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HomeMy WebLinkAbout2012-10-10 Finance Committee Minutes Financial Forum October 10, 2012 The meeting convened at 7:20 p.m. at the Senior Center, 49 Pleasant Street, Reading, Massachusetts. The School Committee was called to order but no other Board had a quorum in attendance as the discussion began. Present were FINCOM Vice Chair Barry Berman and members Paula Perry, Jeanne Borawski and Mark Dockser; Selectmen Vice Chair Ben Tafoya and member James Bonazoli; School Committee Chair Karen Janowski, Vice Chair Hal Croft and members Chris Caruso, Lisa Gibbs, Chuck Robinson and Rob Spadafora; Board of Library Trustees Vice Chair Dick Curtis and members Cherrie DuBois and Vicki Yablonsky; Town Manager Peter Hechenbleikner, Assistant Town Manager/Finance Director Bob LeLacheur, Town Accountant Sharon Angstrom, Superintendent Dr. John Doherty, Assistant Superintendent Patty de Garavilla, Assistant Superintendent Mary DeLai, Police Chief Jim Cormier, Fire Chief Greg Burns, Library Director Ruth Urell, DPW Director Jeff Zager, DPW Business Manager Jane Kinsella, Barbara Jones (Daily Times Chronicle), Nadine Wandzilak (Reading Patch), Bill Brown (Cemetery Trustees) and Nancy Graham. Members arriving late allowed some of the Boards to achieve their quorum and call themselves to order and included FINCOM Chair David Greenfield, Selectman John Arena and Library Trustee Andrew Grimes. FINCOM Vice Chair Barry Berman reviewed the agenda for the meeting and the list of public meetings that would discuss the FY14 budgets. These meetings begin January 2013 with the Selectmen and School Committee, move to the FINCOM during March, and conclude in April and May with Town Meeting. Financial Updates Town Accountant Ms. Angstrom reviewed the FY12 revenues and expenses. Revenues exceeded those forecast by about $1 million, although over half of that amount should be viewed as ‘one- time’ revenues (such as $198k of a state aid refund of budget surplus). Ms. Angstrom showed that FY12 expenses were $1 million less than budgeted. A huge influence was the mild winter – snow and ice ended the year with a $250k surplus instead of the typical $500k deficit, which explained a substantial portion of this surplus. Most of the remaining surplus came from Town line items. Some members of the meeting asked clarifying questions and Ms. Angstrom replied. The FINCOM and Selectmen were called to order. Ms. Angstrom reviewed the FY13 revenues. At November Town Meeting, the following changes will be made: increase state aid ($655k), increase Smart Growth 40R payment $309k), increase new growth ($200k estimated), decrease interest earnings ($100k) and decrease MV excise taxes ($50k). Thus there is a net increase of over $1 million in FY13 revenues. Ms. Angstrom explained that at November Town Meeting some of these revenues are proposed to be used during FY13, including a $309k transfer out to the Smart Growth Fund, and $50k transfer out to the Sick/Vacation Stabilization Fund, and $288k in budget expenses ($100k Police/RCASA, $98k Town Manager transition/Other and $90k capital). Therefore the net of the surplus revenues and the use of funds is about $367k, which will be used to reduce the free cash needed to balance the budget (previously $1 million, now about $633k). Ms. Angstrom reviewed an estimate of $6 million in free cash which is expected to be finalized by the MA DOR on 10/17. The total of $7.6 million in reserves is therefore about 10% of FY14 revenues, which is well above the FINCOM policy minimum of 5%. Mr. LeLacheur described projected FY14 revenues as being not much changed from FY13 and up about 2.6% total. This includes an above average assumption on new growth of $650,000 due primarily to commercial development at Pulte Homes, Johnson Woods and Oaktree. He noted that state aid was assumed to be flat in light on the FY13 state revenues being below budget thus far. Some members of the meeting asked clarifying questions and Mr. LeLacheur replied. Mr. LeLacheur cited FY14 accommodated costs as projected to increase 4.8%. Health insurance premiums are forecast at +8% which is below the national and regional expectations, but a 5% OPEB contribution is included in this budget and can serve to cushion any premium increase above +8%. He noted that FINCOM was debating such a policy and they may not ultimately agree with this model. He stated if the OPEB cushion were removed than he would project premiums at +11%. Out of district special education is forecast at +9% because of increased transportation costs as well as some specific reductions in circuit breaker reimbursements. Total tuitions are forecast with only a small increase. Mr. LeLacheur showed how the combination of revenues and accommodated costs left only a 0.4% increase possible to the FY14 operating budgets, presuming no free cash was used to supplement FY14 revenues. He reviewed the many efforts to increase revenues (economic development and meals tax) but stated that only an operating over-ride would have a significant impact on revenues. He also reviewed the many efforts to contain accommodated costs (plan design changes to health insurance that shifted costs to employees, an emphasis on in-district special education, performance contracting for energy efficiency, and debt refinancing). He noted that despite all these efforts the long-term forecast for accommodated costs was over 4% and it was less than 3% for revenues – so an annual funding gap should be expected. Since this gap would probably increase over time, the use of free cash as a temporary solution would not be expected to bridge to a permanent solution that was readily apparent. Mr. LeLacheur explained that by using $500,000 of free cash in FY14, the operating budgets could grow 1.5%; $1 million allowed for 2.5% growth; and $1.5 million allowed for 3.5% growth. Mr. Greenfield asked members of the FINCOM their views of this matter, and a discussion ensued. Mr. LeLacheur and several members of the meeting discussed the notion of how much free cash should be expected to be regenerated each year due to a combination of higher than expected revenues and lower than budgeted expenses. In FY12 that combination was unusually high at $2 million. Ms. Angstrom explained that about $750,000 of that was due to the mild winter and another $500,000 was due to one-time revenues that could not be assumed in the future. Mr. LeLacheur said his calculations assumed $500,000 was regenerated each year, and that one could argue for something closer to $750,000 but that much was getting a bit risky to presume. The Library Trustees were called to order. Ms. Perry stated that she was very comfortable with using $1 million in the FY14 budget. She said the reserves balance of 10% was well over the FINCOM 5% minimum and that most of that would probably come from regeneration. Mr. Dockser said he was comfortable using $1.25 million of free cash, and was tempted to consider $1.5 million. Mr. Berman agreed that $1 million was an appropriate number, and indicated some flexibility as details emerged. He stated that it would be a bad habit to annually rely on free cash – especially increasing amounts as Mr. LeLacheur’s “gap analysis” might suggest. Ms. Borawski agreed with the $1 million figure for many of the previous reasons cited, as did Mr. Greenfield. Mr. Greenfield asked the room for their thoughts. Mr. Robinson said it was too early to tell what a +2.5% operating budget would look like to know what the right level of free cash should be. Mr. Greenfield replied that this was the starting point for the FY14 budgets and over the next few months that picture would emerge, and FINCOM could consider adjusting in either direction as needed. Dr. Doherty noted that a large th 8 grade class would be entering the high school next year, causing some new teachers to be hired. Beyond that it was too early to tell what the budgets would look like in any detail. Mr. Bonazoli said he was equally concerned about the sustainability in future years, and that more free cash used in FY14 would make the future that much more difficult. Mr. Arena noted that we used free cash recently in order to avoid negative operating budgets and we should be aware that now we are using it to increase positive budgets. He said that figures as high as $1 million were not likely to be sustainable and preferred a figure of either $500k or $750k. Mr. Hechenbleikner commented that the fact funds were turned back each year and an overall conservative financial tone was set was a product of a lot of hard work by the staff and by boards and committees and was not simply a product of good luck. Mr. Greenfield agreed that the town was very well managed from a financial standpoint and that this was a fortunate discussion to be having when contrasted to many other cities and towns. Mr. Greenfield asked the FINCOM if there was consensus about using $1 million in the FY14 budget and the committee agreed but did not feel the need to make a motion and vote. Mr. Greenfield called for a five-minute break. Capital Projects Mr. Greenfield called the meeting back to order and Mr. Hechenbleikner began a presentation on the Public Library project. He stated that there was good news in that the Library has been awarded state funding of $5.1 million on the proposed $12.2 million project. He reviewed the history of the facility which was built in 1896 as the Highland School and became the Public Library in 1984. He said the next steps would include a report to November Town Meeting, a special Town Meeting in early 2013 followed by a debt exclusion request for the Town’s $7 million share at the annual April 2013 elections. If approved, the library would need to relocate from the Fall of 2013 until the spring of 2015. Ms. Urell reviewed the history of the current project, which began with a community survey in 2007, moved to a Town Meeting funded feasibility study in April 2010 and a grant application that was filed in January 2011. She noted that several community information sessions have been held over the past year and the project had been revised after some neighborhood input. Of fourteen Town building projects she noted that the ad hoc Municipal Building Committee ranked the Library as the top priority in January 2011. Mr. Greenfield asked what the cost would be for maintenance and repairs to the existing Library if this project were not done. Mr. Hechenbleikner replied that it would approximate the Town’s share of the project within several years because the building was in tough shape. Dr. Doherty discussed Full Day Kindergarten as well as some other programmatic changes in the elementary schools in recent years that have led to a need for more space. He reviewed projected costs of FDK in the first year as about $1 million, a figure that includes about $250,000 of new costs and the loss of revenues from the current program. Dr. Doherty stated that earlier this evening the School Committee voted not to implement FDK in the FY14 school year. He said that it was not in the best interests of the community to begin FDK until a long-term plan has been mapped out and is within about a year of new space being available. He cited the projected loss of art and music rooms if FDK were implemented quickly and stated that this would represent a step backwards for the School District. Dr. Doherty stated that approximately 10 to 12 classrooms would be needed for full day Kindergarten and an enhanced RISE pre-school program. He then reviewed five options to provide that space: (1) a short-term solution of constructing one (or two) modular classrooms at each elementary school; (2) build permanent classrooms at the schools (due to land constraints this would be limited to one classroom at Barrows and Joshua Eaton, and four classrooms at Birchmeadow; (3) a short-term solution of renting space; (4) purchasing and renovating an existing building; and (5) building a new facility. He said that the short-term solutions were not attractive due to the School Committee vote on when the FDK would be implemented. Ms. DeLai reviewed the Killam School project, stating that thus far the MSBA has taken to action and has only one more meeting this fiscal year in which to do so. If they do not approve the project for state funding, then we may re-submit early next spring for the next round of MSBA consideration. She reviewed the entire process which included (1) filing a statement of interest; (2) working with the MSBA (if invited) during the eligibility period; (3) a feasibility study; (4) schematic design; (5) funding the project; (6) detailed design work; and (7) construction. She described steps two through seven as requiring about four years to complete. Mr. Greenfield asked about the $400k of capital approved for modular classrooms in FY13, and Dr. Doherty said the school Committee has voted to request these funds be redirected towards a broader study of school space needs. Ms. Borawski asked if the RISE program had grown over recent years and Dr. Doherty said that it had as evidenced by the growth from five to seven classrooms. She asked if the projected costs for Full Day Kindergarten included the cost of benefits and Dr. Doherty stated that it did not, the benefits section of the budget would bear any such costs. Mr. Brown asked about the recently discussed $25 million capital project in the water enterprise fund. He described that while his pants did have two pockets that there was only one source of funds and he was concerned how residents would be able to pay for all of these large projects. Mr. Greenfield agreed that FINCOM would discuss that matter further. On motion by Mr. Berman seconded by Ms. Borawski the FINCOM voted to adjourn it’s meeting at 9:35 p.m. by a vote of 5-0-0. On motion by Mr. Bonazoli seconded by Mr. Arena the Selectmen voted to adjourn it’s meeting at 9:35 p.m. by a vote of 3-0-0. On motion by Mr. Spadafora seconded by Mr. Robinson the School Committee voted to adjourn it’s meeting at 9:35 p.m. by a vote of 6-0-0. On motion by Ms. Yablonsky seconded by Mr. Grimes the Library Trustees voted to adjourn it’s meeting at 9:35 p.m. by a vote of 4-0-0. Respectfully submitted, Secretary