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86th ANNUAL REPORT OF THE FINANCE COMMITTEE (MARCH 1997)
Fellow Citizens of Needham:
The Finance Committee is required by law to prepare a budget that balances authorized expenditures with projected revenues. The Finance Committee this year had sufficient projected revenues to at least meet the "level funded" budget requests of each department, unlike the severe deficit confronted by the Committee last year. In addition, as will be discussed in more detail below, the Committee was able to fund this year at least a portion -- but far from all -- of the requests made by the departments for increased funding to maintain the same level of Town services. The Finance Committee faced difficult choices as to how to allocate available revenue between the competing operating and capital needs of the Town.
The Committee first examined whether any of the revenues this year are non-recurring in nature, such that they will not be available in future years. It would not be prudent to devote such non-recurring revenues to fund operating budgets, especially salary costs, which could not be easily adjusted downward in future years. The Finance Committee concluded that a substantial portion of the projected revenue for FY98, at least $325,000, should be considered non-recurring. The Finance Committee also devoted substantial attention in its deliberations this year to the funding of capital projects and the level of debt being assumed by the Town. The Committee made a special presentation to the February 1997 Special Town Meeting on the Town's current debt picture, and projections for debt burden in the next five fiscal years. The Committee is strongly of the view that when circumstances allow, at least some of the Town's capital needs should be funded with cash. The Committee therefore has recommended that $247,000 in capital projects be funded with cash this year, and that many other projects be deferred unless additional revenue becomes available.
The Finance Committee proposes that no funds be withdrawn from the Town's savings account, the Stabilization Fund, to fund the FY98 operating budget. During each of the past two fiscal years, circumstances dictated that $250,000 be withdrawn from the Stabilization Fund to help fund operating expenses. This past fall, at the Special Town Meeting, the Committee recommended, and Town Meeting voted, that $500,000 be restored to the Stabilization Fund (using unexpected revenues from new growth). That action brought the current balance of the Stabilization Fund to approximately $1,050,000. Given the substantial capital needs of the Town and the level of debt being carried, it is important that adequate reserves be maintained. It is the goal of the Finance Committee to maintain a Stabilization Fund equal to at least 2 percent of gross revenue. We are still about $150,000 short of that goal and hope to be able to recommend to Town Meeting this Fall that additional funds be placed in the Stabilization Fund.
Total projected revenue available for appropriation to fund FY98 operating budgets is $54,704,427. This amount represents an increase of $2,800,498, or 5.4%, over revenue available for appropriation in FY97. However, of this amount over $800,000 is accounted for by the elimination of the substantial overlay deficit in FY97 ($25,700 FY98 vs. $730,592 FY97) and the projected absence of any snow and ice deficit in FY98 (vs. $110,700 in FY97 ). These deficits were funded, as the law requires, off the top of FY97 revenue. The elimination of these deficits in FY98 increases dollar for dollar revenue available for appropriation.
A better measure of real increases in Town revenue is the rate of increase in the three principal components of the Town's revenue stream. For FY98, projected increases total $1,991,892, or 3.72%, broken down as follows:
| Source | Increase | % Increase |
|---|---|---|
| property tax levy | $1,352,301 | 3.26 |
| state aid | 361,615 | 6.91 |
| local receipts | 277,976 | 4.09 |
| TOTAL | $1,991,892 | 3.72 |
OPERATING BUDGET DELIBERATIONS
This past fall, the Finance Committee issued guidelines to all departments for the preparation of FY98 budgets. These guidelines again called for all departments to "level fund" all line items, except for mandatory step and longevity salary increases and the projected additional costs of statutorily mandated programs and other contractual obligations (in essence, those costs the Town cannot legally avoid without staff layoffs). In addition, the Finance Committee guidelines requested each department to identify and prioritize additional amounts necessary to maintain the same level of service provided in FY97. These level service requests from non-school departments alone totaled $597,911. Finally, Finance Committee requested departments to identify additional funding requests should funds be available.
A comparison of the "level funded" budget requests to the projected revenues for FY98 yielded a surplus of $493,588. Of that amount, the Committee is recommending that $211,760 be allocated to cover additional "level service" requests by various departments, that $247,000 be utilized to fund capital projects with cash, and that the balance of $34,240 be utilized for projected debt service of projects approved for bonding (approximately $7,000) or placed in the Finance Committee Reserve Fund. Of the $211,760 in additional operating expenses, approximately $47,000 relates to expense items in the "bare necessity" category (paper, postage, supplies, increased cost of routine maintenance, etc.). An additional amount totaling approximately $114,000 relates to one-time costs to fix or replace items for Town buildings or to fund smaller capital expenses. In addition, there are new personnel costs in a few critical areas recommended for approval in this year's budget. They are:
The net impact of these changes in personnel on the operating budget is $50,820. The Finance Committee was persuaded that each of these requests is justified. Item (1) is needed to adequately supervise a staff of over 50 custodians and other employees, currently supervised by only Mark LaFleur, our MBMB Director; item (2) represents the second phase of implementing the joint police-fire civilian dispatch system already approved by Town Meeting; items (3) and (4) are needed to satisfy recommendations for change by our outside Town auditor with respect to issuing water/sewer bills and reconciling Town accounts on a timely basis; item (5) is required to meet the onslaught of work in the Building Department related to new construction in town; and item (6) is needed to fund the personnel costs associated with the next phase of the School grounds transfer to DPW.
DEBT SERVICE AND CAPITAL
There is included in the [printed] Warrant a breakdown of the Town's debt service similar to the one presented during Finance Committee's debt presentation in February. (Note: this information has not been transfered to these web pages.) The schedule breaks down debt into four categories: Hospital debt; levy supported debt; fee funded (landfill and water/sewer) debt; and override debt. The principal and interest payments for Hospital debt, levy debt, and the landfill portion of fee funded debt are included in lines 17 and 18 of the operating budget. The water/sewer debt service is contained in Lines 907 and 914 of Articles 21 and 22 (water and sewer budgets). The debt service on override debt is not covered by the operating budget.
After deliberations on the operating budget requests, $281,828 remained from FY98 projected revenues. Of this amount, the Finance Committee has recommended that two capital projects be funded by debt supported by the levy (Art. 33, Mitchell roof, $185,000; Art. 40, Sidewalk Tractor, $60,000). The Finance Committee also has recommended that four projects be approved funded by cash (Art. 35, High School Mechanical Systems (Boiler), $125,000; Art. 36, Mitchell/Hillside grounds repair $62,000; Art. 34, Mitchell Intercom/Bell, $30,000; Art. 59, Rosemary Pool Study, $30,000). The total of the four projects to be funded with cash is $247,000, and the debt service on the two projects to be funded with debt is approximately $7,000.
The Finance Committee has disapproved for debt funding this year two projects (Art. 62, Police radio; Art. 45, Storm Drain master plan) totaling $200,000 and has deferred 6 other projects (Arts. 37, 38, 41, 60, 61, 63) totaling $319,000. If by Town Meeting the projected revenues for FY98 have increased, or if there is an unexpended balance in this year's Finance Committee Reserve Fund, the Finance Committee will reconsider its recommendations on these deferred projects.
The Finance Committee has approved five projects for funding from water/sewer revenues, four with bonding (Arts. 42, 43, 46, 47) , and one with cash (Art. 49) . The Finance Committee also has approved one landfill project (Art. 53 transfer trailers), but has not yet voted on Art. 54 (landfill closure), because it is awaiting additional information on the projected costs of closure (currently estimated at $5.9 million). The Finance Committee has not completed its deliberations of Art. 39, DPW Equipment Replacement. Town Meeting should be mindful that it has already, in the Special Town Meetings held in October 1996 and February 1997, approved substantial amounts of debt. The total for levy funded debt approved so far is $394,000, for fee funded debt is $960,000, and for override debt is $250,000 (increase in cost of Newman renovations).
In general, the Finance Committee considered the following factors in making its recommendations on new debt:
We have attempted to the extent possible to include in the Warrant our recommendations on the various capital articles.
CLOSING THOUGHTS
The Town thus finds itself in slightly better position entering FY98 than at this time last year, with the severe deficits then facing the Town. However, the situation this year is deceptive for several reasons. First, the Town is still experiencing the benefit of two substantial revenue increases in FY97 -- $548,000 from the operational overrides, and $730,000 from new growth, both of which permanently increased the levy limit. Second, there is the one time benefit of not having to fund, as we did in FY97, substantial amounts for overlay deficits or snow and ice deficits. Third, the Town still is not able to fund all "level service" operating requests.
It may well be at this time next year that no extra revenue will be available to fund more than level dollar budgets, or that deficits may again exist. Indeed, as our past Chairman, James Healy, pointed out to Town Meeting last year, unless the Town can keep the rate of increased expenses, in particular salary expenses, well within the rate of revenue increases, deficits are the inevitable product of Proposition 2½.
The Town also faces uncertainty on many important issues as it enters FY98. Every collective bargaining agreement in the Town expires at the end of FY97, and the renegotiation of those agreements will have a critical impact on the FY98 budget. The landfill also presents two areas of uncertainty and potential added cost: (1) the cost of closure itself (currently estimated at $5.9 million); and (2) the increased cost to dispose of trash when the landfill closes on 1/1/98 and no more refuse can be placed in it.
The Finance Committee wishes to thank the Board of Selectmen, the Town Administrator and Finance Director, and all Department Heads and other town officials and employees with whom we have worked this past year. The Chairman also wishes to thank each of the Finance Committee members, who have volunteered their time and worked so hard to examine the budgets and various capital requests presented to Finance Committee. In addition, I would like to acknowledge the invaluable contribution by our Executive Secretary, Gerry Sullivan, now in his llth year of service to the Finance Committee.
| Thomas H. Hannigan, Jr., Chairman
John P. Ryan, Vice Chairman James G. Healy, Past Chairman John Hession Maureen P.Corcoran | Paul G. Smith
Ronald P. Culgin Paul T. Milligan Ford H. Peckham Executive Secretary, Gerard G. Sullivan |
