Friday, October 15, 2004
Finance Commmittee peers into FY06 crystal ball
On October 4, the Finance Committee (FinCom) members got out their crystal balls and began the process of determining a budget for the 2006 fiscal year (FY06) which starts July 1, 2005. Although many things may change before Spring Town Meeting 2005, when the budget will be voted on, a preliminary budget must be put forward now in order to give departments time to plan.
Looking at the early numbers highlights some of the realities of managing the town budget. Perhaps the most significant is that in a budget of over $17 million, less than $300K may be available for departmental increases unless an override of Proposition 2-1/2 or a fund transfer from the town's free cash is approved. The small size of this surplus underlines the difficulties the FinCom faces in making budget recommendations, as relatively small increases or decreases in uncontrollables such as state aid or new real estate growth can significantly impact the surplus, and even send it into decifit.
Revenues up 1.7%
The committee began by looking at revenues, most of which are entirely outside the control of town managers. By law, the FinCom must recommend a budget that requires no more than a 2.5% increase in property taxes. "New growth" consisting of new homes and house additions can raise that number, but Carlisle's new growth has slowed considerably since 2004. In FY04 it was $32.5 million, resulting in $489,000 in additional tax revenue, whereas FY05 will come in at around $19 million, or $240K in additional tax revenue. The FinCom expects FY06 new growth to be even lower.
Another revenue uncontrollable is state aid, which dropped by $320,000 between FY03 and FY04, and unexpectedly revived a bit in FY05. The state does not usually announce state aid numbers until after the budget has been passed. "The state is much healthier this year than last," noted FinCom member Ray Wilkes. On the other hand, if Democrats lose in the legislature, he predicted, "Romney will try to hold the line on state aid." For now, the FinCom projected the $1,724,930 received in FY05 onto FY06.
Local receipts consist largely of auto excise taxes, another uncontrollable. However, a recent rise in fees, licenses, and permits is expected to increase revenues by about $50K.
Revenue raised to service debt is expected to be slightly lower in FY06 than FY05. The $857,000 number used by the FinCom for the projected debt service, includes pathway, wastewater treatment, and high school repair moneys already approved, less state assistance. It doesn't include the Town Hall HVAC revamp, or additional wastewater treatment money, both of which will be requested at Fall Town Meeting.
Rising fixed costs
After projecting revenues, the FinCom looked at fixed costs. A major and growing fixed expense is insurance. Blanket, group, and unemployment insurance are projected to grow from $791,000 to $855,000, primarily due to an expected 10% increase in group insurance. County retirement payments, assumed by towns after the dissolution of county government, are expected to rise by $21,000 to a total of $377,000.
The bottom line
In this very preliminary budget, after subtracting fixed cost increases from revenue increases, the town is left with a surplus of only $287,000. This amounts to a 1.8% increase if spread over town budgets equally. If there were compelling need, the FinCom could recommend enhancing this amount, either by transferring money from the town's free cash, or by an override at Town Meeting of the "Prop 2-1/2" law, which limits the increase in property taxes to 2-1/2% per year. Although free cash is expected to be available once it is certified by the state, Wilkes suggested it might best be used to build up the town's reserves against future expected expenses such as new school construction.
New teacher contracts at the Carlisle Public School and Concord-Carlisle High School were not considered in the budget projections as the FinCom has not yet received information on their cost impacts. Members discussed whether teacher contracts should be considered fixed costs to be treated outside operations, or whether the burden should be on the schools to absorb salary increases within their budgets. New FinCom member Jim Fitzsimmons argued for a better understanding of the high school budget, particularly what trusts and revolving accounts might be drawn on. Financial Director Larry Barton noted that high school trust funds are limited to scholarships and other special purposes, and are not a source of operating funds.
Another question was how conservative the FinCom should be in projecting revenues. John Nock argued that it is unfair to "make departments jump through hoops" to meet low budget numbers, only to later find money was available after all. David Trask noted, "Last year it turns out the override wasn't even necessary" as state aid came in $115,000 higher than expected (the override was $106,157). But Barton urged caution in being too optimistic, "If you project revenues on the high side and they come in lower, it creates a deficit you must make up. It's much better to be surprised on the positive side."
The FinCom will have one more review on October 25 after which it hopes to issue the preliminary guideline for FY06, against which departments can begin to plan.
© 2004 The