Letter To The Editor: Finance Committee on Revenues Vs. Expenses

This is the second in a series of articles written by the Wrentham Finance Committee regarding the development of the Fiscal Year 2012 Wrentham Operating Budget.

 INTRODUCTION

In our first article, we introduced many of the Town’s challenges in regards to developing the Fiscal Year (FY) 2012 operating budget for Wrentham.  In response to those challenges, one of the options discussed was the transfer of some of our long term debt via a mechanism known as debt exclusion.

On April 19, the Board of Selectmen voted to exercise this option by authorizing a debt exclusion special election.  This special election will be conducted in the Gibbons Gym at Wrentham Elementary on Saturday, June 4.  (An important note:  for anyone that is not currently registered to vote, May 13 will be the last day that you can register to be eligible to vote at the special election.)

To better understand the Wrentham operating budget, and to understand why a debt exclusion is being considered as a means to achieve a balanced budget for FY 2012, it’s important to understand the two primary components of the budget – available resources and expected services.  These components are represented by revenues and expenses.  This article provides a synopsis of the elements of each of these components, and provides a review of their trends over recent years.

Prior to the debt exclusion vote, the Finance Committee (FINCOM) will provide a third article that details the key considerations voters need to be knowledgeable of before they vote.  This article provides a prelude to those key considerations.

AVAILABLE RESOURCES:  REVENUES

Our Town revenues are generated from four sources (we primarily use FY2010 numbers for this article as that is the most recently completed fiscal year):

Property Taxes – this is probably the most familiar of our sources.  It is also the largest source.  It represents approximately 70 percent of the town’s annual revenue.  For FY2010, it provided $22.5 million.

Local Aid – this is the funding we receive from the Commonwealth.  It is sometimes referred to as the Cherry Sheet (since, once upon a time, the official notification to municipalities was done on cherry-colored paper).  For FY2010, local aid was $3.76 million and represented 12.5 percent of our revenue.  Included in the local aid number is what is referred to as the Chapter 70 funding.  Chapter 70 is provided for education.  Chapter 70 represents about 80 percent of our local aid allocation.

Local Receipts – this funding is collected through local fees and fines.  For FY 2010 our local receipts were $1.88 million or 6.3 percent of total revenues.  The greater part of this is from motor vehicle excise taxes.  This category also includes the recently approved meal taxes as well as such things as dog license fees and library fines.

Other Sources – this funding can come from a variety of extraneous sources.  The two greatest single sources are free cash and ambulance receipts (free cash is a surplus that results at the end of the fiscal year if revenues come in higher and/or expenses are lower than projected.  It can then be appropriated by the Town during the following fiscal year).  For FY2010, other sources brought in $1.9 million or 6.4 percent of revenues.

A simple trend analysis of our revenues easily reveals the root of our challenges.

• Property taxes provide about $700,000 to $800,000 in revenue growth each year.  This provides a total growth to the Town revenues of about 1.8 percent (a 2.5 percent increase on 70 percent of the total revenue).

• Local aid reached a peak in FY2009.  It has been declining in the two years since.  Projections for FY2012 show an allocation that is over $800,000 less then it was in FY2009.  Ten years ago, local aid represented about 20 percent of our revenue.  That’s now down to approximately 13 percent.  Over the past three years, we have seen significant reductions from the state in Chapter 70 for education, funding for transportation for King Philip, police education incentive pay, and Payment In Lieu Of Taxes (PILOT) for the Wrentham Development Center property.

• Similarly, local receipts also have been declining in the past two years, in spite of adding the meal tax.  One cause is a $300,000 decline in excise taxes.  As people hold on to cars longer, excise taxes have dropped.  Taken in total, local receipts are down by almost $700,000 since FY 2009.

• Other sources has stayed fairly stable over the past three years, but this is not really good news.  It has stayed stable largely because we continue to provide about $750,000 in free cash towards the operating budget.  We’ve done this in spite of the fact that our annual certified free cash total has declined by almost 50 percent.  This means that we are able to spend less on necessary capital items such as equipment and other non-recurring requirements (prior to FY2009, our certified free cash represented about 5 percent of our operating budget. This means that budgeting projections for both revenues and expenses were within 5 percent of the actual.  Now free cash represents about 2.5 percent of the budget, which means we are squeezing more out of the projections).

Our only real revenue growth in the last three years is the 1.8 percent overall increase generated by property tax revenue annually.  This equates to about $700,000. 

EXPECTED SERVICES:  EXPENSES

As discussed in this section, our expenses are the day to day costs of providing services for the town.  For our purposes here, the discussion does not include two expense categories – water enterprise and capital improvements. In 2009, a Town Meeting vote established a water enterprise fund.  This means that the Town’s water service is run by generating its own revenues.  Regarding capital improvements, that funding is addressed separately at the November Special Town Meeting, generally via available Free Cash.

From FY2001 to FY2009, our revenue grew in the range of 4 to 6 percent per year, which supported a similar increase in expenses of 4 to 6 percent per year.  This increase primarily covered rising costs related to health insurance, contracted raises and increased non-discretionary costs of things such as fuel and electricity.  In order to respond to these costs while staying within revenue constraints, we have had to continually reduce discretionary costs.  Some examples: we’ve cut all stipends for elected officials; drastically reduced or eliminated opportunities for professional development; turned off street lights; and cut maintenance and infrastructure spending.  There is no funding in the budget for recreation expenses — it’s all paid for by fees.

Personnel numbers overall are lower now than they were 10 years ago.  We’ve gone from a full-time town planner to a part-time planner.  We have shortages in the Finance and Assessors Department that have not been filled.  Every other municipal department has seen a reduction in hours.  Public safety positions that were vacated were not filled until only recently, when the budgeted shortage caused serious safety concerns. Overall, we have fewer teachers in both King Philip and Wrentham then we did 10 years ago as the student populations of each have grown by several hundred.  Over the past four years, the Town Paid to Employee Paid ratio for health insurance premiums has changed from 85/15 to 75/25.

 While departmental budgets increased on average 4 to 6 percent from 2001 to 2009, in the past two years they have been level funded (a zero percent increase from the previous year) or below level funded.  (For FY2010, most departments were in the neighborhood of 3 percent below level funding.)  This resulted in a reduction of 6.5 full-time equivalents to the municipal departments and seven teachers plus 17 classroom aids in the schools.

The chart that accompanies this article shows a recap of our Town’s expenses for FY2010.

Over the past 10 years, the percentage breakout depicted above has stayed fairly consistent with three exceptions – debt, insurance and benefits, and education.   Our debt grew slightly as we bonded the construction for the Public Safety Building and the Town Hall, but that is now declining. 

In 2001, education represented about 53 percent of the budget.  Now it is less than 50 percent.  The real significant change relates to health insurance.  In 2001, our insurance expenses were about 7 percent of our budget.  As shown in the chart above, they are now near 15 percent.  Nearly all of that increase is because of the rising costs of health insurance.  Although we haven’t specifically targeted it this way, the reality is that our increased health insurance costs are being paid for by other parts of the budget, particularly education.

The take away here is two-fold: first, the Town has gone to great lengths over the past 10 years to hold or reduce spending.  By any number or metrics, the Town has been fiscally disciplined in its spending.  (As one example, Wrentham is well below the state average in employee to population ratio.)  And secondly, and perhaps most importantly, our ability to maintain level service by cutting expenses has reached a culminating point. 

CONCLUSIONS

The gap to balance the FY2012 budget currently stands at $1 million dollars.  The gap can be attributed to two fundamental causes: 

• A revenue stream that only generates about 1.8 percent annual growth

• An end to our ability to maintain level services by cutting expenses

The nature of municipal government means that there will always continue to be efficiencies and consolidation to be sought and gained within our expenses.  This article by no means is intended to imply that we should stop seeking these.  This option will always be part of our budget development process. Clearly, though, that payback has gotten smaller and smaller each year.  We’ve reached the point where it is an extreme challenge to keep pace with even the smallest annual increases in costs, and it is compounded whenever the cost cutting measures by the state present increased burdens to cities and towns.

Municipal government is a balancing act between available resources and expected services.  The bottom line is that a revenue growth of only 1.8 percent within our current tax base (or $700,000 - $800,000 per year) does not provide enough resources to meet the cost of currently expected services.  Now more than ever, the balancing act requires tough decisions and innovative ideas.  This is why a debt exclusion is being considered as a means to achieve a balanced budget for FY 2012.  The special election on June 4 provides the voters the opportunity to have a say in how the budget will be balanced before it is presented at Town Meeting on June 13.

-Wrentham Finance Committee

Jerry McGovern, Chairman

Sue Kost, Secretary

Ken Arnold

Mark Keilen

Charles Kennedy

Arthur Robison

Kelly Williams