stabilization Fund 17 Article 41 Appropriate for Prior Years Unpaid Bills 17 Article 43 Appropriate for Authorized Capital Improvements 18 Article 44 Use of Funds to Reduce the Tax Rate 19 Appendix A. Estimated Impact of a Possible Override and Other Factors on Single-Family-Home Taxes for FY2008. .20 Appendix B: Financial Forecasts for FY2009—FY2011 .21 Table B-1 Budget Drivers. 23 Table B-2 Projection Summary 23 Figure B-1 Annual Budget Exclusive of Exempt Debt 23 Table B-1 3-Year Budget Projections from the Appropriation Committee 24 Page 1 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM Introduction This is our second written report to the 2007 Annual Town meeting. In the interest of brevity we will, in general, not repeat material from the first report. This and our other reports will be available on-line at httn://www.lexinetont mna.ore The topics covered in this report include our recommendations on most elements of the Operating Budget (Article 21) and on Articles 17-41 and 43-44 A third report, to be issued early next week, will address our recommendations on the Department of Public Works (DPW) Facility project (Article 16). A fourth and final report, to be issued later next week, will address the School Department operating budget and related Shared Expenses for health benefits (Article 21 lines 1100 and 2130) and Article 42. This report is organized as follows. We begin in this Introduction with an overview of recent financial developments, the status of the Town s financial reserves, the proposed FY2008 budget, and the financial outlook for FY2009 and beyond. We then provide updates on our positions and information since our first report. Next we provide our analysis and recommendations on individual articles. Finally we present in two appendices information on the expected impact of an operating override on tax bills in FY2008 (Appendix A) and projections of the Town s finances in future years(Appendix B). Developments from the 2006 Annual Town Meeting Until Now Four override questions were put to the voters in June, 2006. Questions 1 and 2, which sought additional funds for the operation of the Lexington Public Schools, were not approved. Question 1 which sought increased funds for salaries and expenses for municipal and school facilities maintenance, was approved. Question 4 which sought additional funds for the municipal operations budget, was also approved. The outcome of this referendum has had major effects on the budgets that have been developed for FY2008. Two Special Town Meetings were convened last fall. At the first (Special Town Meeting No. 1 convened on November 29 2006), a number of financial actions were taken, including. appropriations to augment the FY2007 school budget to cover new and unexpected special education (SPED) costs, adjustments to the Water and Sewer Enterprise Funds budgets, appropriations from the Community Preservation Act (CPA) Fund for three historical preservation projects, appropriation of funds received from Brookhaven for use by LexHAB, and a small supplemental appropriation for the Senior Service Program. In addition, that Special Town Meeting gave its preliminary approval for the consolidation of school and municipal facilities maintenance programs into a joint facilities department. Details may be found in our `Report to the 2006 Special Town Meeting#1 at the above web site. Of the General Fund appropriations made at Special Town Meeting No. 1 the only one of real significance was that required to cover the increase in SPED cost; the others were either housekeeping actions or small in magnitude. The supplemental school appropriation of$824K was covered for the most part by an increase in Chapter 70 State Aid, which came in significantly above the amount that had been projected during the 2006 budget process. The balance of the supplemental school appropriation was covered by new tax-levy growth in excess of that projected in March 2006. Thanks to these late-breaking additional revenues, it was not necessary to appropriate any Free Cash at Special Town Meeting No. 1 The second Special Town Meeting(Special Town Meeting No. 2) convened right after the first, but with debate held on December 2, 2006 considered an appropriation for the construction of a new Department of Public Works (DPW) facility Rather than appropriate the complete funds necessary for the construction of the facility then estimated to be about $30.5 million,that Special Town Meeting made a more limited appropriation of$1 6 million to fund the design process through 50% completion of the construction drawings. The objective was to allow further analysis of the building needs and possible Page 4 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM cost reductions, and to enable a more reliable cost estimate to be presented to this year s Annual Town Meeting, without significantly delaying the construction schedule. The allowable increase in property-tax revenue for FY2007 resulting from new construction ("new growth') was certified in December 2006 at $2,036,789 higher than the values of $1,675,000 assumed for the budget presented to the 2006 Annual Town Meeting and $1,875,000 assumed at the time of the November 2006 Special Town Meetings. State aid for FY2007 net of Cherry Sheet assessments and offsets, also came in higher than anticipated at $7 565 717 which was $708,962 more than the $6,856,755 projected in early 2006. (Note that these numbers do not reflect certain aid, e.g. for the METCO program, that is not reported on the Cherry Sheets.) The voters approval of Questions 1 and 4 on the June 2006 override referendum resulted in about $1.8M in new tax levy revenue beyond the ordinarily allowable 2.5%increase. The success of Questions 1 and 4 the higher new growth,the increase in State aid, and increases in various types of local receipts yield a projection by the Town Manager and staff in the Fiscal Year 2008 Recommended Budget & Financing Plan, March 23 2007 ("Brown Book'), of FY2007 non-exempt General Fund revenue that is about $3 5M, or approximately 1°%o, higher than the corresponding figure in the April 6,2006 (Blue) Budget Book. The Schools Department has reported that it will require an additional appropriation of$50,511 to cover unpaid bills from FY2006 and that there will be an additional deficit in its FY2007 budget of about $625,000 It is anticipated that supplementary appropriations to cover the FY2006 unpaid bills and part of the FY2007 budget deficit will be requested under Articles 41 and 42, to be funded by $260K in Free Cash. It is expected that the balance of the FY2007 Schools budget deficit will be covered by a request for $300,000 from the Reserve Fund and a transfer under Article 42 of about $110,000 from the salary adjustment account. For additional information, see the discussion under Article 41 in this report and the discussion under Article 42 in our subsequent report. Finally we note that, as of April 18, 2007 the expenditures on snow removal during FY2007 are over the budgeted amount of $610K by about $50K, but are expected to be handled within the existing DPW budget. Reserves Financial reserves are an important component of the Town s financial picture. They serve multiple purposes, nearly all of which are to provide funds on a temporary basis to help solve an acute problem. Reserves do not solve the Town s dominant, long-term, financial problem expenses growing more rapidly than revenues although they can help to buffer a revenue shortfall in a particularly bad year. Building and/or replenishing reserves requires the appropriation of funds which otherwise might be used to address a gap between revenues and expenses in the current fiscal year. Further information on the reasons and purposes for reserve building may be found in our Report to the 2005 Annual Town Meeting and the Report of the Ad Hoc Financial Policy Committee (2006). We note here that the Ad Hoc Financial Policy Committee recommended that the Town s general-purpose reserves should be large enough to help bridge a two- or three-year downturn in revenue from State aid and local receipts. Though no precise target for the Town s reserves has been officially adopted by the Board of Selectmen or this Committee, there seems to be a sense that it should be about 10% of the Town s annual General Fund Revenue,or about $10-11M. The Stabilization Fund has not been used to fund operating expenses or other recurring expenses on an annual basis. It is therefore generally agreed that the balance in the Fund is a genuine general-purpose reserve. On the other hand, appropriations from Free Cash have regularly been used to find operating expenses, as well as capital and other non-recurring expenses. We include both Free Cash and the Stabilization Funds in this discussion of reserves. Any discussion of reserves should also consider the Reserve Fund, although it is generally filly depleted at the end of each fiscal year. The reader must be careful to understand that different reserve `buckets have different characteristics, and that the dynamics of their increases and decreases must be evaluated in the context of the purposes and limitations of each type. Page 5 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM The total of the Free Cash and Stabilization Fund balances grew substantially over the past year, in part as a result of actions taken at the 2006 Annual Town Meeting. The balances going into this Town Meeting are given in Table 1 We also note that, for FY2007 no transfers have yet been made from the Reserve Fund, the balance of which remains at $400,000 However, we expect that, with the approval of this Committee,most or all of that balance will be transferred prior to June 10 to municipal and/or school line items to help cover FY2007 budget overruns. Table 1 Free Cash and Stabilization Fund Balances As of: March 1, 2006 March 1,2007 Free Cash $4 447 520 $3,802,147 Stabilization Fund $1 592,711 $4 191,000* Total $6,040,251 $8,195,000* *itit/n an approximate amount included_tar accrued interest Of the $3,802,147 in Free Cash that is available,the Town Manager has recommended the use of$50,511 to fund FY2006 unpaid bills, $209 469 to supplement FY2007 operating expenses, $1,887 147 for FY2008 operating expenses, and $655,000 for FY2008 capital projects. He has recommended that the balance of$1,000,000 be transferred under Article 40 to the Stabilization Fund. The latter transfer has no material effect upon the Town s fiscal condition because, from a reserves-balance perspective, the differences between Free Cash and a stabilization find are not major 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 State of the certified value, whereas a stabilization find 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 a stabilization fund requires a two-thirds majority The proposed changes to Free Cash are summarized in Table 2 and the proposed changes to the Stabilization Fund are summarized in Table 1 Table 2 Proposed Free Cash Changes-2007 Annual Town Meeting Certified Free Cash, July 1 2006 $3,802,147 Less 2006 Special Town Meeting appropriation (0) Free Cash as of March 10 2007 $3,802,147 Less use for FY2006 unpaid bills(Article 41) ($50,511) Less possible FY2007 supplement(Article 42) ($209 469) Remaining balance for FY 2008 articles $3 542,147 Less use for operating budget (Article 21) ($1,887 147) Less use for capital articles ($655,000) Less transfer to Stabilization Fund(Article 40) ($1,000,000) 1 Remaining Balance at End of Town Meeting $0 Table 3 Proposed Stabilization Fund Changes* Balance July 1 2006 F $4,265 947 Estimated interest received in 2007** $175,000 F Transfer in Article 40 $1,000,000 Projected Balance July 1 2007 (rounded) $5 441,000 *The amounts in the special-purpose Stabilization Funds to be created at the 2007 Annual Town Meeting are not included. **Assumes an interest rate of about 4 o Aim March through June 2007 The Town Manager conservatively estimates that Free Cash will be approximately $2M on July 1 2007 (although determination of the actual value must await certification by the State Department of Revenue). The total of Free Cash and the balance in the Stabilization Fund is then projected to be approximately $7 4M on July 1 2007 Page 6 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM FY 2008 The Town Manager and staff led the development of the FY2008 recommended budget by first estimating, from the best available information,the amount of revenue that could be expected in FY2008, taking into account the allowable 2.5% increase in the tax levy State aid, local receipts and available funds (principally Free Cash). The next step was to estimate the required expenditures in FY2008 for shared expenses, including debt service, health benefits and capital. A total was then calculated for the FY2008 shared expenses and the amounts appropriated in FY2007 for the educational and municipal operations. The amount by which the projected FY2008 revenue exceeded this total, considered to be 'new revenue, was allocated between the school and municipal budgets on a 72/28 percentage basis the same proportion as the final FY2007 school and municipal budgets. Although this allocation was, in principle, merely a starting point for further discussions, there was no strong feeling in the major boards and finance committees that it should be changed. Thus, it established the amount of expenditures that could be supported in the school and municipal budgets without, for example, fee increases or an operating override. The School Committee has, in fact, approved some changes in fees for FY2008 (some of which depend on the outcome of a June 2007 override referendum). As noted in the previous section, the revenue model contemplates the use of$1,887 347 of Free Cash for FY2008 operating expenses, the use of$655,000 of Free Cash for capital expenditures, and the transfer of $1,000,000 to the Stabilization Fund. The use of Free Cash is summarized in Table 2 above. The School Committee has requested that an additional amount be appropriated for school operations in order to maintain services and to restore some important previously lost positions. The additional amount will be contingent upon approval in a Proposition 2' override referendum to be called by the Selectmen upon favorable action by Town Meeting. The amount of the proposed override is about $3 9M and will be split between the school budget line item (1100) and the health insurance line item (2130). The Selectmen and Town Manager do not plan to seek additional funds for municipal operations through an override this year. There have been several late-breaking developments in the budget process, one of which involves State aid. The Town Manager, in the Brown Book, assumed a net increase of only about $20K in State aid from FY2007 to FY2008. In early April 2007 the Massachusetts House and Senate approved a joint resolution in favor of changes in Chapter 70 that would increase aid for education to Lexington beyond the increase assumed in the Town Manager s March 23 budget by about $640K. At a joint meeting on April 12, 2007 the Board of Selectmen, School Committee, and this Committee approved the allocation of this State aid increase to the school operating budget so as to decrease the amount that will be at risk in the June override referendum. The Town and School Administrations continue to work on revising the structure of the annual budgets. The use of revolving funds is increasing and will hopefully lead to greater transparency in a number of areas. Some of the details on the revolving funds may be found in our discussion of Article 25 in our first report, and further details will be provided in our upcoming report on the school operating budget. If the anticipated operating override for the school operating budget in June does not succeed, there will be layoffs of about 40 school employees. Since a laid-off employee is entitled to receive unemployment compensation from the Town while she/he is looking for a new job, the Town needs to be prepared to bear the potential costs of unemployment compensation. The maximum cost in FY2008, which would be borne in the highly unlikely case that none of the laid-off employees is reemployed, is close to $700K. The unemployment compensation line (line 2140)has been increased to about $375K from a much lower amount to cover the reasonably likely costs in the event that the override fails. This Committee has, in collaboration with Town staff, worked on making projections in order to gain some insight on future fiscal years (see Appendix B). The projections quantify according to a set of assumptions, the anticipated growth of expenses relative to revenues. We believe that we have made reasonable assumptions, and therefore are obligated to consider seriously the implications of the projections. They indicate that it is reasonably likely that maintenance of the FY2008 level of services in Page 7 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM FY2009 and beyond will require drawing heavily on reserves, having another override referendum, or cutting services. These conclusions are consistent with those of last year and other recent years. Some of the fine details of the budget and the proposed override questions and amounts are still being worked out. Our final recommendations on these matters will be given orally at Town Meeting. FY 2009 and Beyond As we noted last year, it seems highly likely that health insurance, energy and special-education services will continue to be significant cost drivers in future years. The Town is taking steps to address all of these areas, but has at most a limited degree of control in each of them. Progress is therefore likely to be incremental in nature and dependent upon external conditions. Nonetheless, incremental changes made over a long period can be of great import. Wages and salaries will also continue to be cost drivers as even increases of a few percent can have major effects. The annual increases in the number of students attending our public schools continue to moderate, although some short-term increases can be expected as the Avalon at Lexington Hills development (at the former Metropolitan State Hospital site) is completed and occupied in FY2008 and FY2009 Long-term forecasts suggest that the school population will slowly decline over the next ten years, but these forecasts become more uncertain at more distant times. Last year, we noted that the Town s liabilities for future pension payments are projected to be fully funded in 2015 This continues to be our understanding. In compliance with new requirements of the Government Accounting Standards Board, the Town recently obtained an actuarial report on its future liability for other post retirement benefit costs (primarily retiree health insurance). Based upon a number of assumptions,the report estimates the Town s liability for those future benefits to be in the $100 million range. Over the next year, this Committee will be studying the report and its implications for future funding needs. While there is not yet any legal requirement to find these liabilities, the Town Manager has suggested that the Town should make a modest start on such funding at the 2008 Annual Town Meeting by appropriating funds anticipated to be received from Medicare reimbursements. When the pension liabilities become fully funded in or about 2015 there will be a natural opportunity to make larger contributions to fund the retiree health-care liabilities. In early 2006, the Ad Hoc Financial Policy Committee recommended that the Town s physical assets be evaluated in order to put discussions of long-term maintenance needs on a sounder footing. The evaluation has not yet been initiated, but its potential usefulness has not diminished. Major capital projects beyond the DPW facility that are needed include the reconstruction of the `White House (the present home of the School Administration) for use as a senior center or some other purpose, the provision of a larger and more functional senior center in another location if not in a reconstructed White House, and the reconstruction or major renovation of three or four elementary schools. It may also be necessary to put aside new funds for use in street and road reconstruction. Voter approval through a Proposition 2' debt-exclusion referendum will likely be required for each of these major projects. The Town should continue to press the State for further substantial increases in aid. It is still low in absolute and relative terms. Potential ways to increase local sources of revenue should also be investigated. The possibility of expanding revenue by growing our commercial tax base will be examined in a study that the Lexington 2020 Vision Economic Development Task Force hopes to fund under Article 42 at this Town Meeting. Page 8 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM Updated Committee Positions or Information Since ft Report The following provides changes in this Committee s positions and information since our P Report to the 2007 Annual Town Meeting, which was released April 4 2007 Article 18: Accept MGL Chapter 32B, Section 18 (Medicare Extension Plans) When the sponsor moved to Indefinitely Postpone this Article, this Committee unanimously (9-0) supported that action. (This Committee had previously unanimously supported the Article) Article 23 Petition General Court to Increase Income Limits for Property Tax Deferrals (Citizens' Petition) As a substitute motion was presented which was consistent with the policy change we would want to see implemented, this Committee unanimously (7-0) supported it. (This Committee previously had its position as Pending.) Article 25: Continue and Approve Departmental Revolving Funds For the DPW Compost Operations,the FY2008 Authorization was $230,000 (an increase from $210,014). (There was no change in this Committee s unanimous support.) Article 26: Appropriate the FY2008 Community Preservation Committee Operating Budget and for CPA Projects The total funds requested were increased by $25,000 (to $1 491,199) as of a result of increasing the request under element (m) by that amount. This Committee s Recommendation was revised to $1,289 599 reflecting support of the additional $25,000 and our decision not to support the $90,000 requested for element (e)that was previously listed as Pending. (e) Comprehensive Cultural Resources Survey ($90,000 requested): A majority (5-1) of this Committee opposed this request as the proposed effort would expand the Cultural Resources Inventory without having first addressed concerns regarding the process in the Demolition Delay Bylaw whose scope is linked to property in the Inventory (This Committee previously had its position as Pending.) (j) Douglas House ($300,000 requested): Following clarification of the circumstance under which the units no longer being `affordable would trigger repayment to the Town of these funds, a revised majority (6-2) of this Committee supported the request. (This C onnnittee previously had its position as supporting by an 8-1 majority) (m) Administration ($50,000 requested): This Committee unanimously (9-0) supported the increased amount. (This Committee previously had unanimously supported the original$25,000 request) Article 31(a): Lincoln Field Methane Mitigation While we previously gave our unanimous support to a requested appropriaton of $460,000 requested level, we now understand that a State approved solution may cost up to $475,800 the Consulting Engineer s cost estimate for Alternative #2 (Passive Ventilation with Horizontal Collector Pipe and Membrane Wall). Pending at the time this report went to press is a proposal to do the work in two phases (first just the ventilation at a lower depth, then the wall using a different material). The objective would be to see whether the ventilation alone is sufficient to reduce the methane-gas level to meet the standards thereby eliminating the need to construct the barrier wall. While a revised cost estimate is not yet available to us, we expect the total cost, even if phased, to be lower than $475,800 with this Town Meeting being asked to appropriate only for funding the first phase. As much as we would hope the final implementation can be achieved at a cost less than even whatever is the first-phase cost, we see no practical alternative to the Town meeting its legal obligation by resolving the gas-migration issue. This Committee, therefore, consistent with our earlier statement of necessity unanimously (7-0) supports the requested amount(anticipated not to be more than $475,800). Page 9 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM Warrant Article Analysis and Recommendations Article 21Funds Requested Funding Committee Appropriate Source Recommendation FY2008 Operating (Lexington Public Multiple To be addressed in a Budget Schools) subsequent report $56,331,435 Multiple $56,331,435($794,544 (Minuteman contingent on an Regional High override(7-0) School, Shared Expenses, & Municipal) ($794,544 contingent on an override Amount Funding Project Description Requested Source Committee Recommends (a) Lexington Public Multiple To be addressed in a subsequent Schools report Amount Funding Project Description CommitteeRequested Source Conittee Recommends Ib) Minuteman Regional $1,200,418 GF $1,200 438 (7-0) High School Enrollment figures for the FY2008 school year (2007 2008) are measured as of October 1 2006, and at that time there were 691 full-time students, a decrease of 50 students (-6.8°/o). The school served a total of 882 full-time equivalent (FTE) full and part-time students, down from 911 FTE ( 5°/o). The school population is roughly 64°%o from in-district towns, and 16°%o out-of-district towns. There are no `Choice students attending. In-district enrollment decreased by 59 students ( 11 6°/o). Out-of-district enrollment levels increased by 8 students(1 1°/o). SPED students are 51°%o of the FTE enrollment. The Minuteman Regional High School(MRHS) Committee has accepted an operating budget for FY2008 of $16,745 769 (a $606,271 [1.8°/o] budget increase over current year). Last year s increase was 2.8°%o. Salaries, which are 63°%o of the budget, increased $496,172 (4 9°/o). The factors that make up this large percentage increase are 1)an FY2007 one-year contract settlement which was higher than budgeted (actual 2.5°%o, budgeted at 2%), and 2) a budgeted increase for the still unsettled contract for FY2008. Due to reduced enrollment the school has reduced academic staff 4 5 FTEs, yet in response to higher demands of SPED academic competency reporting, and mandated student occupational certification, it has had to maintain support and administrative staffing levels. The higher cost of energy continues to affect heating, power, and student transportation. The school continues its commitment to infrastructure renewal with an annual capital budget of$250,000. Page 10 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM Member towns assessments are used to find 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 s assessments are based on a MRHS budget funded with a projected $2,258,051 of Chapter 70 money and $983,837 in transportation aid. This is a slightly increased level of funding of Chapter 70 aid and a significantly increased level (+29 4%) of finding of transportation aid from FY2007 Out-of-district enrollment and its associated tuition revenue are anticipated to continue to decline over the long term and, although the FY2008 enrollment increased slightly it remains 23 students below its October 2004 level of 270. This is mainly due to the State s current Chapter 74 rules which restrict the number of non-resident students eligible to enroll. Although the State caps 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 $15 547 per student. Minuteman officials have lobbied both the Legislature and the State s Commissioner of Education on this issue for years and FY2007 rates were increased 7°%o. The FY2008 non-resident rates have yet to be set by the State, but they are anticipated to increase 1°io-5°io. Minuteman s budget assumes level per-pupil funding with a decreased out-of-district enrollment. This year, as last year, MRHS has made clear that its assessments to its member towns are just an estimate. MRHS cannot produce final assessments until Chapter 70 State aid has been set by the State Legislature, and as of press time that has yet to occur. The preliminary assessments are based on the aid in the Governor s proposed budget,known as House 1 which should serve as a minimum figure. The preliminary assessment for Lexington for FY2008 is $175,621 (+17 1°%o) higher than the FY2007 actual assessment. The main portion is based on Lexington s FY2007 Base Enrollment (as of October 1 2006) of 51 7 full-time regular students in grades 9-12, 1 6 ( 1%) less than last year. However while Lexington s enrollment has slightly dropped, the overall MRHS in-district enrollment has significantly declined, raising our Town s share of in-district enrollment by 17 5°%o. This has increased our total full- time student operating-share assessment $103,197 (+63 4°%o) to $265,869 a per-pupil increase of 68.5°%o. In addition, Lexington s total SRM payment increased $54 418 (+9°%o) with our per-student SRM payment increasing 7°%o, the fifth highest per-pupil percentage increase among the in-district towns. The escalation of our SRM payment is due to growth in two of the three community factors used to calculate it: total value of assessed property increasing 11°%o, total value of household income increasing 13°%o, and the municipal revenue growth factor decreasing 6%. Page 11 of 24 APPROPRIATION COMMITTEE 2nd REPORT April 21 2007 TO 2007 ATM A breakdown of the full assessment is. Minuteman's Projected Assessment (based on the unapproved House-1 budget) PROGRAM FTE BASIS AVE PER-PUPIL ASSESSMENT($) ENROL-MENT* ($) FY2007 FY2008 FY2007 FY2008 FY2007 FY2008 Grades 9-12: Regular Day Students—Operating-Share Assessment 53.30 51.70 3,052 5,143 162,672 265,869 Special Education Assessment 31 30 4,250 4,250 131 750 127,500 State Required Minimum 53.30 51.70 12,297 13,730, 655,405 709,843 Totals, grades 9-12 (including SPED) I 53.30 51.70 17,820 I 21,339 949,827 I 1 103,212 Special Programs: 'Reduced Charge' Pupils 6.00 9.00 4,697 5,174 28,180 46,570 Afternoon' Pupils 7.88 4.86 2,587 4457 20387 21 663 Totals,Special Programs I 13.88 13.86 3,499 I 4,923 48 567 68233 TOTAL OPERATING I 67 18 65.56 14,861 17,868 998,394 1 171 445 Capital Assessment(based on enrolled 9-12) 496 561 26,423 I 28,993 I TOTAL ASSESSMENT 15,255 18,311 1,024,817 11,200,438 I Percentage increase over prior year 42 79%# 20 03% 15 45% 17 14% prior year's enrollment as of October 1 # large increase due to elimination of middle school program This Committee unanimously (7-0)supports this request. Amount Funding Project Description Requested Source Committee Recommends $28,916,441 ($794 544 $28.916,441 ($794 544 is (c) Shared Expenses contingent GF contingent on an override) (7-0) on an override) [Brown Book, Section IV Program 2000 Shared Expenses] Shared Expenses encompass three basic categories (1) Line 2100, Employee Benefits, (2) Line 2200, Debt Service; and(3) Line 2300, Reserve Fund. 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. There is as yet no obligation for Lexington to find that liability although, pursuant to changes in the Government Accounting Standards Board (GASB) requirements, the Town must begin reporting the unfunded liability in its financial statements. (See the discussion of Article 37 in this report.) Health benefits for both municipal and school employees are included in this section of the budget, an approach that began with the FY2007 budget. The estimated expense for health benefits (including medical & dental) to be paid by the Town totals $19,869 487 by far the largest portion of this section. This figure represents a 9 4°i° increase over FY2007 and continues a trend of escalating health costs which 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 plans Page 12 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM offered by the Town. For a further explanation of the multiple reasons underlying this continuing increase, see page ii of the Town Manager s Report in the Brown Book. For the first time, the FY2008 budget identifies what portion and percentage of the projected health benefit costs are attributable to municipal, school and retired employees. (See page IV-4 of the Brown Book.) The projected percentage increase of health costs for municipal and school employees is the same, 10 4°%o, the percentage increase attributable to retired employees (which includes spouses) is approximately 1.2°%o less. This is because most retirees have only individual, as opposed to family plans. Individual plans for retirees are less expensive than individual plans for active employees. The total dollar amounts of the FY2008 estimates for municipal ($3,256,000) and school employees ($9 595,000) differ because a significantly greater number of individuals are employed on the School side. During budget development, the estimate for health costs in Line 2130 was premised on the same number of active employees as existed on both Municipal and Schools sides in FY2007 and did not take into account either new employees who have been added to the Schools protected, not-at-risk, list for FY2008, or new school employees who will be added if any of the projected school override questions are approved by the voters. The health benefits for those new employees were included in the Schools budget numbers. However for purposes of actual appropriation, all health benefits will be carried in Line 2130 and the Schools budget, Line 1100, will be adjusted accordingly This will be the case whether the override succeeds or fails. A number of current School employee positions are placed at risk in the upcoming School override questions. Should those questions be rejected by the voters, and those employees positions consequently eliminated,the projected health benefits for those employees will not be incurred. Accordingly there will be a decrease in total, projected,health expenditures for FY2008. However the Town will face a statutory liability for unemployment compensation payments for those employees who are laid off, an amount which will approximate the savings in health benefit costs. The current budget, in Line 2140 carries a higher number for unemployment benefits than in past years to address, in some degree, those benefits in case of a failed override. At the time of the printing of this Report, it cannot be determined whether that amount will, by itself, be sufficient to cover unemployment compensation costs imposed on the Town should the override fail. The second largest figure in this section of Shared Expenses is Line 2110 $3 449,284 It represents the amount to be paid by the Town to the Lexington Retirement Trust Fund, managed and overseen by the Lexington Retirement Board, pursuant to an ongoing program to fund the Town s liabilities for current and future pension payments to retirees. The State requires that municipalities fully find 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 finded 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 FY2008 is $3 779 937 which is $59,876, or 1.61°%o, higher than in FY2007 The total amount is broken down as follows. temporary- borrowing interest payments of $242,125 long-term debt interest payments of$703,832, and long-term debt principal payments of $2,833 980. The long-term debt interest payment is 11°%o higher than in FY2007 offsetting percentage decreases in long-term debt principal and temporary-borrowing payments. It is anticipated that this section of the budget will appreciably increase in FY2009 when substantial long-term within-levy debt is issued. Reserve Fund The amount recommended to be put into the Reserve Fund, from which this Committee approves transfers and payments for extraordinary and unforeseen expenses, is $450,000 This is $50,000 more than was appropriated for FY2007 continuing a process in which the amount appropriated to this Fund has been increased over the past several years. 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 Page 13 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM appropriation at the 2005 Annual Town Meeting. The 2005 Annual Town Meeting also appropriated $150,000 for FY2006. The 2006 Annual Town Meeting increased the FY2007 appropriation to $400,000 The purpose of this Reserve Fund is to provide contingency funds in the budget to deal with unexpected and substantial cost overruns without impairing permanent reserves, such as the Stabilization Fund and Free Cash. Among such potential expenses are snow removal, overtime expenses for police and fire personnel, and special education (SPED) costs. Additionally increasing the Reserve Fund relieves individual municipal and school departments from the need to include reserves in their respective individual budgets. This Committee unanimously (7-0)supports this request. Amount Funding Project Description Requested Source Committee Recommends (d) Municipal $76,714 556 Multiple $26,214 556 (7-0) The municipal budget request is a 5 3°%o increase over FY2007 The health insurance costs (carried in the Shared Expenses Budget) attributable to current municipal employees are estimated by the Town Manager to be $3,256,000 for FY2008. A comparison of FY2007 and FY2008 municipal budgets with the corresponding health benefits for municipal employees follows. FY2007 FY2008 °i° Increase Municipal Budget $74,895 377 $76,714 556 5 30% Health Insurance $ 2,950,000 $ 3,256,000 10 37% Total $27,845 327 $29 470,556 5.84% The Brown Book contains a wealth of information about each municipal department s recommended budget, including projected FY2008 and historical staffing levels (going back to FY2004), departmental initiatives, and programs and items requested, but not recommended,for funding in FY2008. This budget includes an estimate of the funds needed for FY2008 salaries as those contracts are still under negotiation at press time. This Committee unanimously (7-0)supports this request. Article 37 Funds Requested Funding Committee Appropriate for Source Recommendation Post Employment GF Indefinitely Postpone Benefits (7-0) Retired Lexington employees receive two types of post-employment benefits. a pension and health insurance. Annual appropriations to the pension find and to the health-care trust find (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 find; 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 no similar provision is currently being made for the future health benefit liability As reported last year, the new Government Accounting Standards Board (GASB) Statement 45 (GASB- 45) dictates that municipalities begin reporting the unfunded liability for retiree health benefits with deadlines based on their annual revenues. For Lexington, that means reporting beginning with FY2008. Page 14 of 24 APPROPRIATION COMMITTEE 2nd REPORT April 21 2007 TO 2007 ATM This is not a requirement to begin funding the liability but simply to determine the amount of the liability and record it as part of the annual audit. The Town engaged an actuary to measure the liability in order to be in compliance with GASB-45 The actuarial analysis has been completed and the results of the report, dated March 9 2007 were presented to the Board of Selectmen at its meeting,April 18,2007 As introduced last year,this Article is a placeholder for the eventual funding of this liability and no funds are requested at this time. It is anticipated that at the next Annual Town Meeting, the Town Manager will recommend an appropriation to begin funding future retiree health-care liabilities. The expected source will be funds the Town is now receiving from the Federal government to partially offset the prescription- drug benefit we provide to retirees in place of the Medicare Part D prescription benefit. During the current fiscal year (FY2007), the Town has received approximately $300K in Medicare Part D rebate, but these monies cannot be appropriated until they become part of the next certified Free Cash balance. 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. This Committee unanimously (7-0)supports Indefinite Postponement. Article 38. Rescind Funds Requested Funding Committee Prior Borrowing Source Recommendation Authorizations ($3,000,000) Debt No Position(7-1) Indefinitely Postpone The 1999 Annual Town Meeting approved (for FY2000) an appropriation of $3,000,000 'for acquiring land for open space and conservation purposes, including outdoor recreation, as provided by G.L.c.40, §8C as amended' The vote further provided 'that to meet this appropriation the Treasurer with the approval of the Board of Selectmen is authorized to borrow $3,000,000 under G.L.c.44 §7(1); provided, however, that this appropriation and the expenditure of funds pursuant thereto shall be limited to the acquisition of such land and/or interest in land as may be approved by a two-thirds vote of an annual or special town meeting [1999 Annual Town Meeting, Article 14 (Land Acquisition Bond), Motion dated March 22, 1999] While there were no specific acquisitions identified as ready for funding at that time, it is our understanding that the action was taken to demonstrate formally the Town s continuing commitment to open space, conservation, and outdoor recreation. Since then, first Town Meeting (by its approval at the 2005 Annual Town Meeting) and then the Lexington citizens (by voting to pass a referendum question in March 2006) have formally renewed that commitment with the adoption of the Community Preservation Act (CPA) which was done at the maximum, 1°%o, surcharge on their real-estate taxes. Those local funds, along with the matching (to some degree, but starting at 100°%o) State funds, are for Affordable Housing, Open Space, Historic Preservation, Recreation, and for operating expenses of the Community Preservation Committee (CPC). With the implementation of the CPA in Lexington,there is now a more-robust, in-use program to achieve the same purpose(s) as the never-used bonding authority from 1999 While outstanding bonding authority which remains part of Lexington s authorized borrowing authority and, thus, diminishes our total borrowing capacity could have some very-minor adverse effect as bond-rating agencies judge Lexington, that is not our reasoning for believing it is prudent to rescind this unused authority Even without an effect on the Town's bond rating and even having been told there is no legal impediment to having two concurrent, alternate, funding procedures, we still would urge rescission as we cannot support having two, parallel, funding paths for the purchase of open space. We see a purchase that would fall under the 1999 authority as falling within the scope of the CPA, and believe any such CPA-eligible project should be presented to the CPC so it can compete along with other CPA-eligible projects. Further Page 15 of 24 APPROPRIATION COMMITTEE 2nd REPORT April 21 2007 TO 2007 ATM any no-longer-needed authority should be rescinded so the Town's financial records and reports are not cluttered with outdated authorizations. However, the Town Manager advises that the Lexington Conservation Commission which was a proponent of the 1999 action and is the steward of much of the Town s open space in the absence of knowing whether CPA funding will be made available for conservation-land purchases, prefers to retain the option of funding outside of the CPA and has requested Indefinite Postponement of this Article. The majority of this Committee (7-1) takes no position with regard to Indefinite Postponement of this Article, but unanimously (8-0) looks forward to readdressing the rescission of the 1999 authorization at the next Town Meeting(special or annual). Article 39• Establish Funds Requested Funding Committee and Appropriate to Source Recommendation Specified See details below GF Approve(7-0) Stabilization Funds regarding four new Stabilization Funds This Article seeks to establish four different, specified, stabilization funds. Appropriations for these stabilization funds would come from existing and future special revenue accounts. Historically funds in these special revenue accounts were spent without specific appropriation, but because of recently issued Massachusetts Department of Revenue guidelines, as well as a goal of making those transactions more transparent, the Town now seeks to establish specified stabilization funds instead. The proposed funds are as follows. 1 Transportation Demand Management ITDMI/Public Transportation Stabilization Fund. The fund would support the operations of the LEXPRESS bus service. It is proposed that $58,000 be appropriated from the LEXPRESS TDM special revenue account to this fund. That TDM account has been funded by payments from multiple developers over time. The $58,000 would then be appropriated from this newly created stabilization find under Article 21 to support the LEXPRESS operation, which is a component of the DPW operating budget in FY2008. 2. Traffic Mitigation Stabilization Fund. This find would finance traffic mitigation projects pursuant to conditions of special permits issued by the Town. It is proposed that $220,035 99 which are all the unencumbered funds be appropriated from the TDM Avalon Bay special revenue account to this find. There is no proposed Article 21 appropriation of these funds for FY2008. l School Bus Transportation Stabilization Fund. This fund would support the transportation of students to and from school on a daily basis. It is proposed that $200,000 be appropriated from the School Transportation Avalon Bay special revenue account to this fund. Out of this amount, it is proposed that $65,000 be appropriated under Article 21 from the newly created stabilization find to support school-bus transportation costs in the FY2008 school budget. 4 Section 135 Zoning By-Law Stabilization Fund. This find would be used to finance public improvements pursuant to Section 135 of the Code of the Town of Lexington. The Town seeks only to establish this find at this time, with no proposed appropriation into or out of the fund. The Town anticipates that future payments from developers could be appropriated into this find. This Committee unanimously (7-0)approves this request. Page 16 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM Article 40- Funds Requested Funding Committee Appropriate to Source Recommendation Stabilization Fund si,000,000 GF $1,000,000(7-0) This Article seeks to transfer $1,000,000 from Free Cash into the unrestricted Stabilization Fund. The Town anticipates finishing FY2007 with a balance of $4 440,947 in this Stabilization Fund before this transfer. With this $1,000,000 addition, the Town projects a balance in this Stabilization Fund at July 1 2007 of$5 441,000 /rounded) This additional appropriation from Free Cash is consistent with a policy recommendation supported by both the Town Manager and the Selectmen s Ad Hoc Fiscal Policy Committee to keep a minimum balance in Free Cash and to accumulate reserves in one or more stabilization funds. And as this action represents a major portion of the funds last received by the Town from the closeout of the NESWC Stabilization Fund, a one-time source of revenue, it is prudent to appropriate it to the Stabilization Fund rather than to use it to pay for recurring expenses. Further, this approach has the advantage of providing better segregation and protection of reserves and sets a higher bar for the use of such funds. Town Meeting must approve appropriations into and out of stabilization funds by a two-thirds vote. This Committee unanimously (7-0)supports this request. Article 41 Funds Requested Funding Committee Appropriate for Source Recommendation Prior Years' $50,531 GF $50,531 (7-0) Unpaid Bills The School Committee is requesting this appropriation to pay for FY2006 unpaid bills. The amount of those bills represents less than 0.08°%o of the FY2006 School Budget. These bills were not paid during FY2006 because either they were not properly processed internally or they arrived from the vendor late or with errors. The new Assistant Superintendent for Finance and Business has implemented procedures and controls to make sure bills in the future are properly identified, coded, and paid. The administrative support staff has attended training sessions to review the proper procedures for ordering items and services, and tracking their delivery and payment. Starting May 1 2007 all open FY2007 purchase orders will be closed giving the business office enough time to track all outstanding orders and invoices, and make payments before the close of the fiscal year. Going forward, 0.111i0 of the budget will be encumbered to cover the small errors and omissions that often occur in year-end bills. This Committee unanimously (7-0)supports this request. Page 17 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM Article 43 Funds Requested Funding Committee Appropriate for Source Recommendation Authorized Capital $15,000 +TBD $15,000 CPA $15,000 (7-0) Improvements Transfer +TBD + Additional TBD (Pending) Excluded Debt Amount Funding Project Description Requested Source Committee Recommends (a) Transfer Funds from Cary $15,000 CPA (2006 Vault Shelving to Cary Vault Transfer Town $15,000 Transfer(7-0) Climate Control Meetings) 'CARY VAULT SHELVING Article 4, subsection (d) of the November 29, 2006 Special Town Meeting (Community Preservation Fund) appropriated $60,000 from the general unreserved fund balance of the Community Preservation Act for shelving for the main vault of the Cary Memorial Building, in furtherance of its rehabilitation for its intended use. Donnegan Systems, Inc. has been contracted with for the installation of a new Kardex Shelving System in the Cary Memorial Building vault. Final design of the system to be installed has resulted in a reduced cost, projected not to exceed $45,000. The Kardex Shelving system is expected to be ready for installation in the Spring 2007 'CARY VAULT CLIMATE CONTROL Article 28, subsection (i) of the 2006 Annual Town Meeting (Appropriate for Municipal Capital Projects) Building Renovations authorized $60,000 for the rehabilitation and restoration of the records vault in the Cary Memorial Hall, to be raised from the Community Preservation Fund,for historic resource purposes under the Community Preservation Act. `Initial discussion with a professional engineering design and consulting firm, and review of the Cary Memorial Building plans of 1927 preliminarily estimates the total project will exceed the $60,000 appropriated,to a projected amount of approximately $80,000 Any firmer number is premature at this time. Upon finalization of the necessary specifications and documents for the design and bidding of a climate control and fire suppression system for the vault in the Cary Memorial Building a more definitive amount will be available. Due to the initial estimate that the total project would likely exceed the$60,000 appropriated, the project will be bid to provide for completion of as much of the project as possible with available funds. Authorization for the transfer of$15,000 of surplus funds appropriated under Article 4 subsection(d) of the November 29 2006 Special Town Meeting (Community Preservation Fund) to CARY VAULT CLIMATE CONTROL Article 28, subsection (i) of the 2006 Annual Town Meeting (Appropriate for Municipal Capital Projects) Building Renovations is requested as part of ARTICLE 41 2007 Annual Town Meeting. [Town Clerk Motion, March 26, 2007] This Committee unanimously (7-0) supports the requested transfer Page 18 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM Amount Funding Project Description Requested Source Committee Recommends (b) Closeout of Previously Fiske/Harrington Elementary TBD Authorized Pending Schools Projects Excluded Debt It is contemplated that some additional funding will be needed to close out the Town s financial obligations for construction of the new Fiske and Harrington Elementary Schools project. The exact amount was not known at the time this report went to press. When that amount is determined, Town Meeting will be asked to appropriate it as a further addition to the excluded debt of$32.150M that was originally authorized by appropriation at a 2002 Special Town Meeting, under its Article 5 subject to the passage of a debt-exclusion override for those projects. That override, as is the case for all debt-exclusion overrides in this State, was for the projects scope and not for a specific dollar amount. This addition, together with the $1 575M addition approved at the 2005 Annual Town Meeting, under its Article 29(d), for which no excluded debt has yet been issued, are believed to be within the one-time adjustment allowed by the Massachusetts Department of Revenue. This Committee s position is pending receipt of further information on the amount being requested. Article 44 Use of Funds Requested Funding Committee Funds to Reduce Source Recommendation the Tax Rate GF Indefinitely Postpone (7-0) In prior years, this Article has been the vehicle for appropriating any Free Cash necessary to balance the operating budget. This year, as last year, all appropriations of Free Cash have occurred under the relevant budget articles. At press time the article motions were not yet available, but the likely relevant articles are: 21 39 40,41 and 42. Accordingly no funds are requested under this Article. This Committee unanimously (7-0)supports indefinite postponement. Page 19 of 24 APPROPRIATION COMMITTEE 2nd REPORT April 21 2007 TO 2007 ATM Appendix A. Estimated Impact of a Possible Override and Other Factors on Sinule-Family-Home Taxes for FY2008 Est.FY2008 Estimated Est.FY2008 Total Increase for Total FY2007 FY2007 Total Increase win a$3 98M Property Tax' Assessed\alue Property Tax' Override Override with Override $200,000 $2,299 $57 $87 $2,443 $300,000 $3 466 $86 $130 $3,682 $400,000 $4,632 $116 $171 $4920 $500,000 $5 798 $145 $216 $6,159 $600,000 $6,964 $174 $260 $7 198 $700,000 $8,131 $203 $303 $8,636 $800,000 $9,297 $232 $346 $9 875 $900,000 $10,463 $261 $389 $11 113 $1,000,000 $11,630 $290 $431 $12,152 $1,200,000 $13962 $348 $519 $14829 $1 500,000 $17461 $435 $649 $18,545 $2,000,000 $23,292 $580 $865 $24 718 Percent 795'0 2.49'0 3 75'0 6.2_"0 increase over F32006 Proposition 2' allows for a 2.5% increase in town-wide total property-tax revenue, exclusive of property taxes to fiord debt service for Proposition 2' excluded debt, plus the increase in property-tax revenue for new growth. In this table we restrict ourselves to single-family homes with no new growth, so that only the 2.5% and excluded debt come into play In past years other types of residential property saw different tax increases than single-family houses, however this year there are no material differences in tax increases among the different types of residential property for example condos and multi-family houses, so the FY2008 increases are good approximations for other types of residential property In recent years, taxes on single-family homes, even absent the approval of Proposition 2' operating or debt-exclusion overrides, have risen faster than 2.5% because the increase in home values relative to commercial values has shifted ever more of the property tax burden onto residential property especially single-family homes. Last year we estimated this shift would lead to an additional tax increase of 2.29% from FY2006 to FY2007 in addition to the usual 2.5% increase allowed under Proposition 2' However the shift moderated and turned out to be about 1 45%. The latest data suggest that the FY2007 to FY2008 shift will be essentially nil. The values here assume there will be no shift of the tax burden between residential and commercial property categories. An increase in exempt-debt service from one year to the next causes a tax increase in addition to the Proposition 2' 2.5% allowed increases (as will happen in FY2009 and/or FY2010 if a debt-exclusion override to find a new DPW facility is passed), while a decrease in exempt debt as debt is paid down has the opposite effect. This year the change in exempt debt is essentially zero. If a debt-exclusion override for a new DPW facility is passed this June, exempt debt service will rise as shown in appendix C Vote I All total tax amounts include CPA surcharges. Vote 2 Tf a $3 MAT operating override is approved in June 2007 The increase is 0 94 0 per million dollars of override or $76 per million dollars of override Jnr a home assessed at $700,000 approximately the Town-wide median assess/Rent. Vote 3 With the exception of the CPA taxes, the percentage increase is the same Jar all homes. This only has a material impact on the tax increase percentages from F32006 to FY200 7 The increase from F32006 to FY2007 is 5 32'0 plus CPA which varies with assessed value from a low of 150'0 tai $200,000 to a high of 2.85 0 tai $2,000,000 The value 7 95'0 is/cr a home assessed at$700,000 which is approximately the Town-ride median. Page 20 of 24 APPROPRIATION COMMITTEE 2"d REPORT April 21 2007 TO 2007 ATM Appendix B. Financial Forecasts for FY2009—FY2011 This appendix provides revenue and expense projections out to FY2011 While some level of detail is provided in Table B-1 these projections are best thought of as a broad-brush look at how the Town finances may play out over the coming few years as the fine details will undoubtedly unfold somewhat differently The big picture is that this year and next, revenues will not meet expected increases in expenses for a same service budget, unless there are new efficiencies or additional revenues. In FY2010 and FY2011 revenues are not projected to meet increasing expenses, however the gaps between revenues and expenses are projected to be somewhat smaller. Accompanying tables include: B-1 FY2009—FY2011 Budget Drivers B-2. FY2009—FY2011 Summary of the projected budget totals, exclusive of exempt debt and projected overrides needed to close the projected budget gaps. B-1 FY2009—FY2011 Detailed Budget Projections. A figure B-1 showing the growth in the budget from FY2001—FY2011 is also provided. Revenue growth, excluding any override amounts, in most years is largely limited to • Proposition 2' allowed growth. 2.5% of the tax base excluding exempt debt, projected to be about $2.4M in FY2008. • Tax growth from new/improved real estate and personal property projected to be about $1.6M in each of the next few years. Note that amount is lower than actually expected to account for the snow and ice deficit that occurs in most years. As part of the tax-rate setting processes, an estimate of the actual amount is used to compute the Proposition 2' allowed increase for the next year and it is assumed that the actual value will be $1 9M. This is slightly lower than in the past few years to account for the downturn in the local housing market. In addition there are other changes in revenue that can occur • Any change in expected local receipts projected to be a decrease of about $740,517 from FY2007 to FY2008. This specific decrease is due to accounting changes in the school account that move certain monies into revolving accounts which are matched by a decrease in school expenses and does not reflect a true decrease in revenue. • Changes in Free Cash from one year to the next. Free Cash represents revenue from previous years that was not spent. This may come from receiving more revenue than expected, or year-end close outs of line items with unspent appropriations. These revenue increases, in FY2008, are offset by a decrease in available funds of about $513,000 primarily due to a decrease in available free cash. Another decrease in available funds, due to a further drop in available Free Cash is projected for FY2009 which will again pose a challenge to the Town. Available Free Cash in FY2007 and FY2008 is higher than can normally be expected due to some one time sources of Free Cash. Revenue increases are projected to be significantly higher in FY2010 and FY2011 than in FY2008 and FY2009 Page 21 of 24 APPROPRIATION COMMITTEE 2°d REPORT April 21 2007 TO 2007 ATM We continue to experience growth in a number of expense items which exceeds typical annual growth in revenues. These include the following growth factors,as estimated by the Appropriation Committee: • School cost of living and step increases. 4 5°%o (less approximately $650K salary differential due to higher-paid teacher retiring and being replace by less-expensive teachers) • School expenses. 6.5% • Municipal. -111/0 • Benefits and Insurance: 12°%o • Note that possible further increases in SPED expenses have not been included Together these revenue and expense factors lead to an annual imbalance between available revenues and expenses for level services. This imbalance is shown in line 4 as a voter `approved override/gap It should be noted that while for the purposes of display we show these gaps closed by an override, these gaps also may be closed by service reductions, suspending appropriations to stabilization, new efficiencies,increases in revenues other than by an override, or some combination of these methods. A summary of some revenue and expense growth items is given Table B-1 This table assumes overrides to balance the budget as shown in line 4 of Table B-1 This is not a blanket endorsement of overrides. We could instead show budget gaps at the bottom of the table, but have chosen to show what balanced budgets may look like, given expected increases in revenues and expenses for a same service budget. A summary of total revenues and expenses is given in Table B-2, along with projected override amounts needed to balance the budgets if revenues are not otherwise increased, or expenses otherwise decreased. Perhaps the most important fording is that we face a serious shortfall in revenues in FY2009 regardless of passing or not passing an operating override in FY2008. It should be noted that these are only projections. In many years, Free Cash comes in higher than initially expected. This could happen again if, for example, we are able to profitably invest monies from a bond sale for the new DPW facility while we are waiting to spend those monies on the new facility Other possible sources of additional revenue include new growth or local receipts coming in higher than projected. On the other hand, SPED increases, unexpected past bills, or a harsh winter driving up energy costs can drive the budget in the opposite direction. Page 22 of 24 APPROPRIATION COMMITTEE 2nd REPORT April 21 2007 TO 2007 ATM Table B-1 Budget Drivers FY2008 FY2009 FY2010 FY2011 Revenue Growth Proposition 2% $2,400,263 $2,607,310 $2,825,586 $2,982,393 New Growth $1 600,000 $1 600,000 $1 600,000 $1 600,000 State Aid $689 454 $0 $0 $0 Local Receipts $740,537 $134,000 $76,000 $0 Available Funds $447 653 $1,965,607 $1 792 $0 Subtotal $3,501 527 $2,375,703 $4,351 378 $4,582,393 Expense Growth Lexington Public Schools $4,876,483 $2,721,303 $2,863,130 $3,012,599 Municipal $1,319,230 $799 116 $823476 $848,578 Benefits & Insurance $2,130,353 $2,861 481 $3,193,407 $3,563,837 In-levy Debt $78 076 $452,122 $532,140 $527 195 Subtotal $8,404,142 $6,834,021 $6,347 873 $6,897 820 Table B-2. Projection Summary FY2008 FY2009 FY2010 FY2011 Total Expenses/Revenues $143 498,841 $150,394 661 $157,010,281 $164,208,331 Override to balance $3,981,589 $4,223,738 $1,846,725 $2,377,312 Annual budget exclusive of exempt debt $180,000,000 $160,000,000 _4-- $140,000,000 $120,000,000 J� Average annual increase 5.1% $100,000,000 — -- $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fiscal Year Figure B-1 Annual Budget Exclusive of Exempt Debt This figure shows the past annual budget, exclusive of exempt debt, in small squares and projected 'level service budgets in larger diamonds. Over the period of FY2001 through FY2011 the average annual increase is about 5.1%. Page 23 of 24 APPROPRIATION COMMITTEE 2" REPORT April 21 2007 TO 2007 ATM Ta tie B-3 3-1 ear Budget Projections from the Appropriation Committee I I Revenue Summary FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 I Actual ' Recap Budaet Pro cctcd Prmcctcd Prmcctcd I Budget Budget Budget I 1 Base tax levy $85.867.574 $89.868.589 $96.010.528 $104_292.3R0 $113123.42g $119295 39 2 Proposition 21/4 $2.146.689 $2.246.715 $2.400.263 $2.60'310 $2.825 5X6 $2.9S2.393 3 New Growth $1.854.326 $2.036.789 $1.600.000 $1.600.000 $1600.000 $1.600.000 4 Voter approved override/Gap $1.858.435 $3.981.589 $4.223.738 $1.846.725 $2377312 5 Total Tax levy $89.868.589 $96.010.528 $103.992.380 SI l_ 428 5119'9, t9 5126. 444 6 State Aid $8.603.524 $8.304.953 $8.994.407 $8994.40' $8994.40' $S.994.40" 7 Local Receipts $13.321.875 $10.448.000 $9.707 463 $9 X41.463 $9 765 463 $9 765 463 8 Available Funds $2.188.182 $4.923.000 $4.475.347 $2.509 40 $2.511 532 $2.511.532 9 Revenue Offsets -$3.145.438 -$1.530.137 $1.640.063 $1.642.4X2 $1.66 .056 $1.66 .056 10 Enterprise Funds(Indirect) $1789.916 $1772.313 $1.752.885 $1.691.336 $1.629'X $1.629'X 11 Total General Fund $112.626.648 $119.928.656 $127.282.419 $134.11 X91 $140.529 R'l $14'4X9576 I 12 Other Revenues I 13 Revolving Funds $542.343 $793.431 $966.234 $R5 .234 $R5 .234 $R5 .234 I 14 Grants $173.390 $173.390 $173.390 $1 3.390 $1 3.390 $1 3.390 I 15 Enterprise Funds(Direct) $13.393.865 $14.235.935 $15.076.798 $15.246.145 $15449'X6 $15.6X8131 I 16 Total Other Revenues $14.109.599 $15.202.756 $16.216.422 $16276769 $16480.410 $16-18255 I 17 Total Revenues $126.736.246 $135.131 413 $143.498.841 $150.394.661 $15 .011L2R1 $164.20S.331 I Expense Summary FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 I Actual Adiusted Recommended Pro cctcd Pro cctcd Prmcctcd I Budget Budget Bud.H Education 18 Lexington Public Schools $60,652,760 $63,419,500 $68,295,983 $'1.01'.2R6 $ 3.XXo.416 $76 X93.015 I 19 Minuteman Reg School $830,234 $1,024,817 $1,200,438 $1256 gg9 $1.315996 $1 3 XXI I 20 sub-total Education $61 482,994 $64,444,317 $69,496,421 $ 2.2 4.1-5 $'S 196412 $'X.2'0.X96 I 21 Municipal $22,624,947 $24,895,327 $26,214,557 $2 .013.6 3 $2 X3 .149 $286X5 2 I Shared Expenses I 22 Benefits&Insurance $19,015,811 $22,537,951 $24,668,304 $2 52_9'X5 $30. 23.192 $342X .029 I 23 Debt(within-levy) $3,417,301 $3,720,061 $3,798,137 $4.2501259 $3.'1X.119 $3.190.924 I 24 Reserve Fund $0 $400,000 $450,000 $450.000 $450.000 $450.000 I 25 sub-total Shared Expenses $22,433,112 $26,658,012 $28,916.441 $32.230M44 $34.X91.311 $3 92 953 I Capital I 26 Cash Capital $1 153,000 $1 195,000 $1,355,000 $1.355.000 $1.355.000 $1 355.000 I 27 sub-total Capital $1 153,000 $1 195,000 $1,355,000 $1.355.000 $1.355.000 $1 355.000 I Other I 28 Stabilization Fund $603,647 $2,650,000 $1,000,000 $100)1000 $10000)00 $1M00.000 I 29 Other $0 $86,000 $40,000 $45.000 $50.000 $50.000 I 30 sub-total Other $603,647 $2,736,000 $1,040,000 $10451100 $1050000 $1050.000 I Exempt Debt I 31 Municipal $771,013 $1,299,188 $1,351,294 $2.SXX.'94 $3.'9X.794 $3.43.'94 I 32 School $4,172,300 $3,828,068 $3,745,975 $3.6X5.250 $3.599.63X $3.514.026 I 33 sub-total Exempt Debt $4,943,313 $5.127.256 $5.097.269 56, 4,044 5 t 98 4_ 5 820 I 34 2007 Operating Reserve $0 $0 $260.000 $200.000 $2000)00 $200.000 I 35 Total General Fund $108,297,700 $119,928,656 $127,282,419 $134.11 X91 $140.529 X'I $14'4X9576 I 36 Other Expenses 37 Revolving Funds $542,343 $793,431 $966,234 $X5 .234 $X5 .234 $X5 .234 38 Grants $173,390 $173,390 $173,390 $1 3.390 $1 3.390 $1 3.390 39 Enterprise Funds(Direct) $0 $0 40 Water $5,408,102 $5,728,822 $6,078,058 $63 4 $6.692212 $ .022.1X3 41 Wastewater(Sewer) $6,279,508 $6,705,609 $7,346,035 $ .101.9X2 $6 X66.03 $6.63 931 42 Recreation $1 481,913 $1 726,504 $1,627 705 $1. 49.091 $1.X'9 530 $2.019.69' 43 Cash Capital $80,000 $75,000 $25,000 $1 325 $12M06 $X.320 44 sub-total Enterprise Funds $13,249,523 $14,235,935 $15,076,798 51 46,142 SI 449'Rn 51 ,6881 1 45 Total Other Expenses $13,965,256 $15,202,756 $16,216,422 $16276 769 $164X0.410 $16'1X.'55 I 46 Total Expenses $122,262,956 $135,131 412 $143,498,841 $150.394.661 $15 .010.2S1 $164.20S.331 I 47 Surplus/(Deficit) $4,473,290 $0 $0 to) $0 $0 I Page 24 of 24