HomeMy WebLinkAboutFCMeetingMinutes_04.07.16 r
TOWN OF NORTH ANDOVER
FINANCE CONIlVIITTEE
Meeting Minutes
Meeting Date April.7,2016
Meeting Location: Senior Center Conference Room 6:50pm
Bill Callahan, BC Chairman Susan Almono, SA X
Donald Elliot, DE Vice Chair Timothy Tschirhart, TT X
Karin Blake, KB X Liz Gerron, LG
Thomas Ringler, TR X Angela,Ciofolo,AC X
Chris Nobile, CN X
Jennifer Goldman,JG
Note:All FINCOM votes are subject to change upon receipt of new information.
Note:Documents used in this meting are listed in Document Table,herein.
TT: Chaired tonight's Finance Committee Meeting
The Finance Committee Members used this meeting to continue to edit,write and finalize the
Finance Committee Report.
Please see attached for finalized version of the Finance Committee Report that was submitted.
CN: Made a motion to adjourn
KB: Second the motion
All in favor
1 Apri17,2016
SUBJECT FROM TO
1. Draft 2015 Annual Town Meeting Wan-ant Maylor Fincom
2. Finance Committee Report(draft) SA Fincom
* I Finance Committee Report(Marked up versions) SA/KB Fincom
* located in the DropBox
* Sent from S.AJKB in an E-mail to Fincom
Note all videos of meetings can be reviewed on the Home Daffe of the North Andover Website
Directions:
1. Click on"NA CAM Cable Access Live Streaming"
2. Click on Check Schedule
3. Click on the appropriate date of meeting on the calendar
4. Click on Finance Committee(in middle under calendar)
5. Click on Streaming Video(on right)
6. Video should appear
2 April 7,2016
Town of North Andover
Finance Committee Report — FY 2017
Introduction
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. The Committee reviews and helps 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. Iia addition,we evaluate multi-year projections of
revenues, expenditures,and capital.improvements.
General Assessment
A healthier economy and better planning have transformed the Town's fiscal situation, During
the Great Recession,we had two years of negative free cash(2008 and 2009),which is the
equivalent of a savings account with a deficit. However,from FY2012 to FY2017 our operating
reserves have grown 141%. We have met or exceeded the Target Funding Level for three of our
four reserve funds. With the economy on the expansion side of the business cycle,the Town has
also had steady revenue growth of 3%per year. This is the right time to make sure that our
reserves are fully developed and funded.
As positive as the near term budget appears,there are fiscal challenges.North Andover and the
other 350 municipalities in the Commonwealth face the prospect of fimding Other Post-
Employment Benefits(OPEB),principally retiree health insurance,without having saved
sufficient funds to do so. Our current unfunded liability stands at$86 million.Utilizing some of
the savings from transferring our public employees into the State's health insurance system
(GIC),the Town has created an OPER reserve fiord to start reducing this liability. Ignoring this
liability threatens downgrade of our bond rating which means that we would have to pay,a higher
interest rate to borrow money for needed capital projects in the future. It is our opinion that
maintaining a deliberate plan to build reserves today is vital for the future fiscal health of North
Andover.
Under the guidance of the Town Manager Andrew Maylor,Finance Director Lyne Savage, and
Information Technology Director Chris McClure,the town is finishing the installation of new
accounting software that allocates expenses to the department that generates them, enhancing
transparency and accountability.
North Andover Finance Committee FY17 Report 1
The FY 2017 budgeting process has had other encouraging developments as well, such as further
cooperation among departments. The School Department and the Library are sharing a library
media specialist next year which will enhance services at our elementary schools. Duplicate
Accounts Payable and Payroll fumctions on the school and municipal side were consolidated and
into one. The School Department and municipal departments will contribute funds to share an
attorney to provide cost effective preventative legal advice. The Information Technology
Department is working to make sure that the IT budget dollars allocated to the School
Department are used for instructional technology(computers used by teachers and students)
rather than network infrastructure in the school buildings.
Process
The Finance Committee fulfills its watchdog and advisory role over the nine month period before
Town Meeting. It analyzes the long range and annual revenue projections 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 prior year's audited financial
statements which serve as a point of reference. 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 real and personal property taxes,license,and other fees and taxes, such as excise taxes
and local option meals taxes,collected by the Town and funds provided by state government.
The RFCC's projection serves as the consensus revenue base for the budget.
The Finance Committee begins with an examination of the Selectmen'Annual 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(CTP)that
Prioritizes the town's capital expenditures over the next five years,and lays out how they will be
funded. The Facilities Master Plan is part of the CTP. Next it considers the budgets proposed by
each of the town departments, including the School Department budget,which typically makes
up over half of the Town's 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.
Budeet Overview
The FY2017 proposed general fund budget totals$92,083,559,an increase of 3.1%over the
FY2016 budget. The budget will require a property tax levy increase of 2.5%. It is the opinion
of the Finance Committee that 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.
North Andover Finance Corrimittee FY17 Report 2
To achieve a balanced budget,each Town department was instructed to keep requests below
3.7%above FY16 expenditures.As documented in the Town Warrant and the Town Manager's
recommended budget, some of the more significant year over year trends and events include:
• Debt service stands at$6,208,359 which is 4.63%of net revenue. This is consistent with
past two year's trend of keeping this metric under the historical trend of 5—6%.
• Keeping the debt service ratio under 5%has been a primary factor for the Town to
achieve a S&P AA+bond rating,which together with increasing the Town's reserves,is
trending toward a AAA rating.The higher the rating,the lower the interest rate the Town
must pay on the bonds it issues to borrow money it needs for current and future needed
improvements,a huge benefit to the town. Other favorable elements that are contributing
to Town's higher bond rating include disciplined and sustainable growth; solid fiscal
management of fiends,retained earnirgs and reserves;and attention to other significant
obligations,namely the Other Post-Employment Benefits liability.
• Continued reduced utility costs from completion of approximately 80 projects in school
and municipal buildings by the Energy Services Company agreement that guarantees a
minimum of approximately$355,000 savings each year which provide critical support to
the budget.
• Consolidation of shared services between the town and school departments to eliminate
duplicate administrative functions and improve synergies. Shared Support Services
includes information technology,facilities management,legal services and outside
auditing.
• The Water and Sewer Enterprises combined budgets dropped 2.3%due largely to a
reduction of$465,000 in debt service offset by a$280,000 increase in the Town's
allocation of Greater Lawrence Sanitary District costs.For the fifth consecutive year
there are no recommended water or sewer rate increases due largely to their effective
management.
Collective Bargaining reements
Annually,the Town or the School Committee conducts negotiations with one or more of the
twelve unions representing the majority of North Andover's employees. On behalf of the Town,
the Town Manager and representatives of the School Committee are responsible for negotiating
three-year collective bargaining agreements.Negotiations are done confidentially,ratified by
union members, and approved by the Board of Selectmen and School Committee members.The
agreements become public record upon approval. As part of our duties,the Finance Committee
reviews the funding needed to pay for the salaries,wages,and benefits to ensure they are
reasonable and within the constraints of the annual budget and long-term prof ections. we feel
that the Town and School Committee have done a good job with this process as evidenced by the
budget that we recommend for approval at Town Meeting.
North Andover Finance Committee FY17 Report 3
Refirement Assessment
Non-school Town employees participate in the Essex Regional,Retirement System(ERRS). The
Town pays to ERRS an assessment determined by the Massachusetts Division of Insurance. The
ERRS is working to fizlly fund its obligations. The retirement assessments are going up 7%per
year, an amount needed to fully fund the obligation over the next 20 years. Therefore 12%-15%
of all new annual revenue must go to pay for this cost. The only meaning&&way to address the
cost of retirement is through continued vigilance regarding salary increases in future collective
bargaining agreements and advocating for meaningful pension reform at the state level.
Stabilization Funds and Resaves
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,these
funds also provide an additional source ofrevenue for capital construction and replacement
projects. They can be thought of in layman's terms as"Savings Accounts". The use of all the
stabilization funds and reserves is governed by formal policies adopted by the Board of
Selectmen and the Finance of
Committee in concert with the Town
checks and balances for their accumulation and use. Under the To�eci-r to al��e Po cies,
each has a defined floor and targeted ceiling which insures
the accumulation of excessive balances. Once taro ftmds on hand'but prevents
meted fianding levels are reached, some of the
monies are either spent for their intended,purposes or no further additions are made.
Reserve policies and funded reserves demonstrate sound fiscal stewardship to the financial
commwzity,which,"apart enables the Town to achieve favorable bond ratings. Favorable bond
ratings in tum allow the Town to borrow money(for tbmgs such as capital i
lower interest rates. It is important to note that the Town conmprovements)at
tinues to fund the OPER Trust fund
those savings to increase the operating budget
from savings realized from moving to the GIC for employee health insurance. Rather than using
(which would then have to be sustained year over
year)the Town continues to use these savings to work toward
arising from fature pension obligations. The folio funding the sigi�uficant liability
Reserve/Stabilization favids and recommended additions for FYI 7.nAll l addies the tionnst to these reserve
funds are supported by the Finance Committee'
North Andover Finance Committee FY17 Report
4
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Supports open budget 4,283,885 60,017(25) 4,343,903 4,343,903
Stabilization whon revenues unexpectedly
drop or in case ofunforeseen
expenses i
Fndiag ofprajects approved 670,019 350,000(26) 1,020,019 851,907 z
Capital under ClP
Stabilization Minimize need for debt,
provide flexibility
To offset cost of Other post 1015,135
Ql'EB Employe Benefits for
Stabilizati°zl retired employees
1,765,135 4,330,269 s
OPER Tntst z Same as above 500,000 250,000(27)
SPED To respond to unforeseen 750,000 0 750,000 750,000
Stabilization special education costs
Table Explanations:
i The new balance for Capital Stabilization exceeds the Target Funding Level in
anticipation of expenditures under the current multi-year Capital Improvement
Plan. Balance will adjust to align with target in FYI S.
2Town access to these funds is restricted because they're managed by the State
Pension Retirement Insurance Trust(PRTT). It is anticipated that management by
the Trust will improve our rate of return in comparison to funds in the companian
OPEB Stabilization Fund. In addition,the Trust structure is viewed favorably by
bond rating agencies, The Target Funding Level for the two OPEB funds is
viewed in the aggregate under the Town's reserve policies.
North Andover Finance Committee FY1.7 Report 5
s Current target for the OPEB Stabilization Fund is based on Estimated OPER
Liability of$86,605,373 as of 613012014. A new actuarial review of the
Estimated OPEB Liability is scheduled for June 2016.
Capital Im rovement Plan (CO
Improvement and maintenance of our town inti tructure and services requires annual,funding as
described in the Capital Improvement Plan,or CIP.Please note that capital projects which cost
less than.$50,000 are included in department operating budgets and are not tracked in the CIP.
These pay-as-you-go capital expenditures reduce the need for borrowing. This year's CIP is pant
of a multi-year plan for capital improvements.
20I7 CIP Budget
The total FY2017 CIP budget, excluding water and sewer capital costs,is$7.7 million. More
than half of this budget-$4.6 million or 60%-will be used mainly for the renovation of the
Public Works offices and garages as part of the Facilities Master Plan_ $2.0 million or 26%is
allocated to the Department of Public Works as part
and walkways. $0.5 million is going to our Fire Department tof o-ur its t to��af Safety
ads
Reporting System and the replacement of an Ambulance. $0.2 mullion is allocated to our School
for the improvement of the IT system and sports facilities.
The FY2017 CIP budget for our waxer and sewer operations is $0.6 million. The majority of
these funds will be used to upgrade and improve the town's existing water and sewer
infrastructure.
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Sar
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wa=w Puba:warim ._ .Eke
North Andover Finance Committee FY17 Report
6
5 Year (FY 2017 to 2021) CIP Budget
The total CIP budget for the next five years(FY2017 to 2021),excluding water and sewer capital
costs,is$24.9 million, Of this amount, $19.2 million will be bonded resulting in debt service
below our target of 5%of revenue,which is one of the criteria for maintaining our good AA+
bond rating.
$10.9 million or 44%of the total CTP budget is allocated,to the implementation of the Facilities
Master Plan, which is progressing on time and within budget as approved by Town,Meetings in
2012,2013, 2014 and 2015. Total budget for the Facilities Master Plan from 2013 through 2021
is approx. $25 million.
$8.1 million or 33%of the total budget is allocated to the Department of Public Works, of which
$6.7 million will be spent to maintain our roads,parks,water and sewer mains and other
infrastructure. The outstanding$1.4 million will be used to replace a street sweeper, dump
trucks and other vehicles.
The remaining CTP budget of$5 million or 24%is allocated among other departments. $2.1
million is allocated to the School Department mainly for improving its information technology
system and sports facilities.
The total CTP water and sewer capital budget for the next five years(FY 2017 to 202 1)is$8.3
million, of which only$3.8 million will be bonded and the balance will be funded by retained
earniugs. $7.0 million or 8411/o is allocated to our water treatment plant,which is now 20 years
old and requires major improvements and upgrades in the 2018 to 2021 timeframe.
Recommendation
Over four meetings the Finance Committee reviewed the CTP for all departments including the
water and sewer capital expenses. Each project is tracked on a project sheet which contains a
description,justification,fimding requirements by year and schedule for completion.Each
project is rated and scored based upon agreed criteria_ These criteria reflect the project's
importance to and alignment with the town's goal of sustainability and stewardship. The projects
with the highest scores receive funding.The Finance Committee recommends accepting the
proposed CTP Budget as presented.
EnterDrIse Funds
Enterprise funds allow towns to establish separate accounting and financial reporting
mechanisms for municipal services for which a fee is charged in exchange for goods or services.
North Andover's largest enterprise funds are discussed below. Enterprise funds are unique since
up to four months of operating reserves are allowed to be retained to ensure smooth operations.
North Andover Finance Committee FY17 Report 7
111 comparison, Town departments must transfer excess balances to the General Fund. In essence
the Enterprise funds act like separate profit and loss centers.
Water
The Water Department's FYI budget will decrease 6.4%because of a reduction in debt service
and pay-as-you go capital..funduig. Asa result,we can look forward to a fifth consecutive ,year
with no increase in the water rate for the town. We do anticipate a slight increase, 4.0%,in
non-debt related expenses. The department plans to continue this trend of holding rates steady
while conducting significant upgrades to the water treatment plant and distribution
infrastructure,while also keeping a low expense to debt ratio.
Sever M .
As with the water rates,Town residents can look forward to another year of unchanged sewer
rates. However,the Town itself will see increased
expenses since sewer discharge rates for all
five communities sharing the Greater Lawrence Sanitary District(GLSD)changed in FYI 6.
The five communities sharing GLSD services divide costs
town's inflows into the o ac
plant. Over the last several years the proportionately
of Lawrencelohas improved its
storm water run-off and sewer' which has resulted in consistent reductions of waste
water sent to the GLSD treatment plarrt.As a result of new EPA and state environmental
regulations all towns connected to the GLSD plant will soon take similar measures and reduce
flows into the plant. Therefore, all membe<-towns will likely see increased GLSD sewer
discharge rates, since operation costs will remain steady. For FYI the Town Sewer Enterprise
Fund can absorb this increase but looking forward the department may have to pass these
increases on to North Andover consumers.
Stevens Estate
The Stevens Estate continues an upward trend in event bookings and revenue generation.
Looking back to 2001 through 2015,records show that the bookings and earned revenue directly
reflect the health of the economy.
For the first time since the Town purchased the Estate we have enough retained earnings to
reinvest back into the facility. This year retained earnings will be used for much needed capital
improvements and.deferred maintenance projects. The policy of reinvesting retained earnings
fiends into the Estate will continue into the future.
School Delpartnient
North Andover Finance Committee FY17 Report
8
Town Manager Maylor and Superintendent of Schools,Dr.Jennifer Price
agreed to keep the
School Department budget within a 3.7%increase for FY17.Dr.Price has Provided a creative,
forward thinking set of FY17 solutions to repair and improve our schools while be
address the long-term need fox large repairs,additional school classrooms, curriculum, to
education,and staffing, um, special
We are very pleased with the budgeted solutions,which include:
1.New elementary school technology media/librarian,shared with Stevens Memorial
Library to introduce teachers and pupils to computer research methods for academic
Purposes;
2.Expanding the early Therapeutic Intervention Pro
gram
avoid special education outplacements. IP)to
meet increased,need and
3.Middle school world languages t=her to allow children.to experience three languages at
a younger age before being asked to choose one language to study
4.Elementary school reading specialist
5.Replacement of broken futnift re at the elementary schools
5.Elementary school writing curriculum
We support Dr.Price's commitment to build a multi-year plan in FYI to improve our schools.
This is urgently needed since our town is(as of 2415
Massachusetts average. Jn addition,the student teach ratio in N2orth Anda pe�ris in the the
3% of districts statewide. Despite that underspending bottom
Performed well in p in comparison to other towns our schools
u terms of graduation rates(95%; and high school
(9Z/o). This is a testament to the dedication and skill of our teachers.
eache gradnates going to college
The FYI 7 school budget and positive Performance statistics attest to how the School Department
is efEciently using our dollars.Nonetheless,the Finance Committee is concerned that the good
Performame cannot be indefinitely sustained with the current level of funding.
Thank You
Since October,the Committee has met with the Town Manag
Department on a biweeklyer's Office and Town Finance
accomplished, .���Maylor,Ray Santilli,and Lyne Savage are P ed,intelligent and devoted employees of the Town..They have thoughtfully responded to all of our questions and supplied reams of information to inform our deliberations
on the budget, g would like to thank them for their assistance over this budget cycle,which
has been eclifying and collegial.
Since January,we have met with a number of Division and D
ctors as we
their budgets. The passion and expertise demonstrated by each once n thent eir service to North reviewed
Andover has been nothing less than remarkable. We(hank those who gave presentations for
North Andover Finance Committee FY17 Report
9