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HomeMy WebLinkAboutFCMeetingMinutes_04.15.15 1 TOWN OF NORTH ANDOVER FINANCE COMMITTEE Meeting Minutes Meeting Date April 15, 2015 nd Meeting Location: 2 floor Conf. Room Bill Callahan, BC Chairman X Susan Almono SA Donald Elliot DE Vice Chair X Timothy Tschirhart TT X Karin Blake KB X Liz Gerron LG X Thomas Ringler TR X Marta Solof MS X Chris Nobile CN X Non FinCom Members in Attendance OTHERS: Note: All FINCOM votes are subject to change upon receipt of new information. Note: Documents used in this meeting are listed in Document Table, herein. 2 Agenda A Review and Vote on Finance Committee Letter BC Would like to review letter The Finance Committee is a representative group of nine taxpayers appointed by the Town Moderator who conduct a thorough review of municipal finance on behalf of all North Andover citizens. Its primary role is to advise and make recommendations to town meeting on the budget and other areas of finance. We review and help explain the budgetary process and fiscal tools used by Town officials to manage municipal and school services. Our focus is to evaluate the operating and capital budgets and debt service to ensure that the Town is cost-effective in the delivery of those services. While the health of the national economy has strengthened this past fiscal year, state aid to local government has not fully recovered in Massachusetts. At 11% of operating revenues, North Andover relies less on State funds than many neighboring communities. Due to limited revenues and laws that prevent adding additional sources of funds, Town management has worked hard over the past several years to eliminate duplicate services and instill fiscal discipline in each of the Departments. Over the past two budget years, the major insurance plans - from self-insurance plan. The buying power of the GIC enables more predictability and lower rates of increase in health insurance premiums. As a result, the approximately 10-13% of budget consumed by health insurance declined in real terms for one year by $0.8M, is increasing at a slower rate, and no longer requires the Town to set aside sizable sums of money for unexpected claims. Winding down the Health Insurance Trust Fund enables the Town to move those funds into other reserve funds such as the Other Post-Employment Benefits (OPEB) Trust Fund. As positive as the near term budget appears, North Andover and the other 350 municipalities in the Commonwealth face the prospect of funding OPEB, principally retiree health insurance, without having saved sufficient funds for them. Our current unfunded liability stands at $86 million. Utilizing some of the benefit from moving to the GIC, the Town has created and appropriated OPEB reserves to start funding this liability. Building this reserve is imperative; left unaddressed, more and more of our budget will be consumed by retiree health care insurance. Further efficiencies in town government will be smaller and hard won. Much of what the town provides are labor-intensive services like teaching, firefighting and policing. The town continues to look at every opportunity to consolidate or share resources between departments, as has been done with the Facilities and Information Technology departments. This allows efficiencies of scale and expertise within the shared service departments and enables all departments to concentrate on their core missions. Under the guidance of the Town Manager, Andrew Maylor, and Finance Director, Lyne Savage, the town installed new accounting software that enhances transparency with clearer allocation of expenses. Furthermore, consistency of process and classifications across town departments has yielded a sharper picture of how budgets are allocated and accounted, (e.g. cost of overtime, impact of retirements). Process In order for the Finance Committee to fulfill its watchdog and advisory role, it considers all aspects of the town finances. This is done over the nine month period before town meeting each year by analyzing the long range and annual revenue and expenditure plans prepared by the Town Manager, Finance Director, the School Department and all other town departments. Early in the fall the Finance Committee reviews the Then two members of the Finance Committee join with School Department officials and the Town Finance Director to form the Revenue and Fixed Cost Committee (RFCC) to prepare revenue projections for the next fiscal year. Revenues consist of taxes, license, and other fees collected by the Town and funds provided by state r the budget. 3 The Finance Committee begins with an examination of the Budget Policy Statement which describes the objectives and strategic goals of the budget. Subsequently, the committee studies and makes recommendations to the Capital Improvement Plan ( over the next five years, and lays out how they will be funded. The Facilities Master Plan is part of the CIP. Next it considers the budgets proposed by each of the town departments, including the School Department budget, which typically make up over half the municipal budget. Following this process the Finance Committee votes on whether to recommend action on each of the financial articles which will be on the warrant at town meeting. Budget Overview The FY2016 proposed budget totals $89,348,722, an increase of 3.61% over the FY2015 budget. The budget will require a property tax levy increase of 2.5%. In our opinion the recommended budget balances needed investments with efficiencies in major areas that will allow the Town to continue to deliver quality services over the long term. In other words, this budget provides value to North Andover taxpayers. As documented in the Town Warrant, some of the more significant year over year trends includes: Debt service as a percentage of revenue is 4.10% (which is below the historical trend of 5-6%). The number of full time equivalent employees grew .5% or 3.25 heads. The Retirement Assessment increases by 8.3%, (the Finance Committee recognizes that this trend is worthy of further study). The Public Safety budget increases by 4.5% (The Committee notes that there have been productive strategies used by the Town to reduce the effect of contract-mandated time-off provisions.) The Department of Public Works Budget increases by 3.8%. The Health Insurance Budget increases by 3.6%. The School Department increases by 3.5%. The Information Technology Budget is down 11.7% (as the Town is no longer paying for two General Ledger accounting systems). The State Assessments are down 7.1% (as the Town has assumed the payment of health insurance premiums previously paid and then assessed by the State). The General Government has a 0.8% increase (due to reduced head count at Town Hall). For the fourth consecutive year, through successful management of the Water and Sewer Enterprise operations, there are no recommended rate increases in water and sewer rates. Services Company agreement, an annual savings. Stabilization Funds and Reserves: For the last few years, town management has been active in developing, strengthening, and managing fund balances and reserve policies to protect the Town from unforeseen increases in expenditures, reduction in revenues, or any extraordinary event. In certain circumstances, they also provide an additional source of funds for capital construction and replacement projects. These f all these funds are governed by formal policies adopted by the Board of Selectmen and the Finance Committee in concert with the Town Manager to provide a system of checks and balances for their accumulation and disbursement. Each fund has a defined floor and ceiling which insures adequate funds on hand, but prevents the accumulation of excessive balances. Once targeted funding levels are reached, some of the funds are either spent for their intended purposes or no further additions are made. 4 Not only do the Town reserves policies provide a soft landing for unforeseen hardships, they demonstrate to the financial community sound fiscal stewardship. This enables the Town to achieve favorable bond ratings which reduce interest costs. Why do we have funds to support such additions to Stabilization funds? Several years ago, when the Town moved from being self-insured for employee health care to participating in the GIC, significant savings were realized. Rather than using those savings to increase the operating budget (which would then have to be sustained year over year) the Town is using these savings to strategically plan for the future. The following table outlines the proposed additions to Stabilization Funds for FY 16 all such additions are supported by the Finance Committee: Fund name Fund Purpose Current 2016 FY 16 New Target Balance Proposed Warrant Balance (if Funding + Article approved) Level Stabilization Supports operating budget 4,198,054 64,412 21 4,262,466 4,259,535 when revenues unexpectedly drop or in case of unforeseen expenses Capital Funding of projects 454,153 213,000 22 667,153 847,786 Stabilization approved under Capital Improvement. Minimize need for debt, provide flexibility OPEB To offset cost of Other 1,005,089 0 NA Stabilization Post-Employment Benefits for retired employees 1,505,089 4,330,269 OPEB Trust Same as above 0 500,000 23 # SPED To respond to unforeseen 0 750,000 24 750,000 750,000 Stabilization special education costs # Town access to these funds will be restricted, because these funds will be eligible to be managed by the State Pension Insurance Retirement Trust. It is anticipated that management with the Trust will improve our rate of return in comparison to the $1 million dollars in the companion OPEB Stabilization Fund (which saw a return of 0.05% last year). In addition, the Trust structure is viewed favorably by bond rating agencies. reserve policies. For fiscal year 2016, Town and School officials have proposed as Warrant Article 24, a new, Special Education Stabilization Fund. The Finance Committee recommends approval for this new Special Education Stabilization Fund as it provides a proactive, strategic approach to planning for unforeseeable Special Education costs. These funds can only be spent within the framework of a usage policy that sets specific limits on annual expenditures from the fund and places accountability for such use with three Town governing bodies (The School Committee, the Board of Selectmen and the Finance Committee). The recommended funding of $750,000 is appropriate. 5 Capital Improvement Plan (CIP) Improvement and maintenance of our town infrastructure and services requires annual funding as described in the Capital Improvement Plan or CIP. It is important to point out here that capital projects which cost less than $50,000 are included in the operating budgets of the departments and are not tracked in the CIP. 2016 CIP Budget Total fiscal year 2016 CIP budget excluding our water and sewer operation is $6.5 million, of which $4.7 million or 72% is for renovation of the Fire Station on Main Street into offices for Community Development Department.as part of the Facilities Master Plan. $1.3 million or 20% is allocated to the Department of Public Works as part of our commitment to maintain our road and walk ways. $0.3MM is going to the School Department to improve its information technology and sport facilities (resurfacing of track at the High School). The fiscal year 2016 CIP budget for our water and sewer operation is $1.5 million. The majority of these funds will be used to upgrade and improve our current water and sewer infrastructure. 5 year (2016 to 2020) CIP Budget The total budget for the CIP excluding our water and sewer operation for the next five years (2016 to 2020) is $27.8 million, of which $23.2 million will be bonded resulting in debt service below our target of 5% of revenue, which is one of the criteria to maintain our good AA bond rating. $14.8 million or 53% of the total budget is allocated to the implementation of the Facilities Master Plan, which is so far on time and within budget as approved by Town Meetings in 2012, 2013 and 2014. $8.1MM or 29% of the total budget is allocated to the Department of Public Works, of which $7.3 million will be spent to maintain our roads, parks, water and sewer mains and other infrastructure and $0.8 million to replace sweeper, dump trucks and other vehicles. The remaining budget of $4.9MM or 18% is allocated among other departments, of which $2.1 million is allocated to the School Department for mainly improving its information technology and sports facilities. The total budget for the CIP for our water and sewer operation for the next five years (2016 to 2020) is $7.9 million, of which $7.2 million will be bonded. The majority of the budget of $6.4 million or 81% is allocated to our water treatment plant, which is now 20 years old and requires major improvements and upgrades in the 2018 to 2020 time frame. Recommendation The Finance Committee reviewed in four meetings the CIP for all departments including the water and sewer operation. Each project is tracked by a project sheet which contains a description, justification, funding requirements by year and schedule for completion. Each project is rated and scored based upon sustainability and stewardship. The projects with the highest scores get funding. We recommend accepting the proposed CIP Budget as presented. Looking forward A well-crafted budget for FY16 will enable us to move forward with the Facilities Master Plan, maintain a sound infrastructure for our community, and continue to provide excellent services to the citizens of North Andover. We have benefited greatly from good stewardship of town resources and by taking advantage of a plethora of opportunities for efficiency. We invite our fellow citizens to join the conversation on the future of our town and our budget The Committee extends its sincerest thanks to the employees of the Town who demonstrate daily their dedication to our community. Special thanks to our Town Manager Andrew Maylor, Town Finance Director Lyne Savage, and Clerk Patricia Sifferlen who have spent many a long evening reviewing the budget with us. 6 LG motion to accept Finance Committee transmittal letter Seconded by CN Yes 7 No 0 V. Adjournment- Motion: DE Unanimous Seconded: LG Time: 10.00 IV. Next Meetings May 19, 2015 TYPE FROM TO SUBJECT COMMENTS ITEM # 1 2 3