Town of Swampscott Financial Forecast Fiscal Years

2008-2012And FY08 Budget Overview

Presented to the Board of Selectmen, School Committee, Finance Committee and Town Meeting

Andrew Maylor Town AdministratorNovember 13, 2006

Table of Contents

I. Introduction• Financial Planning Process• Goals and Priority Areas for FY08• Managing the Impact of the Slow Economic Recovery

II. Five Year Financial Forecast• Pro Forma Assumptions General Fund• Revenue and Expense Summary and Chart• Town and School Charts

III. Fiscal 2008 Budget• Revenue Sources and Chart

• Expense Categories and Chart

IV. Water and Sewer Enterprise Funds• FY08 Budget Overview• Pro Forma Assumptions Enterprise Funds • Five Year Forecast and Rate Projections

V. What to Expect• Fiscal Reality• Solutions Implemented to Date• Goals

IntroductionFinancial Planning Process

• Annual Financial Planning Process Mandated by Town Charter.

• The Financial Forecast Outlines the Status of the Town’s Finances for the Future and Identifies Areas of Need for Further Attention.

• Coordination and Communication are Essential to Develop the Financial Plan Required to Maintain the Town’s Fiscal Stability.

• Town Administrator will Distribute Budget Packages to Departments by December 8th.

• Budgets will be Due in the Town Accountant’s Office by Monday, January 8, 2007.

• School Committee Must Submit School Budget No Later than February 9, 2007.

IntroductionFinancial Planning Process (continued)

• Capital Improvement Committee Shall Recommend a Capital Improvement Program to the Town Administrator by February 2, 2007, Including:

- A Clear and Concise Summary of its Contents;- Proposed Capital expenditures for the Ensuing Year;- A Five Year Capital Improvement Plan with Supporting

Information as to the Need, Cost and Method of Financing for Each Projected Capital Expenditure.

• Town Administrator will Submit Operating Budget to Selectmen and the Finance Committee in Accordance with Town Charter.

• Selectmen Approval by a Majority Vote by March 1st.• Financial Policies will be Used as Guideposts to Developing

Financial Plan.

IntroductionGoals and Priority Areas for FY08

• Present a Balanced Budget to the Board of Selectmen and the Finance Committee.

• Control Personnel Related Costs and Find Additional Sources of Revenue to Offset Out Year Deficits.

• Develop an Improvement Plan for Public Buildings and Open Space.

• Continue to Review, Evaluate, Alter and Track Policy that Maintains and Enhances Town Government.

• Improve the Coordination of Municipal Service Delivery.

IntroductionManaging the Impact of the Slow Economic Recovery

• Although the economy appears to be rebounding from the post 9/11 recession, it will take years, if not longer, for the State and its municipalities to fully recover from the financial devastation caused by what was arguably the worst municipal finance environment in decades.

• Limit the Use of One Time Revenues to Balance the Budget.

• To Increase Balances in Reserve Accounts to Ensure Future Financial Stability.

• Limit Expenditure Growth to the Average Rate of Inflation.

• Water and Sewer Enterprise Fund Projections are Based Upon Full Cost Recovery.

Five Year Financial ForecastPro Forma Assumptions - General Fund Revenues

• State Aid is Projected to Increase 5% in FY08 and 3% from FY09 Through FY12.

• Tax Levy and Levy Limit will Grow Approximately by 3% Through FY2012.

• Charges, Licenses, Fees and Miscellaneous Revenue Projected at Either Level Funded or Minimal Increases.

• Fee Schedule will be Analyzed and Reviewed to Maximize Local Receipts.

• The Use of Free Cash is Expected to be Approximately $325,000 for FY2008 Through FY2012.

• Nahant Tuition is Level Funded From FY08 Through FY2012. Actual Dollar Amount will not be Known Until January For FY08.

• Other Sources of Revenue Include: Enterprise Fund Indirects ($575,000).

Five Year Financial ForecastPro Forma Assumptions - General Fund Expenses

• Salaries and Operating Expenses (Including Schools) Projected to Increase 2.5% Annually, Plus $750,000 in Increased School Operating Costs.

• Health Insurance Costs Projected to Increase By 12% Annually. This is Net of Savings From the Town Accepting MGL 32B s18.

• State and County Charges and Cherry Sheet Offsets are Expected to Increase 2.5% Each Fiscal Year.

• Special Education Costs are Expected to Increase on the Average of 10% Each Fiscal Year Through FY2012.

• Debt Service Based Upon Current and Future Capital Improvement Programs Cost Expected to Remain at approximately 5% of the Tax Levy Through FY2012 Exclusive of School Construction.

• Includes Sewer Debt Exclusion through FY 2012.• Uncompensated Balance Account has a $83,440 Balance.

This Appropriation will be Gradually Reduced.

Five Year Financial ForecastRevenue and Expenditure Summary

General Fund (FY07 Debt Includes New High School)

FY07-ACT FY08-EST FY09-EST FY10-EST FY11-EST FY12-EST

Property Taxes 31,795,507 32,785,145 33,758,523 34,756,236 35,778,892 36,827,115

New Growth 190,000 150,000 150,000 150,000 150,000 150,000

Debt Exclusion 2,861,785 1,117,717 1,130,103 1,141,753 1,154,884 1,170,986

Total Tax Revenue 34,847,292$ 34,052,862$ 35,038,626$ 36,047,989$ 37,083,776$ 38,148,101$

Local Receipts- 4,423,025 4,425,000 4,425,000 4,450,000 4,450,000 4,475,000

State Aid 4,026,826 4,228,167 4,355,012 4,485,663 4,620,233 4,758,840

Free Cash 661,811 325,000 325,000 325,000 325,000 325,000

Other Available Funds 575,000 575,000 575,000 590,000 590,000 605,000

44,533,954$ 43,606,029$ 44,718,639$ 45,898,652$ 47,069,009$ 48,311,940$

Base Operating Expense 28,640,204$ 30,106,209$ 30,858,864$ 31,630,336$ 32,421,094$ 33,231,622$

Group Health 4,058,125 4,545,100 5,090,512 5,701,373 6,385,538 7,151,803

Other Personnel Benefits 2,742,135 2,872,293 3,015,908 3,166,703 3,325,038 3,491,290

Special Education 3,160,370 3,476,407 3,824,048 4,206,452 4,627,098 5,089,807

Debt Service - CIP 4,076,760 1,900,268 1,751,931 1,802,399 1,854,189 1,907,405

Sewer Debt 1,108,565 1,117,717 1,130,103 1,141,753 1,154,884 1,170,986

Non- Appropriated Exp. 747,795 856,392 873,520 890,990 908,810 926,986

44,533,954$ 44,874,386$ 46,544,886$ 48,540,008$ 50,676,651$ 52,969,899$

SURPLUS (DEFICIT)- -$ (1,268,357)$ (1,826,247)$ (2,641,356)$ (3,607,642)$ (4,657,959)$

EXPENSES

REVENUES

TOTAL REVENUE

TOTAL EXPENSES

Five Year Financial ForecastRevenue and Expenditure Gap

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

FY08 FY09 FY10 FY11 FY12

Total RevenueTotal Expenses

School Department SpendingFY2006

(FY2006 Schedule 19)

Administration3%

Payments to Non-Public Schools

8%

Operations & Maintenance

5%

Pupil Transportation

2%

Instruction82%

School Department Funding SummaryExcluding Indirect Costs

FY03 FY04 FY05 FY06 FY07

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Town Appropriation

Chapter 70

Fiscal 2008 Budget Revenue Sources

Revenues Projected for the FY08 Operating Budget Total $43,606,029

Revenues are Derived From The Following Re-occurring Sources:• Taxes - $34,052,862• Nahant Tuition - $1,403,025• Motor Vehicle Excise - $1,850,000• Licenses and Permits – $160,000• Fines and Forfeits - $95,000• State Aid- $4,228,167 (Gross)• Local Receipts - $916,975

Note- Revenue Detail Does Not Include Free Cash or Other Available Funds Which Total $900,000

Fiscal 2008 Budget General Fund Revenue Sources FY 2008

Taxes84%

Motor Vehicle Excise

4%

Other Revenue

2%

Other Local Receipts

6%Intergovern-mental Aid

9%

Grand Total - $43,606,029

Fiscal 2008 Budget Expense Categories

For Presentation Purposes FY08 Expenses are Detailed in the Following Categories:

• General Government -$5,391,285• School Department - $22,037,598• Public Safety- $5,838,733• Pensions- $2,872,293• Insurances- $4,860,100• Debt Service- $3,017,985• State Charges- $856,392

Fiscal 2008 Budget General Fund Expenditure Categories FY 2008

Grand Total - $44,874,386

Non-Appropriated

2%

School Department

49%

Public Safety13%

Pensions6%Insurances

11%Debt Service

7%

General Government

12%

Water and Sewer Enterprise Funds FY08 Budget Overview

• The Town’s water/sewer system infrastructure remains in adequate condition and requires yearly maintenance and upgrades. With the assistance of $550,000 provided by the MWRA through an interest free loan, the DPW was able to re-line and replace close to mile of water main.

• Over the past several years, the Department has contracted out the re-lining or replacement of close to six miles of water main. This total represents only about fourteen percent of the Town’s overall infrastructure.

• Many of the remaining water mains are decades old, and present the Town with significant losses in water pressure, as well as, considerable water discoloration problems. Thus the need for continuous maintenance, which again we hope will be funded through the MWRA’s Local Pipeline Assistance Program.

Water and Sewer Enterprise Funds

FY08 Budget Overview (cont.)

• The completion of the water meter replacement project has resulted in the Town of Swampscott reducing its unaccounted water from 33% to just over 10%.

• The new system has allowed for the implementation of quarterly billing, which will go into effect November 15th.

• Through an inter-municipal agreement signed with the City of Lynn in 1989, the Town of Swampscott sends all its raw sewage to Lynn for treatment. The sewer system infrastructure is in very poor condition.

• Some of the remaining mains are well over one hundred years old, and are constructed of brick or clay. Both these materials have become obsolete, and contribute significantly to the infiltration and inflow into the Town’s sewer system.

Water and Sewer Enterprise Funds

FY08 Budget Overview (cont.)

• During periods of heavy precipitation, the total daily flow to Lynn is increased by as much as 500%, significantly increasing the Town’s costs for treatment.

• As the City of Lynn continues to remove infiltration and inflow from its own sewer system, the resulting percent of costs for Swampscott rises sharply, again increasing our costs for future capital projects.

• The Town through a sub-contractor, video inspected over 10 miles of sewer main, is now working with an engineering firm, to implement a plan to reduce infiltration and inflow into the Town’s sanitary sewer system.

Water and Sewer Enterprise FundsPro Forma Assumptions - Enterprise Funds

• Water Debt will Increase by $56,000 Each of the Next Several Years. This Represents the Additional Commitments to the Zero Interest Loan Program Conducted Through the MWRA.

• Debt Service Includes $265,000 to Pay for Replacement of All Meters and the Installation of Radio Read Devices.

• The General Fund Continues to Pay the Debt Service on Bonds Required for the Connection to the Lynn SWC. This represents $1,117,717 for FY 2007 the impact on rates would have been $2.11.

• For Projection Purposes, the MWRA and Lynn WSC Assessments have been Increased by Ten Percent Each Year. The MWRA has Projected a Double Digit Increase for FY2007, and the Lynn WSC Fees Should also be in This Range.

• Direct Expenses were Increased by 2.5 % per year and indirect costs are level funded.

Water and Sewer Enterprise Funds

Five Year Forecast and Rate Projections

ENTERPRISE FUND Projected Projected Projected Projected ProjectedFY 2008 FY 2009 FY 2010 FY 2011 FY2012

Revenues Water and Sewer Fees 5,004,982 5,335,154 5,734,647 6,126,252 6,593,031 Interest Liens/MiscellaneousTotal Revenues 5,004,982 5,335,154 5,734,647 6,126,252 6,593,031Expenditures Direct Expenses 904,351$ 926,960$ 950,134$ 973,887$ 998,234$ MWRA Assessment 1,850,631$ 2,035,694$ 2,239,264$ 2,463,190$ 2,709,509$ Lynn WSC Assessment 825,000$ 907,500$ 998,250$ 1,098,075$ 1,207,883$ Debt Service 800,000$ 840,000$ 882,000$ 926,100$ 972,405$ Additions to Reserves 50,000$ 50,000$ 75,000$ 75,000$ 100,000$ Indirect Expenses 575,000$ 575,000$ 590,000$ 590,000$ 605,000$ Total Expenditures 5,004,982 5,335,154 5,734,647 6,126,252 6,593,031

Combined Rate 9.00$ 9.18$ 9.36$ 9.55$ 9.74$

Percent Change 1.1% 2.0% 2.0% 2.0% 2.0%

What to expect

Fiscal Reality Solutions Implemented to Date Goals

The Fiscal RealtyFiscal 2002 – Fiscal 2007

Estimates

State Aid has decreased by $202,371. Health insurance costs have increased by $1,782,710. The Town’s retirement appropriation has increased by

$478,935. Property and casualty increases $185,000.

Solutions Implemented to DatePartial List

Expense reductions Renegotiated the ambulance contract - savings $135,000 annually. Privatized streetlights – savings $35,000 annually. Adopted M.G.L. Chap. 32B, Section 18, re: medicare provision –

savings $25,000 annually. Reorganized town hall staff – savings $20,000 annually.

Revenue enhancement Re-bid leases on town owned property – revenue increase $15,000

annually. Entered into the town’s first towing contract - $6,000 annually. Increased town’s inspectional services fees - $50,000 annually. Cell Tower Expansion – $37,000 annually.

Goals Close the Fiscal 2008 budget gap

State aid increase possible. Stabilization Fund balance. Health Insurance premium increase less than expected. Reduce spending without impacting service delivery.

Looking ahead Reduce long-term debt as a percentage of budget. Find additional sources of revenue. Reduce the dependency on one-time revenue. Adopt a Financial Reserve Policy.