Friday, March 17, 2006
FinCom opts for $296K override
On Wednesday, March 8, the Finance Committee (FinCom) voted to recommend a budget override for FY07 of $296,466, consisting of $128,300 for Concord-Carlisle High School (CCHS), $118,166 for the Carlisle Public School (CPS), and $50,000 for "a housing resource." They also voted to recommend a free cash transfer to cover $186,369 in town budget overages outside the schools and $50,000 for CPS to cover an additional amount requested but not on the override. The decision now goes to the Selectmen for approval before facing the voters at Spring Town Meeting.
With a free cash balance of $943,000, and $250,000 additional coming in from the Northeast Solid Waste Committee (NESWC), it was a disappointment to some that the committee did not decide to fund the entire amount over the limit with a cash transfer. But chair Thornton Ash made a compelling argument against that course. "Growth in education spending is outstripping our ability to live within the levy limit [the tax increase allowed per year under state law Prop 2 1/2 without voter approval of an override]. Without an override, we're not raising money to cover those expenses." He added, "If our analysis is correct, we're entering an era of ever-increasing overrides."
Projected budget growth argues for overrides
To simplify his argument, imagine an employee with a large bank account who decides not to ask the boss for a raise each year, even though his expenses are rising. Instead, he covers the gap between his income and expenses by dipping into his bank account. At some point, however, the account runs out. Now the employee must ask for a huge raise to make up for the years he received none.
This is the situation the town might face in two or three years if it continues to finance rising budgets through free cash. An override of Prop 2-1/2 raises the levy limit, increasing the amount the town can raise in the following year. Not asking for an override ("raise") allows the gap between the town's income and expenses to widen. If free cash is used to fund overages this year, next year's levy limit will be too low — the only way to raise the limit is with an override. If budgets continue to go up faster than the levy, the gap between the money raised and operating budget widens each year free cash is used instead of an override. If at some point free cash is no longer available, the override required to get revenues in line with expenses could be huge.
High school assessment change may hurt
In addition, there are good reasons to avoid spending down free cash too quickly. Ash noted that Carlisle's assessment for the high school was relatively low this year because the Carlisle percentage of the high school population was down to 27%. Had it been 30%, Carlisle would have been assessed $475,000 more. With several large Carlisle classes in the future, "we have to be restrained in our use of free cash because we know the assessment ratio is going up," said Ash. He suggested earmarking $300,000 of the free cash balance to help smooth out future assessments.
FinCom member John Nock agreed with the need for an override, "Prop 2-1/2 is an excellent law, but with inflation and growth what it is, it's not reasonable. Two and a half is an arbitrary number less than the rate of inflation." He added, "We will always need an override, but I don't think that's a bad thing; it's a good thing" because it fosters discussion on how to finance town growth (see Table 1.)
CCHS overage proposed for override
Having made the case for an override of some kind, Ash proposed that at least part of it contain the $128,000 additional request from the high school. "It's containable and explainable" versus amassing a variety of smaller town expenses.
But Nock noted the Concord FinCom will likely make a cash transfer to include the CCHS budget without an override. "The ratio is in our favor. If Concord is funding within the levy, I think we should be too." Nock pointed to the possibility of a disconnect with Concord if the override were to fail in Carlisle. Under the regional agreement, both towns must pass the same budget level or face a protracted process of reconciliation.
"Where are we going to raise the levy?" asked Ash. "It's not like we're not devoting resources to the high school — we're setting aside $300,000 of free cash against the future."
"I hope we don't have an override," said FinCom member Sue Wolfe, "or if we do, that it fails." Earlier, Ash had noted that the Massachusetts House had proposed a higher number for state aid, which, if incorporated into the budget by the Regional School Committee, would add $143,000 to CCHS expected revenues and reduce the Carlisle assessment by $39,000. Other adjustments and transfers could bring the overage even lower, perhaps eliminating the need for a high school override.
Wolfe explained her stance, "I don't think we can sustain salary increases of 7.5% on a long term basis. We need to have a discussion that that can't continue." But Fincom member Dave Trask noted that the teacher's contract is what it is. "We made it very clear (to those negotiating the contract) certain things were unsustainable," he said, but the information apparently fell on deaf ears. "They caved in toward the end," agreed Ash.
"If Concord funds the high school within the levy, I think it's terrible we put it out on an override," reiterated Nock. But the other FinCom members voted with Ash to put the high school request on an override, and the motion passed four to one (With Barbara Bjornson absent). It was decided the override question will be revisited if the assessment amount changes.
CPS, housing resource added to override
Next Ash proposed adding the Carlisle Public School overage of $168,000 to the override. Committee member Dave Model agreed, "That's a clean way to go from the standpoint of having to explain to voters." But Trask offered a counter argument, "With a steady decline in the school population, why open the ceiling? We need to send the message, like any business, when the customer base drops, costs must go down."
"Aren't we sending that message by putting them on an override?" countered Ash. But Nock rose again to the defense of the schools, noting the combined school increase "is sustainable" and that the town's non-school budgets show "by far the biggest increase."
Ash suggested adding the assistant town administrator/housing-authority- person to the override "so voters understand that this is a cost of affordable housing." He proposed to then reduce the CPS override by $50,000 to keep the override below $300,000. The FinCom then unanimously voted to recommend an override of $296,466 consisting of $128,300 for CCHS, $118,166 for CPS, and $50,000 for "a housing resource." They also voted to approve a free cash transfer of $50,000 for CPS to cover the amount requested but not on the override.
In addition, a free cash transfer to the Reserve Fund of $97,000 will be recommended to cover potential FY06 overages due to heating, fuel, and legal costs. In the worst case, these overages may total $187,000, and reserves are currently $97,000.
Town Administrator Madonna McKenzie questioned whether the override is too large, and Trask agreed, "$250,000 sounds a lot better." Finance Director Larry Barton pointed to several large expenses being proposed as debt exclusions, including a school boiler, playing fields, and a fire truck, and said, "I believe something will fail." Countered Ash, "It could fail, but I'm more concerned that we get our financial house in order." With that the FinCom voted a levy limit budget of $20,648,020 and an override budget of $20,944,486 unanimously.
After all proposed free cash transfers are completed, including a transfer to fund a DPW dump truck and shed roof (see accompanying article), the free cash balance will still be a healthy $791,631. Said McKenzie, with satisfaction, "This town is in good shape."
In a follow-up email, Ash noted that he and Selectman Doug Stevenson are pursuing "the possibility of CCHS and CPS trimming their requests "to a point where we could reduce any possible override."
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