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2010-12-08 Finance Committee Packet
The Town of Reading - FINCOM http://www.readingina.gov/Pages/ReadingMA__MeetingCal/SO 16586... ,FS FINCOM Wednesday, December 8, 2010 at 7:30 PM Town Hall conference room Printer-Friendly Version Google Search Discuss the budget process Review the results from the Expenses Fin Forum Review updated version of the Revenue info with the town departments Ratings Agency view of cash position Debt issue - too much? License & Permit needs assessment January Financial Forum planning Approve minutes from the 10/27 Financial Forum COM,I.% CAUSE ~.QMhW CAUSE Town of Reading, Massachusetts 16 Lowell Street, Reading, MA 01867 Website Disclaimer Virtual Town Hall Website 0 1 of 1 12/8/2010 3:24 PM 2010 Sept. 15 Oct. 4 October October Oct.1 a Oct. 27 Consolidated Town/School FY12 Budget Calendar(public meetinqs in bold Financial Forum I/FINCOM 7pm Library Revenues School Committee 7:30pm RMHS School/District Improvement Plans Schools Principals: improvement goals & budget needs Town Dept Heads: BOS goals & build budgets School Committee 7:30pm RMHS Fee review Financial Forum II/FINCOM 7pm Sr. Center Expenses, FY12 budget guidance Nov. 6 Schools Budget requests to Superintendent Nov. 8 Town meeting begins 7:30pm RMHS Nov. 15 Town Budget requests to Town Manager November Schools Superintendent reviews goals & budget requests Late Nov. Schools TBA TBA Superintendent holds community forums Dec. 17 Schools Superintendent budget finalized 2011 `n~ Selectmen Sam Town Hall Town budgets reviewed an. 10 School Committee 7:30pm RMHS School budgets reviewed an. 15 Selectmen Sam Town Hall Town budgets reviewed P an. 13 School Committee 7:30pm RMHS School budgets reviewed an. 20 School Committee 7:30pm RMHS School budgets reviewed an. 24 School Committee 7:30pm RMHS School budgets reviewed; public hearing an. 26 Financial Forum III/FINCOM 7pm Sr, Center Capital, other updates an. 27 School Committee 7:30pm RMHS Vote on final school budget Feb. 1 All budgets delivered to Town Manager mid Feb. Town Manager final budget delivered to FINCOM Mar. 2 Town/School budgets 7:30pm Town Hall Topic TBA Mar. 9 Town/School budgets 7:30pm Town Hall Topic TBA' Mar. 16 Town/School budgets 7:30pm Town Hall Topic TBA Mar. 23 Town/School budgets 7:30pm Town Hall Topic TBA Mar. 30 TownlSchool budgets 7:30pm Town Hall Topic TBA Apr. 26 Town meeting begins 7:30pm RMHS 0 Cost Reduction Brainstorming Session 10-27-10 Idea and Voting Summary Votes Ideas Generated Total Pink Blue Admin/Finance/Accounting Less staff at meetings, committees Eliminate GIS Coordinator Less elections, costs, polling stations Town Counsel not needed for TM Move Town Meeting to smaller venue Regionalize assessors Decrease town hall hours per week Mandate Direct Deposit Pay all suppliers electronically Public Works Decrease cost of Trash pickup program Regionalize Vehicle Maintenance Lease vs purchase vehicles Evaluate vehicle needs Eliminate condo trash pickup Privatize sidewalk snow removal Reduce snow plowing Use concrete curbs instead of granite Reduce street and park lighting Decrease compost hours Decrease Chapter 90 matching funds Eliminate street sweeping Shift sewer employees to Enterprise fund Town Facilities Lower temp in buildings Reduce support for Matera cabin Community Services Decrease conservation admin to part time Regionalize CS--health, bldg inspection, conservation Eliminate permit coordinator Public Safety Close 2nd fire station Use volunteer crossing guards Outsource construction details Remove school safety officer Trim overtime 3 3 2 2 2 1 0 0 0 0 2 2 1 1 19 19 8 8 19 1 3 3 1 1 0 0 6 6 5 5 4 1 2 2 3 3 6 1 0 0 2 2 0 0 1 18 3 5 1 1 1 1 3 2 1 11 11 6 6 1 0 1 1 1 1 0 0 4 4 1 bq_~ Votes Ideas Generated Total Pink Blue Townwide initiatives/Employee. Benefits Bidout health insurance 1 1 Staff cuts' 4 4 Furloughs 2 2 One year pay freeze--town and schools 4 4 Health fees to be paid more by employees 8 7. 1 Regionalize all possible departments 7 6 1'' Go paperless 2 1 1 Reduce retirement contributions to minimum 3 3 . Eliminate sick leave buyback 7 7 Library Decrease hours 0 0 Finance Policies Decrease capital budget by 25% for 3 years 3 2 1 Regionalize purchasing. 5 5 Residents negotiate discounts for town Svcs with employers 1 1 Regular Day School Virtual classroom for AP courses 0 0 Cut teachers, increase class size 2 1 1 Take one day out of school calendar 12 12 Special Education Explore privatized transportation 3 2 1 Tech/Athletics/Health Have user fees cover full costs (lunch, athletics, etc.) 3 2 1 School Facilities Lower Temp 1 1 Outsource food, cleaning 1 1 Find lower cost energy supplier 1 1 Total 187 151 36 Compiled 11-11-10 (5 Summary of Key Themes (5+ votes) 11/11/2010 Admin/Finance/Accounting Mandate Direct Deposit Pay all suppliers electronically Public Works Decrease cost of Trash pickup program Eliminate condo trash pickup Privatize sidewalk snow removal Decrease compost hours Community Services Regionalize CS--health, bldg inspections conservation Regionalize all possible departments Regionalize purchasing Eliminate permit coordinator Employee Benefits Health fees to be paid more by employees Eliminate sick leave buyback Regular Day School . Take one day out of school calendar Votes Total Pink Blue 19 19 8 8 19 1 18 6 6 5 5 6 1 5 11 11 7 6 1 5 5 6 6 8 7 1 7 7 12 12 Total 119 94 25 Evaluation Criteria Opp Cost / Being Ease to Implement Ongoing Community Unintened Who Should FinCom Next Done Revenue Implement Cost Cost Impact Consequences Carr( Forward? Contact Steps 0 Revenue Enhancement ideas from Reading Financial Forum September 15, 2010 Bucketed List Evaluation Criteria Opp Cost / Being Ease to Implement Ongoing Community Unintened Who Should ONE TIME REVENUE Sale of Town Land (Oakland Rd-last big parcel) ONGOING REVENUE 1 School and Town Land: Opportunities Cell Towers Advertising/Billboards Wind/Solar Power Generation and Sell Back Sell Timber in Town Forest 2 School and Town Facilities: Opportunities Rental of existing space Naming Rights. 3 Fees: Introduce New Ones Pay as You Throw Trash Fee Preferred Parking Fees at RMHS Billing At Fault Accidents Wireless air rights billing 4 Economic Development Town Economic Development/PR Tax Incentives for New Business 5 New Initiatives Grant Writers to Bring in Endowed Positions at Schools Road Races Program Reading Branded Credit Card Remove state gas tax on Town 6 Fees: Increase existing Parking Fee at Depot Raise Parking Tickets & Fines / Parking Meters Increase RMLD annual in lieu of Tax Payment Increase Ice Arena payments 7 Gifts/Donations/Sponsorships Sponsoring Town Trees, Benches, Lights, etc. Focused Approach for Gifts/donations 8 Expand Service Offerings Offer Ambulance Services to Other Towns Total Votes 25 High Medium None 49 20 Yes Medium Low-Medium 15 Yes Medium 9 No 5 Yes 24 15 Yes Low-Med. Medium Medium High 9 No Low Medium Low Low 18 6 No High Low Medium Medium 6 No Low Medium Low Low 5 No Med-low No Medium-High Staff time 1 No 17 12 Yes Medium Requires $ Medium-High 5 No 16 5 No 5 No no comps in MA - all answers are unknown 3 No Low High Low 2 No no comps in MA - all answers are unknown 1 No 12 10 Yes 1 Yes 1 Yes 0 Yes 12 7 Yes 5 No 6 6 No Medium High High 179 TBD Varies by lot Selectman TBD - TBD Medium Medium High Low High Yes Positive Low Low Medium none TMgr/Selectman Selectman/SC RMLD DPW/Town Forest Committee Medium Selectman/SC Political Selectman/SC Incr. Recycling Selectman Incr. nbad pkng Schools Ins. Co. battles . Public Safety Selectman Selectman Selectman/SC Schools Low Recreation Selectman/SC Legislators Selectman Selectman Selectman Selectman Selectman Selectman/SC Selectman FinCom Next max. for schools; ID Town Bldgs contact . success elsewhere? use fees for? TO: FINCOM, Board of Selectmen, School Committee From: Peter I. Hechenbleikner, Town Manager Date: Wednesday, December 08, 2010 Re: Financial Forum Revenue ideas - Cell Towers One of the ideas from the September 15, 2010 Financial Forum on brainstorming potential revenues, is the idea of expanding cell tower leases on Town owned property. The Town currently has leases with 3 individual cell companies on the Auburn Street Standpipe (water tower). The following are some of the key aspects of this installation and leases: ® The Town,, as the landlord, insisted on quality of design and construction of these cell sites. The result is a single building, built by the first of the cell companies to locate here, which contains all equipment for all carriers. o The total annual income from the 3 leases is $114,500. The leases escalate 15% every 5 years for the 20 year life of the leases. o Lease payments are made monthly, and the revenue goes into the general fund for expenditure for general government purposes. o The 3 installations on the Auburn Street site are the maximum that the standpipe, can accommodate. ♦ For the most recent installation - Sprint the Town insisted on certain ongoing environmental monitoring of Radio Emission Frequency (REF) to ensure that the federal standards for exposure are being met. The testing shows that the REF level in the Auburn Street area is less that 1/1000th of permitted levels. As a landlord, the Town can require this. The Town is periodically approached for additional locations of cell sites. Generally, any additional installations will require construction of a freestanding tower with a base building. The current dynamic in the cell tower market place is with companies who will lease locations, build towers, and they will lease the space on the towers to providers. These companies will bear the cost and risk of building and maintaining the towers, but the income to the Town (landowner) is generally less than the older style of business relationship where the Town works directly with the cell companies. Cell towers may take a number of forms, and the industry has worked to create options that are less intrusive on the visual environment that the traditional steel "erector set" model. These include: o location on high buildings with the cell antennae being camouflaged ® Build as a flagpole (thicker that traditional flag poles) with a base building ♦ Construction within a stadium light pole (with the pole projecting higher than the lights) ♦ Installation of a "tree": in locations that are generally well treed (-)A 0 Page 1 The process of securing additional cell tower leases, probably with a company that builds and leases to cell providers, would be for the Town to: ® determine acceptable sites that the cell companies have need for. This would be done through contact with cell companies, and having them test locations. ® through the Board of Selectmen and Town Manager, the Town would then develop and advertise an RFP for cell towers, . o when proposals are received the Town would evaluate any and all providers, make a selection, and enter into leases. ♦ -Installations could need Conservation approval and will need building and electrical permits ♦ This process would take an order-of-magnitude of 100 hours of staff and Town Counsel's time to conduct. ♦ The estimated annual revenue could be approximately the same level of revenue that the Town receives from its current installation on Auburn Street, if the location holds more than 3 installations.. ® There may be opposition to cell tower location from abutters, depending on location and method of installation. a 2 TO: FINCOM, Board of Selectmen, School Committee From: Peter I. Hechenbleikner, Town Manager Date: Wednesday, December 08, 2010 Re: Financial Forum Revenue ideas: Sale of surplus Town land One of the ideas from the September 15, 2010 Financial Forum on brainstorming potential revenues, is the idea of selling surplus Town properties. While the Town owns a number of properties, the three that could generate the most interest (other than a property owner wanting to purchase a Town owned "x" square foot surplus parcel next to their property). would be: ♦ Oakland Road property ® Pearl Street/Audubon Road parcel o Lothrop Road parcel Each property is shown on maps and a fact sheet submitted as part of this memo. By state law, sale of real estate funds can be used only for: capital improvements, debt service, or unfunded pension liability. Sale of these properties would help fund capital int the community, but would not be able to fund operating expenses. For properties owned as tax title - it appears only Oakland Road - the Board of Selectmen can issue an RFP to sell the land. For other properties, Town Meeting. 0 Page 1 0 ✓ ' X20 33-41 15; 86 33.4 o, 1,9100 c A- 25 !\;j ~''y N~~ts~a o 156' elevation at top of knob. X33-22 126' elevation at Oakland 33 18 '15;000 Road adjacent to knob. 0~ ' 33 21 33419-A 135r X33 3.50+ 20,0 00 \ r ' ; f READING`; \ 33-2`~ r~ 2 ffVIEMORIAL V 3 J IGH SCHOOL, 3l 0004%/- 27- 0 4.5 acres total 3349 27- • \W :'OS 274o5 D 7i34 _144~777 cot 1 s 53 27=405 split by 3319 Oakland Road. -7 X41 664 A Part used by schools. 6,0 733 7-33 6,51 . 733 7,25 / 27.405 o ti , + _ 8;1 p O 26;50 ~2p-295-~~ OP - ~+?o 28,911+( 34,Q4 l 2],-3 6 n 6 ?w / 27 o 3 10 6 ar ~O L ° ~1 -27-402 C 1 ~ . ,,du 8••~k~Fi~~ ~)d ~ rA or'::.•'aJu..g;-=-~u' Flu: -ra :,4474'.1.0 Part of 33-19 is X88 on Oakland Road near Main Street. 27-40f--- 28,2J2 70 27-399 23,95_. z 27-397j 35,37011 l OAKLAND RD Lot Area: Frontage: Utilities: Zoning: Wetlands: Topography: Ownership: Notes: Approximately 4.5 acres including rights of way 740' on Oakland Road Sewer on Hillside Rd and Ridge Rd. Water on Oakland Rd. S-15. Min. lot area 15,000 sf; frontage 100', setbacks: 20' front and rear, 15' side None (pending field inspection) Rocky; high knob on site General government Lots 27-405 and 33-19 are multi-part and would have to be subdivided. ~o 2 _ w 11, 34-4 i'~ 5z -ilia' , s ~ - 1 '~('.•-t \ ~ ~ _ I ~ os, 34zz 1`r53 4-1 ~ /3 qF2 3 `t 34 63. r 10, 82 8.582 ~Uu o \ ' .v4 4 ,o r 7 34-59 °`34 02 lct ,shr '7- 3440 . ~01e,7;~ ,.0 34'5\ 7-5 8 tr,~ l \y vq5 f03 :e- 34 ::~u~tr ~p \ r. / CIO' '16 818 I\' / © 18 $ 28-195 28, 6146 , ~p~ ~a 8 1~; er 13942 A~ x:}8,976 ' i ; f,~ % - / 8,481 sf this section only. o , u u J[t ]IIt ; i 28 200 28.850+/- 028 2,413 UILt : Sx~li 8-192 28723 Y _ 4, 400' 80 caS % / iir_: • 14U~ iii . 28!Y75 /IIi.•:':::i'alu';:i?.tu.: - i X113 zs i 1 eta 84 7 ~ ~ , ~ ~rbi ' ~k, _.•y:-- 28720, 8- 0 ~ 237 i $ 185- \ i \ Q ~ 1. °,il t ~8 f b 7;830- ` s~ ^ry 8-~ °o\ 10.67 pg,sgs' U p a yi ::lti "d, ~Ui 1- - 14 a 13,925 sf this section only. 28-166+ ~ 25,300 sf if ROW is added. 7\ 1 P 11,4 5 `i 8-9 i ulu utt , atu 128-1,62 lu 3dee .10 1 sso w 4 172 ° t [L , Z j✓ > y° 1 ` 17,8 5404 a zs~ 1-28-92' r'_. 31u ::.1kr= `I c~% 22,4107 p ~o 3228-161 161 _ !'i, rq _ . ~r~ i; • :i_: j}J.u `i ~Gt_ " ,i, u.UF 2$ 'l 0' 28.93% i, =t: =t::.: • • ,i.:_:. 28-173 - I r i 3,852 - L1& 54 20,014 ~Jri vl(c '0": ' atlu r_. ~~a j ~ ! ; i ,l ~ LC: a~ltt.....:.. a51tr..:_:.. • .:;r- 'Uu2g'gry Lot Area: 13,925 sf or approximately 25,300 sf including right of way Frontage: 163' frontage on Pearl; 240' including ROW. 95' along Audubon; 135 including ROW. Utilities: Sewer on Pearl and Audubon. Water on Pearl and stub in right of way off Audubon. S-15. Mina lot area 15,000 sf,' frontage 100', setbacks: 20' front and rear, 15' side, 60' Zoning: lot width circle diameter. 100' circle fits. Wetlands: None (pending field inspection) Topography: Flat, though right of way slopes down from abutters on Bunker Ave and Duck Rd. Ownership: General government Lot 28-202 is 3 parts separated by roads. Largest part and part of ROW would have to Notes: be combined to create a conforming lot. G 3 91s, R o° c~2l ~0 7,914 1p 6 SOD o 9223 gJ 2 ?x,05 \ 47e, 10 _ T r oCc~ $ i54' o \ ~ 10 20 8D ` 1q\ i 8 0 \ o` ~p \1':565 Acre C<Y~1,253~ ~ D N Np l . Z o h ` 9~, 0J ~42 0 ~o \ 1025,4 gG 997 r 9-4 LSD 714 3614 -3~ Y ~(N 19,457 1p- 6 5 01 g 9 Z21\' y0 1Q-5 Q State owned s° 0 95,051500 ~~0590. 4 5,47 \ \ \ ~A `~A 415;01 i` ' 015 0 15.03 0 10 ~o o, t= _ V t 7,Q cres 10~-- ~I00 ~ SPA r~A A7 1015 ~ 08 eo~o~~o r 9 41 ~'~9 9A :15 X 10- 0 10.64 ~ J ~ 9- 10 3\ 10 2 T 2~ )116 (S5 ~ tp,,03 F] D a \ 20 44 z \ ~ X 881 WOBURN \ T` `Z3~ q g ~1 o v~~ 10-5,7~ 150151 2188 2018 05 1po.gq77. 10.39 15,6x'3 LOTHROP RD Lot Area: 31,614 sf Frontage: 40.58 feet Utilities: Sewer and water on Lothrop Road S-20. Min. lot area 20,000 sf; frontage 120', setbacks: 20' front and rear, 15' side, 80' lot Zoning: width circle diameter. 124' circle fits. Wetlands: None (pending field inspection) Center of lot is near high point of neighborhood. Land slopes off east and west (towards Topography: Rt 93). Ownership: Water Department Notes: Lot lacks sufficient frontage. Lot abuts vacant, landlocked state-owned parcel. G)-L 4 Page 1 of 1 LeLacheur, Bob From: Doherty, John Udoherty@reading.k12.ma.us1 Sent: Saturday, December 04, 2010 8:47 AM To: LeLach eur, Bob Cc: Delai, Mary Subject: Revenue Generation Spreadsheet Attachments: Copy of 20100915 Revenue Opportunities - Financial Forum DRAFT.xls Good Morning, Bob: I hope all is well. Attached please find the revenue generation spreadsheet that you requested. There are some areas that have been assigned to the school department that are not feasible to pursue at this time. If you have any questions, please do not hesitate to contact Mary Delai or myself. Take care. John F. Doherty, Ed.D. Superintendent of Schools Reading Public Schools 82 Oakland Road Reading, Massachusetts 01867. Phone: 781-670-2849 'doh herty(a_reading.k12.ma.us Tease don't print this e-mail unless you really need to When writing or responding, please remember that the Secretary of State's Office has determined that email is a public record. This communication may contain privileged or other confidential information. If you are not the intended recipient, or believe that you have received this communication in error, please do not print, copy, retransmit, disseminate, or otherwise use the information. Also, please indicate to the sender that you have received this email in error, and delete the copy you received. \0 12/8/2010 Page 1 of 2 LeLacheur, Bob From: Cormier, Jim Sent: Monday, December 06, 2010 10:58 AM To: LeLacheur, Bob; Burns, Greg Subject: FW: Reminder for FINCOM request Attachments: 20100915 Revenue Opportunities - Financial Forum DRAFT.xls Bob and Greg, I filled in the line for the "billing at fault accidents". Just an FYI I researched Yarmouth who tried to implement something like this. It was abandoned by them and unsuccessful. They tried to go after Insurance Co's for the cost, they refused to pay and will fight our determination of "at fault'. When they tried to collect from.citizens, it created a great deal of animosity and was argued as part of the services the PD is supposed to provide. I think this is not an area we should venture into. Jim Chief James W. Cormier Reading Police Department 15 Union St. Reading, MA 01867 781-944-1212 781-944-2893 Fax JCormier@ci. reading. ma. us FBINA-233 web www.readingma.gov//police Please let us know how we are doing - fill out our brief customer service survey at http://readingma- survey.virtualtownhall.net/survey/sid/91 b54a9276d612c7/ When writing or responding, please remember that the secretary of State's Office has determined that email is a public record. This communication may contain privileged or other confidential information. If you are not the intended recipient, or believe that you have received this communication in error, please do not print, copy, retransmit, disseminate, or otherwise use the information. Also, please indicate to the sender that you have received this email in error, and delete the copy you received. From: Burns, Greg Sent: Monday, December 06, 2010.8:39 AM To: Cormier, Jim Subject: FW: Reminder for FINCOM request Jimmy,, Do you have anything on billing for at fault accidents? Greg Chief Gregory J. Burns . Reading Fire Department 757 Main Street Reading, MA 01867 12/8/2010 Page 1 of 2 LeLacheur,Bob From: Burns, Greg Sent: Monday, December 06, 2010 3:49 PM To: LeLacheur, Bob Subject: FW: Reminder for FINCOM request Attachments: 20100915 Revenue Opportunities - Financial Forum DRAFT.xls Bob, I responded to providing ambulance service to other communities. If we were to do so we would need to run a second ambulance and this would require us to hire additional staff and I don't believe it would be cost effective unless we can line up several communities. For example if we were to provide ambulance service to Wakefield rough costs could be estimated as: 12 Firefighters (60,000) = $720,000 Estimated Revenue = $600,000 Net ($120,000) Chief Gregory J. Burns Reading Fire Department 757 Main Street Reading, MA 01867 (P) 789.944.3132 (F) 781.942.9114 ivwv mdineNa-.gov Please let its. know how we are doing -fill out our brief customer set-vice survey at http:/lreadingma- surve .virtualtownhall.net/survey/sid/4al23638fd4e28b8/ From: LeLacheur, Bob Sent: Wednesday, December 01, 2010 5:11 PM To: Reading - Department Heads; Vinnie Cameron (vcameron@rmld.com) Subject: Reminder for FINCOM request I don't recall if I sent this out electronically after the last Dept Head meeting. Please fill in as much as possible and get it back to me prior to next Wednesday's FINCOM meeting. Whatever format is easiest to get the info back to me is fine if the attached is not convenient. Thanks, Bob Bob LeLacheur Assistant Town Manager/Finance Director Town of Reading 16 Lowell Street Reading, MA 01867 (P) 781-942-6636 (F) 781-942-9037 Please note new Town Hall Hours: Monday, Wednesday and Thursday: 7:30 a.m - 5:30 p.m. Tuesday: 7:30 a.m. - 7:00 p.m. Friday: CLOSED 12/8/2010 Page 2 of ,4 Please note new Town Hall Hours: Monday, Wednesday and Thursday: 7:30 a.m - 5:30 p.m. Tuesday: 7:30 a.m. - 7:00 p.m. Friday: CLOSED web www.readingma.gov email finance@ci.reading. ma. us Please let us know how we are doing fill out our brief customer service survey at http://readingma- survey.virtualtownhall.net/survey/Sid/4al23638fd4e2gb8/ From: Peter Frazier [mailto: Peter. Frazier@firstsw.com] Sent: Wednesday, December 01, 2010 12:38 PM To: LeLacheur, Bob Cc: Abby Jeffers Subject: Reading: Ratings Agency. question Bob, Below and attached is a response to your question from Moody's. Please let me know if you need any additional information. Peter Peter Frazier Senior Vice President FirstSouthwest direct 617.619.4409 fax 617.619.4411 54 Canal Street, Suite 320, Boston, MA 02114 From: Kendall, Susan [mailto:Susan.Kendall@moodys.com] Sent: Wednesday, December. 01, 2010 11:45 AM To: Peter Frazier. Subject: RE: Ratings Agency question Peter, I don't know where the Boston Globe got its information, so I'm glad Reading asked directly. The national median for available reserves (combined unreserved General Fund balance and Stabilization Fund) is around 23%. MA reserves are generally lower, which is incorporated into the ratings (generally MA demographic/wealth indicators are higher than the national median). We also do take into consideration economic sensitivity and stability of revenues. Slide 16 in my recent MCTA presentation has information Reading may find useful. Please let me know if you or the Town have additional questions or would like to discuss further. Susan Kendall Vice President/Senior Analyst Public Finance Group 617.204.5634 tel 617.478.0516 fax 212.298.6787 mobile fax susan.kendall@moodvs.com Moody's Investors Service 101 Federal Street Suite 1900 Boston, MA 02110 - www.moodys.com 12/3/2010 MOODY'S INVESTORS SERVICE Massachusetts Local Government Ratings A Long-term Approach to Rating Through the Recession with an Update on Moody's Global Scale Ratings Recalibration MCTANwomb.,17.2010 I Moody's Global Scale Ratings RECALIBRATION IS COMPLETE Moorrr's .cr.xavu,uuaxo,x x Today's Agenda » Moody's Global Scale Rating Recalibralion - Recalibralion is Complete-Review of Process and Results » Local Governments Facing Unprecedented Challenges - Massachusetts Cities, Towns and School Distribts Continue to Face Pressures - Local Revenue Shortfalls, State Aid Cuts and Limited New Growth » Moody's Approach to Rating through the Recession and Recovery - Maintaining Long-Term Credit Strength: Four Primary Rating Factors - Management Strength Is Critical-Focus on Long-Range Policies and Projections - Recovery Will be Slow - Massachusetts is Recovering Ahead of the Nation » Is Recovery Underway? - Outlooks for Massachusetts MSAs » Questions MOOOYF eeuxwevnea n, xo,o x Moody's Global Scale Rating Recalibration is Complete » On May 10, 2010 Moody's completed its recalibration of long-tens U.S. municipal ratings to its global rating scale » Transition facilitated comparability of ratings across the Moody's-rated universe » in the past, municipal ratings were calibrated on a separate rating scale that emphasized. ordinal ranking or credit dsk across municipal sectors » Recalibration has resulted in upward shift for most state and local government ratings by up to 3 notches n Degree of movement was less for some sectors, most notably enterprise sectors, which are already aligned well to credits on the global scale Moody's will maintain a single global rating scale for municipal obligations Market participants should not view the recalibmflon ofmunicipal ratings as rating upgrades, but rather as recallbration of the ratings to a different scale Mootrrk eR.~oraorr,x,>o,e . Recalibration Guided By Fundamental Analysis & Benchmarking » Benchmarking process considered key factors including: - Intrinsic financial strength -Historical default and loss experience of similar credits - Future potential for default and loss - Potential sources of external support in the event of financial distress - Vulnerability to event risk and other factors that could lead to a rapid multi-notch rating change - Governance framework Moooyt .R.xwoox.n,>o~o . Process Designed to Enhance Transparency n Recently recalibrated ratings are marked with a'GSR' (Global Scale Rating indicator) on our website for a period of time after the recalibration » Additionally, municipal ratings that were affected by the recalibration are noted with a'Change in Scale' indicator in our systems and displayed in the rating history on our website » All ratings will be assigned and monitored on the global scale MOODYk •auxavexau,r, m,o r Credit Quality is Generally Stable MASSACHUSETTS CITIES AND TOWNS STILL FACING SIGNIFICANT CHALLENGES MOODYS xcrAxm[anu n.nia , I. Mooork xm,xaVr„e~.,r,>o,a „ I Massachusetts Local Government Ratings IM w National GG0. Matllans (Gllleaj ssx eau. a ux ISx ' jIl y ~ m, a, a. ae . ai a u a,n e,.x m.t Pulna, MASSACHUSETTS NATION Moooyt x xau s>o,a Massachusetts Local Governments Remain Under Pressure » Negative Outlooks on Local and State Government Sectors » Commonwealth of Massachusetts FY12 Budget - How will ARRA funding be replaced? - What's the future for state aid? » Local Revenues Flat at Best in Near Term » Growing Long-Term Liabilities - Pension funding uhedulesextended to 2040 - OPE8 liabililles mlotivoly large, limited Willy to fund » Slate and Local Government Recoveries will Lag General Economic Recovery MoooYS. xR.xwaea,r.zo,a ,a State Aid is Vulnerable In Recessions Net State Aid u.sw.ooama t,,ao.wa.ow ri.sb.mo.aeo ,>woam.aox uwaoao.ooo szooaaoa.cao s,.soa.ooo.aon r,.ma.oao.mo tsoo.ooa.ooo s Soumo: Camn>amwaflh ar MasuNU.xtta 00P/D:S MVNdpdaofa Bank Moon>yk xR.xavaa~ao.n„e - I T New Growth Values Plummet in Great Recession i1000.0040W ,~.CM.000.ON 4,WO.000A00 oaoa~ Scu+w: Commomw Ma MauaM=RSDOWLStduldclipdD bannk Mooos?; .R.xon.oa,,.~,e o Massachusetts Local Govemments: RATING THROUGH THE CYCLE MoooYt .a.ww..o.A,cm,a Massachusetts Available Reserves are Low Available General Fund Balance as % of Revenue f w, Al .rv;.v,musertscmMeoiwsrysn+ •iUnaNtatturnius,u5n~ Mo E 0\~ Proposition 2 % is Doing Its Job Tax Levy as % of Assessed Value Soum. Cwnm mMho/Mvsmchumnt DOWLSMunbipvl Dab Bonk Mooort xR.xarc.aea,am,a „ Proposition 2'/z Limits Flexibility BUT Levies Keep Growing During Recession Capacity Under Proposition 21/2 m.ooo.aoo.aaa 10.Wa.Wa.000 odAILI RE111fli 'I'LIJI "om?a ---a----- i P a Souma: Cammxafe M,fhfatsochumnt DOR,DLSMun'dpd Dab Bvnk vTaa Tn lwy MoonY's „R.xan„eka,cmm n BUT Reserve Growth is Flat Relative to Budget Size -and much lower than the national median of 28.82% Levy Capacity Has Been Dropping Since Last Recession Excess Levy Capacity as% of Limit >oo - - - Sau,m: C=n-m Ma/Matmc -DOWLSMa*1pa1Dab Bonk MOODY~S acraxov[„vcv,r, m,o m ' Significant Growth in City & Town Available Reserves I a,..wo.ooo.mo s,_voooo.aoo srm.aoo.ooo tmo.ovvavv T.'W.O%I.Mf .~Q ..}tea .gyp ~p Sauna: Cann-hhalMOUachumttt DOWLS MulddPal Dab Bank MoonY~ xa..xoraoew,,.mm m Less Negative Free Cash in This Recession I sao.aoo,aoo "'tza.oaamo sza,ovvmv raooo.ooo t,o,aoo.aua } ,o-n ,w. ,oos ,am iwn ,caa ,an xo, :oa::om xoo, zeds row zom zow zoai sears": cammamwaknakfa...awumm DORmLS Maxdpwoam Baax Mooovk xn•xwmau,cm,a top Negative Free Cash MA Unemployment Improving Faster than Nation I Massachusetts Unemployment Rates Drop a 10' S- commxnwoonnarno::omua,ruE.xanw omroatatwaa w>xroRO eoVawmonr Moonrk eR.xo~xxU,:,>o,o » Massachusetts is Recovering Ahead of the Nation » Unemployment rates remain below national levels ' » Higher Education and Health Care stabilize local economy » BUT local governments will continue to face difficult decisions concerning overrides, use of reserves and/or service reductions » Strong management will be critical to maintaining long-term credit strength Adherence to management policies prudent use of reserves along with plan to replenish conservative long-range forecasting and monfloring of economically sensitive revenues Structural balance - Maintenance of financial Sexib lty - Thoughtful debt management and capital planning Moorn's x-sco,>.ro,o Boom-Bust Cycle for Income Tax States % change yr ago - 20 10 0 -Personal income taxes -20 - -Personal income -30 00 02 04 06 08 10 12 Sources: SEA, Moody's Analytics Mooovs eR.xorae.x,r.m,o r, Housing Sector Improvement Expected in Massachusetts i MA House price index MA Single-family permits (1980Q1=100) ,e.om,..._.._........._.__.._ is- xao eoo - - - - - - - - - - - - - - So- Mood IVtOOIT'S •xaveueu,r. m,o n Massachusetts Regional Economic Forecasts IS RECOVERY UNDERWAY? Moony eR.x ,r,ro,x z, Foreclosures Create Lowest Risk in the Northeast Homes in foreclosure, % of owner-occupied housing stock 6 - -Northeast. -Midwest -South --West - 3 - - - 2 - 08 09 10 Sources: Realty ri ac, Census Bureau, Moody 's Analytics Moonyk x~r.xoxo,ers,r.m,a 0_)A State Revenue Growth Returns Fiscal 2011 state tax revenue growth forecast, % 114% to 6% ,L-z M<4% s: Source: Moody's Analylics Mooovt .R.»,m.oa,,.>o,o More Troubles Ahead in Fiscal 2012 Fiscal 2012 state deficit projections 2012 deficit 0 No 2D12 deficit Source: Center on Budget and Policy Priorities Mooov's eR.~or.,,. Massachusetts Regional Economic Outlooks n Barnstable MSA - in recovery but pace will lag state and national economies - Heavy reliance on tourism and lack of diversity inhibit growth n Boston-Quincy MSA - Recovery continuing, job growth and house prices ahead of nation - Favorable concentration of education and health care jobs - High costs of living and doing business limit long-term growth n Cambridge-Newton-Framingham MSA - Tech spending leading recovery, could slow if Genzyme sold - Highly educated and skilled workers sustain Income levels among highest in US - Growth and consumer spending accelerate Into 2012 but long-tart growth below average Sourco: Moods Ecencm .cam National Sales Tax Collections Have Bottomed Out % change yrago 12 10 _ 6 4 2 . 0 2 4 General sales taxes -Retail sales -10 00 02 04 06 08 10 12 Sources: BEA, Census, Moodys Economy.com raoa ~ooo,a «o»au,.o~ MOODY% Number of Lost Homes to Remain High in 2010 Ths 2,500 a Short sales, deeds in lieu 2,000 a Foreclosure sales 1,500 1,000 - 500 0 i 00 01 02 03 04 05 05 07 08 09 10F 11F 12F Sources: FDIC, Equifax, Moody's Economy.com MOODY''S e H Massachusetts Regional Outlooks (cont.) n Peabody MSA - Job growth and demand for services stronger than nation - Stability in manufacturing jobs, GE Coo contract Is key - Gains will be outpaced as national recovery kicks in n Pittsfield MSA - Modest recovery lagging most of state - Reliance on tourism limits long-term growth - Foreclosures low but housing prices continue to decline u Springfield MSA - Recovery continues with Improved industrial production and housing starts - Tax credits provided temporary boost to housing prices - Long-term growth underperforms state and nation - Wass is key driver Source: Mood s Ewncm . o MO Dy'S a~r,.wr„or~n.m~» y 6) Massachusetts Regional Outlooks (cont) » Worcester MSA - Jobless recovery continues - Education and health care sectors face funding pressures but see modest growth in employment - Near-tens recovery weak although job growth begins In 2011 - Long-term growth limited by high cost of doing business MooOYt »c.»»»cr.o.>o~o tt Additional GSR INFORMATION Mooov's Some Municipal Ratings Did Not Move Up n Ratings in selected sectors did not move up because their risk parameters are already appropriately aligned with the global scale » Sectors that did not move up include: Housing project financings Not for profit healthcare Private higher education Public power Toll roads Stale revolving funds Bond banks Charter schools Land-secured Issuers and issues Federal leases Tax-exempt bonds backed by corporate credit MOODY:S .~t.»aveane»,e m,e „ Primary Algorithms Guide Recalibration prenanawnttvteM~t« s.ni~ta aam »u°0a t. umo"~cnA°o~e°?`tit ,m na trvtw 0 0 0 c at t t at t o t t o t z t t a z z t t t t a a t ~ o t o z.3 o t o 0 0 0 0 c o c o a c o 0 0 0 c o c I o o a a 0 o c 0 0 0 0 0 0 0 0 MOODY% Notching Conventions Revised n Notching conventions apply to a range of related obligation types, including: » Appropriation-backed debt, lease debt, moral obligations and slate aid intercepts » Current notching conventions remain largely unchanged, but the number will be limited to 3 notches to ensure appropriate positioning relative to an issuer's rating on the global scale MUNIPeil311eNOlOeNG riOW1..4NENGTOnNG (FWlM1ifV5 (i3Ar®MTNG) ~(RdtMMVS f>BATNGMIiNG1 t 0ntd, t gym, 2.td- 2-erce 3rotdm 3.1d- ac.rrotaactd,m 3n1dtm U00Dyk .rt.»wune»,r.min a 01 Short-Term Rating Thresholds Adjusted e Short-term ratings are appropriately aligned with short-term ratings In other global -1- • We have adjusted the minimum long-term rating required to achieve various short-term rating levels u Majority of bond anticipation notes and cash flow notes are backed by general obligation pledge and therefore the minimum rating levels were adjusted up according to the algorithm used for general obligations U.S Munldpal Shat-Tam MingMinimum Thresholds WNG.TMTM MORTTed,1PATINCs SIORTTTWRATHN womTeat RATING- MWERP410TING. VARAMERNTE WNOANTIOPATION lvlrlR MUNUPAL`.I'JLE GUHM!:AIE D24ANDWNM NGTE%CASHF1OWNOTES coMdEWWAFER AT A2 VMGI MGT PI eat-Ba2 . A3 VMG2 MG2 P2 BM3 Bar VMGW MG3• P3 en an 3 33 NP a.,anmeao.,rowo ne~.~b,e..,mo~m aue n ue wa+«dm~~ i~:aawn wand ha% sma. Moomt .rrAxoveuau,cm,a MOODY'S moodys.com INVESTORS SERVICE Susan xeMall Conn MCEO_ ---TM--- ViuPmdmn nwr Annlysl A¢¢idanlV Pre¢idenUAwiy¢s Vice P,a5ldenUSenbrAnalya Lead Analyst, Ma¢vcM1USells Pepbnal Fnslem Reabnal RallnUS Tnnm Lead, Eeslem Raptorial ROli,q¢ RalinOc G1h2045634 61TiW5932 212.SS3m]i ¢uan.xcne¢n®mo¢dn.~m ce¢a,.a.,m®mooay¢mm onomio ~mm~own®mnwn wm I- - f LET ~ `Y~ f ~p I rf'1 tl_ ' ; f l r`5 I L ij nl, t T 7J~ N I ~ ; I S~ i.. f' Fa rd L I ri t Ii=p c . r r e 'It l 1 5 ~ Tiri a II I 7 ~ L >il II t I ~r,tr:i Ti ' Recalibration Intended to Achieve Greater Comparability » Global scale ratings are intended to indicate average levels of default and loss that are roughly consistent across sectors and geographies » For a given rating level, actual default and loss experience for different sectors play out differently across sectors and regions » For example, A-rated sovereign and A-rated corporate bonds may not experience the same default rate or seventy of loss during periods of broad economic expansion or recession or during a sector or geographic-specific downturn » They are however intended to have similar average loss rates over long periods of time Mooort aRAno.~.oa,r.ro,a w OT4 Page 1 of 1 LeLacheur, Bob From: LaPointe, Gail Sent: Monday, December 06, 2010 8:54 AM To: LeLacheur, Bob; 'Peter Frazier'; Heffernan, Nancy Subject: RE: Too much debt comment The 10,000,000+ includes the MSBA debt refinancing principal payment of $4,362,000. This was a one time payoff of the MSBA portion on the refinanced debt. qa9.eaJna&& Town Accountant Phone - 781-942-6604 FAX - 781-942-9037 Please note new Town Hall Hours Effective June 7, 2010 Monday Wednesday Thursday - 7:30 am to 5:30 pm Tuesday - 7:30 am to 7 pm Friday - CLOSED Please let us know how we are doing - fill out our brief customer service survey at h .11readingn:a- survev, virtualtorvnhall.net/survey/sid/4a123638fd4e26W When writing or responding, please remember that the secretary of State's Office has determined that email is a public record. This communication may contain privileged or other confidential information. If you are not the intended recipient, or believe that you have received this communication in error, please'do not print, copy, retransmit, disseminate, or otherwise use the information. Also, please indicate to the sender that you have received this email in error, and delete the copy you received. From: LeLacheur, Bob Sent: Friday, December 03, 2010 6:36 PM To: Peter Frazier; Heffernan, Nancy; LaPointe, Gail Subject: Too much debt comment My guess is this is the basis for the comment. For some reason DOR shows as with $10mil of general fund debt a year or two ago - see the bottom of the excel sheet (expend per capita- we're at 226% of State Avg) Gail - any ideas? Bob LeLacheur Assistant Town Manager/Finance Director Town of Reading 16 Lowell Street Reading, MA 01867 (P) 781-942-6636 (F) 781-942-9037 Please note new Town Hall Hours: Monday, Wednesday and Thursday: 7:30 a.m - 5:30 p.m Tuesday: 7:30 a.m. - 7:00 p.m. Friday: CLOSED web www.readingma.gov email finance@ci.reading.ma.us Please let us know how we are doing - fill out our brief customer service survey at httP://reaclinqma- survey.Virtualtownhall.net/survey/sid/4al 23638fd4e28b8/ 12/8/2010 Z~ General Fund Expenditures Per Capita MA DoR Municipal Databank/Local Aid Section Other - 2008 General Public Public Human Culture & Debt Fixed Populatio Municipality Gov Police Fire Safety Education Works Services Rec Service Costs Inter-gov Other Exp Total Exp n ANDOVER 241.93 189.92 208.62 27.93 1,776.50 180.04 26.11 139.88 391.52 160.39 85.93 7.93 3,436.70 33,418 ARLINGTON 124.04. 132.61 149.41 33.72 978.87 180.58 17.67 72.76 181.73 292.22 64.54 11.83 2,239.98 40,993 BILLERICA 88.45 155.51 159.35 36.57 1,326.90 345.05 26.96 38.60 176.88 243.39 113.40 7.06 2,718.12 41,844 BURLINGTON 195.81 249.96 220.97 18.85 1,661..02 380.61 54.22 102.27 161.00 353.91 24.27 0.00 3,422.89 24,985 CHELMSFORD 67.50 146.73 116.00 7.52 1,295.48 211.71 19.80 46.25 337.82 465.33 44.54 1.08. 2,759.77 34,409 LYNNFIELD 138.63 185.19 92.71 13.93 1,695.77 239.16 23.69 53.10 322.07 524.56 25.40 0.00 3,314.22 11,412 MELROSE 101.85 131.95 131.58 11.42 1,038.39 171.33 28.69 64.33 . 166.29 206.66 105.67 16.40 2,174.56 26,708 READING 131.11 154.38 149.83 24.26 1,556.15 224.30 25.08 78.80 440.85 428.22 25.80 0.13 3,238.91 23,052 STONEHAM 87.03 154.07 112.61 27.82 1,033.16 146.51 12.86 74.69 221.79 486.16 99.13 1.68 2,457.52 21,471 TEWKSBURY 81.32 182.92 143.71 7.75 1,227.59 150.32 23.57 40.52 326.83 211.46 22.93 0.00 2,418.90 29,543 WAKEFIELD 75.17 157.37 143.41 12.88 1,080.81 253.22 15.70 46.16 0.00 489.68 46.79 0.02 2,321.22 24,717 WILMINGTON 150.53 182.12 142.71 34.61 1,666.95 246.48 43.64 68.31 187.01 214.93 109.99 4.05 3,051.34 21,649 WOBURN 84.57 227.27 177.13 13.42 1,221.33 258.81 23.74 49.20 134.23 513.65 105.28 0.00 2,808.62 36,871 State Totals 141.60 208.50 151.78 35.15 1,297.93 170.41 44.69 55.69 194.94 310.56 86.50 6.14 2,703.88 6,497,967 Reading Spends: Less Less Less Less More More Less More More More Less Less More Less State % Over/ Under -7% -26% -1% -31% 20% 32% -44% 42% 126% 38% -70% -98% 20% Group Average 120.61 173.08 149.85 20.82 1,350.69 229.86 26.29 67.30 234.46 353.12 67.20 3.86 2,797.13 28,544 Reading Spends: More Less Less More More Less Less More More More Less Less More Less Group % Over / Under 9% -11% 0% 17% 15% -2% -5% .17% 88% 21% -62% -97% 16% READING - $ Spent 3,022,416 3,558,695 3,453,978 559,198 35,872,262 5,170,508 578,159 1,816,585 10,162,436 9,871,397 594,665 READING % of Total 4.05 4.77 4.63 0.75 48.05 6.93 0.77 2.43 13.61 13.22 0.80 2,962 74,663,261 0.00 100.00 General Fund Expend itures as a Percentage of t he Total MA DoR Municipa l Databank/Local Aid Section Municipality Gen Govt Police Fire Other Public Safe Educatio n Public Works Human Serv -Culture & Rec Debt Service Fixed Costs Inter- gov Other Exp ANDOVER 7.04 5.53 6.07 0.81 51.69 5.24 0.76 4.07 11.39 4.67 2.50 0.23 ARLINGTON 5.54 5.92 6.67 1.51 43.70 8.06 0.79 3.25 8.11 13.05 2.88 0.53 BEDFORD 4.53 4.47 3.12 0.58 45.30 10.19 1.79 1.81 11.89 11.75 4.56 0.00 BELMONT 6.27 6.04 5.91 1.81 50.43 8.05 1.03 4.25 6.35 . 7.25 2.21 0.41 BEVERLY 5.16 7.62 6.39 1.86 48.58 5.43 1.58 3.39 8'.61 9.05 2.32 0.00 BURLINGTON 5.72 7.30 6.46 0.55 48.53 11.12 1.58 2.99 4.70 10.34 0.71 0.00 CAMBRIDGE 6.46 7.81 6.47 3.82 29.46 5.10 2.96 3.90 12.08 10.33 11.55 0.05 CONCORD 5.15 5.50 4.66 0.54 60.85 4.90 0.96 2.95 9.15 4.04 0.53 0.77 DANVERS 11.80 7.31 5.61 0.53 42.37 7.22 0.35 2.60 4.61 16.22 1.14 0.23 LEXINGTON 11.13 4.74 3.97 0.56 56.60 7.15 0.60 2.38 8.30 3.97 0.60 0.00 LYNNFIELD 4.18 5.59 2.80 0.42 51.17 7.22 0.71 1.60 9.72 15.83 0.77 0.00 MELROSE 4.68 6.07 6.05 0.53 47.75 7.88 1.32 - 2.96 7.65 9.50 4.86 0.75 NEEDHAM 5.60 4.54 5.77 1.60 48.44 4.95 0.95 1.83 8.48 16.31 1.07 0.46 NEWTON 4.37 5.84 7.32 0:39 55.13 8.01 1.32 3.83 4.15 7.35 2.25 0.04 NORTH ANDOVER 3.80 6.22 6.19 0.39 53.68 6.99 1.31 1.19 11.39 F 4.67 3.38 0.78 NORTH READING 3.91 6.37 4.48 0.64 50.76 7.79 1.02 1.16 - 8.91 14.21 0.00 0.73 PEABODY 1 READING 3.43 4.05 7.51 4.77 . 6.18 4.63 0.12 0.75 43.42 48.05 17.96 6.93 1.65 0.77 2.63 2.43 ,-4-,% ! 1 :61 7.28 3.22 5.17 0.80 0.09 0.00 STONEHAM 3.54 6.27 4.58 1 1.13 1 42.04 5.96 0.52 3,04 19.78 4.03 0.07 WAKEFIELD 3.24 6.78 6.18 0.55 46.56 10.91 0.68 1.99 0.00 21.10 2.02 0.00 WILMINGTON 4.93 5.97 4.68 1.13 54.63 8.08 1.43 2.24 6.13 7.04 3.60 0.13 WINCHESTER 8.95 5.49 4.72 0.55 42.81 10.88 0.24 2.05 9.03 14.68 0.61 0.00 WOBURN 3.01 8.09 6.31 0.48 43.49 9.21 0.85 1.75 4.78 18.29 3.75 0.00 State Totals 5.24 7.71 5.61 1.30 48.00 6.30 1.65 2.0 7.21 11.49 3.20 0.23 0.1 -A., X5,8 I s~ ° 7 EA C 1.1 Page 1 of 4 LeLacheur, Bob From: Peter Frazier [Peter. Frazier@firstsw.com] Sent: Friday, December 03, 2010 11:35 AM To: LeLacheur, Bob Cc: Abby Jeffers; Heffernan, Nancy Subject: Reading: Ratings Agency question Bob, With respect to your comment regarding high debt levels, I would appreciate it if you can find and send the material to me. One reasons the analysis may not tell the whole story is the School debt is likely not reduced by the MSBA annual aid payments approximately $6 million over the remaining life of the bonds. However, it is true that over the last ten years, the Town has engaged in a significant capital program for school, water and electric/energy projects. Unfortunately, gross comparisons often don't give a clear picture. Unless you drill down and look at what debt is self- supporting, debt excluded and has offsetting aid, it is hard to come to useful conclusions. Please call with any questions. Peter Peter Frazier Senior Vice President FirstSouthwest direct 617.619.4409 fax 617.619.4411 54 Canal Street, Suite 320, Boston, MA 02114 From: LeLacheur, Bob [mailto:blelacheur@ci.reading. ma.us] Sent: Thursday, December- 02, 2010 5:33 PM To: Peter Frazier Cc: Abby Jeffers; Heffernan, Nancy Subject: RE: Reading: Ratings Agency question Thanks Peter, I'll look this over. There also was a chart published recently and a comment was made that Reading has very high debt levels compared to other communities. I don't know if this is general fund, excluded debt, or enterprise-fund debt based, but it surprised me. Any comments? Thanks again Bob > Bob LeLacheur Assistant Town Manager/Finance Director Town of Reading 16 Lowell Street Reading, MA 01867 (P) 781-942-6636 (F) 781-942-9037 12/3/2010 l% Town of Reading: Financial Forecast as of November 29, 2010 Revenues: Projected flat in FYI I & FY 12 due to decreases in State and Federal aid coupled with sluggish local receipts (excise tax and building permits). Slight increase projected in FYI 3 due to expected stabilization of state aid. Historically revenues have grown 3.0-3.5% each year, and even then the annual budgets were under pressure. Accommodated Costs: Health insurance costs are estimated to increase 10% in FYI 2. This estimate will need to cover an increase in the prices as well as ongoing enrollment increases now running at about 3.0% per year. This price figure will be available in mid-February 2011. Left for Wages/Expenses: a forecast decline in FYI 2 because Revenues are flat and Accommodated Costs are up. Costs if Wages/Expenses (w/e) frozen: not much change in FYI 2 versus FYI 1. Note the forecast shortfall of $2.3 million between what is left for We and what is needed to achieve level funding. Note also that level funding generally represents a decline in services provided to the residents. Financial Summary & Analysis . We closed out FYI 0 in decent shape, as negotiated savings to health insurance and a low snowfall helped take care of most unexpected costs. Cash reserves compared to one year ago are about $0.5 million lower - this figure includes the $936k used to balance the FYI I budget. Thus we stand at $6.3 million in reserves (8.5% of the budget) - a figure above the 5% minimum FINCOM suggests. Note that the ratings agencies have suggested an increase from 7% to 10% in reserves policy because of the difficult economy. For FYI 1, both the Municipal Gov't (MG) and Schools received approximately level funding for Wages/Expenses versus the prior year. All MG employees accepted a zero COLA and agreed to forfeit step movement, which allowed service (and employment) levels to be about unchanged. The Schools are in the last year of previously negotiated union contracts and did need to use layoffs to operate under the funding allowed. Going forward beyond FYI 1, the forecast is a bit worse than it was this time last year as the State passed an FYI I budget that implies a projected $2+ billion deficit in FYI 2, which is likely to impact (reduce) local aid. FINCOM has selected a path forward that uses a maximum of $1.5 million in reserves for FY12. Since the shortfall is $2.3 million at level funding, that means that $800k needs to be cut from the MG ($258k) and Schools ($544k), which is bound to have a noticeable negative impact on services. Note that the $1.5 million supports the nearly $1 million of reserves being used this year, then another $500k in expenses that are simply above projected revenues. In Option A, FINCOM could have selected to keep cash reserves at $6.3 million. In that case, the full $2.3 million would need to be cut in FY12 (MG $738k; Schools $1,555k). hi Option B, FINCOM could have fully funded the FYI 2 shortfalls and had a second year of level funding. In this case, reserves would have fallen to 5.4%. This fact alone might have been tolerable, but revenues in FYI 3 are not expected to grow enough to support this course. Pursuing a level funding course would eliminate reserves entirely somewhere during FYI 4. In FY 13, FINCOM has suggested that less cash reserves will be available to support the budget. That means more difficult budgets for a few years are still ahead. The trick will be to grow revenues to replace the cash reserves used first, and then to stop budget cutting only once revenues grow beyond that amount. Town of Reading: Financial Forecast as of November 29, 2010 All figures in $000s unless otherwise stated Revenues (projected FY11+) annual change FY10 FY11 FY12 FY13 73,935 74,080 74,010 75,449 0.2% -0.1% 1.9% Accommodated Costs* $ 28,747 $ 28,837 $ 30,025 $ 31,577 0.3% 4.1% 5.2% *Includes shared and fixed costs such as Benefits; Capital, Debt, Energy, out of district Special Education, Insurance, Snow & Ice removal, Rubbish collection & disposal Left for Wages & Expenses $ 45,188 $ 45;243 $ 43,985 $ 43,872 for Schools & Town Gov't 0.1% -2.8% -0.3% Cost if Wages/expenses frozen at 0% $ 45,458 $ 46,168 $ 46,292 $ 46,292 Wage/expense surplus(deficit) $ (270) $ (925) $ (2,307) $ (2,420) Cash Reserves used to cover deficits $ 300 $ 936 max $1,500 est. $1,000 see FINCOM decision below Financial Policy per Reading Finance Committee Current Cash Reserves FINCOM minimum target 5% Reserves Ratings Agencies target 10% Reserves Option A - Use NO cash reserves Cash Reserves used Reserves left Wage/expense surplus(deficit) Cuts to Budgets vs. Prior Yr. Option B - Use cash reserves to allow frozen 0% Cash Reserves used Reserves left Wage/expense surplus(deficit) Cuts to Budgets vs. Prior Yr. FINCOM Decision - Mix of Options Cash Reserves used . Reserves left Wage/expense surplus(deficit) Cuts to Budgets vs. Prior Yr. Municipal Gov't Schools & Facilities Town Building Maint. $ 6,311 this was $6,840 last year $ 3,704 $ 3,701 $ 3,772 $ 7,408 $ 7,401 $ 7,545 0 0 $ 6,311 6,311 6,311 8.5% 8.5% 8.4% (270) (925) (2,307) (113) -0.59% -2.00% -4.98% -0.24% .2,307 2,420 $ 6,311 4,004 1,584 8.5% 5.4% 2.1% 0 0 0% 0% 270 936 1,500 1,000 $ 6,311 4,811 3,811 8.5% 6.5% 5.1% - 11 (807) (613) -1.76% -1.32% $ 258 $ 196 544 $ 413 $ 7 $ 6 Town of Reading: Financial Forecast as of November 29, 2010 All figures in $000s unless otherwise stated Revenues (projected FY11+) annualchange FY10 FY11 FY12 FY13 73,935 74,080 74,010 75,449 . 0.2% -0.1% 1.9% Accommodated Costs* $ 28,747 $ 28,837 $ 30,025 $ 31,577 0.3% 4.1% 5.2% *Includes shared and fixed costs such as Benefits; Capital, Debt, Energy, out of district Special Education, Insurance, Snow & Ice removal, Rubbish collection & disposal Left for Wages & Expenses for Schools & Town Gov't 45,188 $ 45;243 $ 43,985 $ 43,872 0.1% -2.8% -0.3% 45,458 $ 46,168 $ 46,292 $ 46,292 (270) $ (925) $ (2,307) $ (2,420) Cost if Wages/expenses frozen at 0% $ . Wage/expense surplus(deficit) $ Cash Reserves used to cover deficits $ Financial Policy per Reading Finance Committee Current Cash Reserves FINCOM minimum target 5% Reserves Ratings Agencies target 10% Reserves Option A - Use NO cash reserves Cash Reserves used Reserves left Wage/expense surplus(deficit) Cuts to Budgets vs. Prior Yr. Option B Use cash reserves to allow frozen 0% Cash Reserves used . Reserves left Wage/expense surplus(deficit) Cuts to Budgets vs. Prior Yr. FINCOM Decision - Mix of Options Cash Reserves used . Reserves left Wage/expense surplus(deficit) Cuts to Budgets vs. Prior Yr. Municipal Gov't Schools & Facilities Town Building Maint. 300 $ 936 max $1,500 est. $1,000 see FINCOM decision below $ 6,311 this was $6,840 last year $ 3,704 $ 3,701 $ 3,772 $ 7,408 $ 7,401 $ 7,545 0 0 $ 6,311 6,311 6,311 8.5% 8.5% 8.4% (270) (925) (2,307) (113) -0.59% -2.00% -4.98% -0.24% .2,307 2,420 $ 6,311 4,004 1,584 8.5% 5.4% 2.1% 0 0 0% 0% 270 936 1,500 1,000 $ 6,311 4,811 3,811 8.5% 6.5% 5.1% - 11 (807) (613) -1.75% -1.32% $ 258 $ 196 $ 544 $ 413 $ .7 $ 6 Town of Reading: Financial Forecast as of November 29, 2010 Revenues: Projected flat in FY11 & FY12 due to decreases in State and Federal aid coupled with sluggish local receipts (excise tax and building permits). Slight increase projected in FY13 due to expected stabilization of state aid. Historically revenues have grown 3.0-3.5% each year, and even then the annual budgets were under pressure. Accommodated Costs: Health insurance costs are estimated to increase 10% in FYI 2. This estimate will need to cover an increase in the prices as well as ongoing enrollment increases now running at about 3.0% per year. This price figure will be available in mid-February 2011. Left for Wages/Expenses: a forecast decline in FY12 because Revenues are flat and Accommodated Costs are up. Costs if Wages/Expenses (w/e) frozen: not much change in FY 12 versus FY 11. Note the forecast shortfall of $2.3 million between what is left for w/e and what is needed to achieve level funding. Note also that level funding generally represents a decline in services provided to the residents. Financial Summary & Analysis . We closed out FYI 0 in decent shape, as negotiated savings to health insurance and a low snowfall helped take care of most unexpected costs. Cash reserves compared to one year ago are about $0.5 million lower -this figure includes the $936k used to balance the FYI l budget. Thus we stand at $6.3 million in reserves (8:5% of the budget) - a figure above the 5% minimum FINCOM suggests. Note that the ratings agencies have suggested an increase from 7% to 10% in reserves policy because of the difficult economy. For FYI 1, both the Municipal Gov't (MG) and Schools received approximately level funding for Wages/Expenses versus the prior year. All MG employees accepted a zero -COLA and agreed to forfeit step movement; which allowed service (and employment) levels to be about unchanged. The Schools are in the last year of previously negotiated union contracts and did need to use layoffs to operate under the funding allowed. Going forward beyond FYI 1, the forecast is a bit worse than it was this time last year as the State passed an FYI 1 budget that implies a projected $2+ billion deficit in FY12, which is likely to impact (reduce) local aid. FINCOM has selected a path forward that uses a maximum of $1.5 million in reserves for FY12. Since the shortfall is $2.3 million at level funding, that means that $800k needs to be cut from the MG ($258k) and Schools ($544k), which is bound to have a noticeable negative impact on services. Note that the $1.5 million supports the nearly $1 million of reserves being used this year, then another $500k in expenses that are simply above projected revenues. In Option A, FINCOM could have selected to keep cash reserves at $6.3 million. In that case, the full $2.3 million would need to be cut in FY12 (MG $738k; Schools $1,555k). In Option B, . FINCOM could have fully funded the FYI 2 shortfalls and had a second year of level funding. In this case, reserves would have fallen to 5.4%. This fact alone might have been tolerable, but revenues in FY 13 are not expected to grow enough to support this course. Pursuing a level funding course would eliminate reserves entirely somewhere during FY 14. In FYI 3, FINCOM has suggested that less cash reserves will be available to support the budget. That means more difficult budgets for a few years are still ahead. The trick will be to grow revenues to replace the cash reserves used first, and then to stop budget cutting only once revenues grow beyond that amount.