Town of Chelmsford Five Year Financial Forecast

1
Town of ChelmsfordFive Year Financial Forecast

• Kerry A. Speidel
• Acting Town Manager
• October 19, 2006

2
Overview

• Bylaw Requirement
• Evaluating Financial Condition
• Review of Assumptions
• Financial Forecast
• Conclusions

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Bylaw RequirementsSection 6-4 of Charter

• Annuallyprepare a 5-year financial forecast of
  town revenue, expenditures and general financial
  condition of the town.
• New bylaw (Article 23) requires presentation, to
  Town Meeting, of the same material that has
  traditionally only been presented to BOS, FC
  SC.

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Evaluating Financial Condition-What is Financial
Condition?

• Cash Solvency ability to generate enough cash
  over 30 to 60 days to pay bills.
• Budgetary Solvency ability to generate enough
  revenues over a normal budgetary period to meet
  expenditures and not incur a deficit.

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Evaluating Financial Condition-What is Financial
Condition?

• Long-Run Solvency ability over time to pay all
  the costs of doing business, annual expenditures
  deferred liabilities (pension, etc.)
• Service-Level Solvency ability to provide
  services at the level and quality that are
  required for the health, safety, welfare of the
  community.

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Evaluating Financial Condition-Obstacles to
measuring financial condition

• The nature of a public entity
• Profit isnt a motive
• The state of municipal financial analysis
• Lack of normative standards multiple peer
  groups
• The character of municipal accounting practices
• Regulations stress legal compliance, auditability
  tracking current activity

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Evaluating Financial Condition-What is the
Trends Monitoring System?

• Model Evaluating Financial Condition, ICMA, 1994
• 36 indicators, arranged to facilitate analysis
  measurement
• A management tool to pull information together
  from a variety of sources to monitor change over
  time, with the purpose of providing early warning
  of emerging problems, trends, or issues of
  concern.

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Evaluating Financial Condition-Chelmsfords
Analysis

• FY2000 2005
• Financial Data taken from annual audits
  Schedule A
• CPI-U, US Cities Average, month of January
• 6 Revenue Indicators, 5 Expenditure Indicators
  1 Operating Position Indicator

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Evaluating Financial Condition-Chelmsfords
Analysis

• Revenue Indicators determine capacity of local
  government to provide services
• Consider flexibility, dependability, diversity,
  administration elasticity
• Analyzing revenue structure helps identify
  problems, such as
• Deteriorating revenue base
• Practices or policies that affect yield
• Poor revenue estimating techniques
• Inefficiencies in collection and/ or
  administration

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Evaluating Financial Condition-Chelmsfords
Analysis

• Revenue Indicators- 6
• Revenues per capita
• State Aid
• Elastic Operating Revenues
• Property Tax Revenue
• Uncollected Property Tax Revenue
• Revenue Surplus/ Shortfall- of concern

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Revenue Surplus/ Shortfall
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Evaluating Financial Condition-Chelmsfords
Analysis

• Expenditure Indicators
• A rough measure of service output
• Expenditure flexibility
• Seems unlikely that expenditure growth would
  exceed revenue growth, but consider
• Use of one-time funds
• Borrowing to fund operating capital
• Use of reserves
• Deferral of current maintenance
• Unfunded liability of pension other post
  employment benefits

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Evaluating Financial Condition-Chelmsfords
Analysis

• Expenditure Indicators
• Expenditures per capita
• Non-school Expenditures
• School Expenditures
• Employee Benefits Expenditures- of concern
• Debt service Expenditures
• Operating Position
• Fund Balance- of concern

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Employee Benefits Expenditures
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Fund Balance
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Evaluating Financial Condition-Chelmsfords
Analysis

• Areas of concern are
• Revenue Surplus/ Shortfall- decline
• Employee Benefits- continues to rise
• Fund Balance- decline

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State of Free Cash

• What is Free Cash?
• Combination of
• Revenues received in excess of budgeted estimates
• Actual Expenditures lower than appropriations
• Less reservations for encumbrances
• Certified each year by the Department of Revenue,
  as of July 1st
• Becomes an Available Fund to be re-appropriated

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State of Free Cash
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State of Free Cash-Certified Free Cash 07/01/06
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State of Stabilization Fund-Current Plan
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State of Stabilization Fund
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State of Stabilization Fund

• Current plan called for 2M transfer back into
  Stabilization Fund
• Predicated upon
• Sale of Town-owned property- 1M
• Completion of SBA Audit- 300K
• Free Cash- 700K
• Full transfer isnt possible, requiring
  adjustment to Plan

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State of Stabilization Fund-Adjusted Plan
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State of Stabilization Fund

• Effect on Bond Rating
• Current SP Rating is AA w/ negative outlook
• Will need to update rating in Spring 2007
• Downgrade to AA is likely
• No ability to postpone update
• Downgrade will result in increased interest costs
• 25 bbp (1/4) 800K over 20 years

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Financial Forecast- FY2008 - 2012

• Revenue
• Taxes
• State Aid
• Local Receipts
• Available Funds
• Sewer Enterprise Revenue

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Financial Forecast- FY2008 - 2012

• Revenue Assumptions
• New Growth 1M
• Ch. 70 increase of 50/ student
• 4 increase in Lottery
• 0 to 2 increase in all other aid
• 7 decrease in (building) permit fees
• 2.5 increase in MVX
• 2 increase in all other Local Receipts
• 1M, rather than 1.7M from Stabilization Fund
• Sewer Enterprise continues to be self-supporting

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Financial Forecast- FY2008 - 2012

• Expenditures
• Fixed Costs
• Undistributed (Employee Benefits)
• Debt Service
• Regional School Municipal Facilities
• Non-Appropriated
• State Assessments, Overlay Account
• All Other

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Financial Forecast- FY2008 - 2012

• Expenditure Assumptions- Undistributed Debt
  Service
• MRS Assessment 10 increase per year, plus 300K
  for ERI
• Health Insurance 13 per year
• Medicare Tax 4 per year
• General Liability WC 3 per year
• Inclusion of 150K for OPEB
• Debt Service in accordance with existing schedules

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Financial Forecast- FY2008 - 2012

• Expenditure Assumptions- Non-Appropriated
• 10 increase in Charter School Assessment based
  upon enrollment trends
• OPEB valuation every other year
• Increase Overlay Account 100K in Revaluation
  years

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Financial Forecast- FY2008 - 2012

• Two Scenarios for all other expenditures
• Department Requests each department submitted a
  5-year request
• Acting Town Managers Recommendation
• Non-School Personnel Costs increased by 3
• Non-School Expenditures increased by 2
• School Personnel Expenditures increased by 3

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Financial Forecast- FY2008 - 2012

• Exceptions to Expenditure Assumptions
• 3 increase in legal budget
• 5 increase in Snow Ice budget
• 4 increase in Solid Waste (existing contract)
• Addition of 3 new positions in Municipal
  Facilities Department per Agreement (should have
  been implemented in FY2007)

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Financial Forecast- FY2008 - 2012
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All Department Requests
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ATM Recommendation
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Conclusions

• Projected deficit of 1,257,581 minimum
• Reserve levels at lowest point since 1995
• No obvious places to make reductions
• Programs and services will need to be eliminated
• School/ Non-School consolidation needs to be
  re-evaluated
• No additional consolidation possible on
  Non-School side without significant investment in
  infrastructure
• Management needs to continue to address Health
  Insurance costs with unions IAC
• We have our work cut out for us!