Office of Town Manager
Town of Burrillville, Rhode Island
Memorandum
To: CC: Town Council Budget Board John Mainville, Finance Director Louise Phaneuf, Town Clerk
From: Michael C. Wood, Town Manager Date: May 16, 2003 Re: FY2004 Budget
The (FY2004) Budget as presented totals $39,968,126. This is $538,696 higher (net) than last year ($39,429,430). The expenditure side breakdown is as follows: FY2004 School Municipal Debt Other CIP Total $ $ $ $ $ 23,140,000 7,631,115 5,493,543 700,000 3,003,468 $ $ $ $ $ FY2003 22,540,000 7,237,712 5,758,899 700,000 3,192,819 Difference $ $ $ $ $ 600,000 393,403 (265,356) -0(189,351) Percent 2.66% 5.44% (4.61%) -0(5.93%) 1.37%
$ 39,968,126
$ 39,429,430 5.5% Spending Cap
$ 538,696
My original goal for this budget was to stay within the 5.5% net spending cap while trying to maintain the fundamental progress of the municipal and school programs. However, as presented, this budget is not within the 5.5% cap and projects a $1.40 increase per thousand dollars of valuation to the FY2004 tax rate bringing it to $20.30 (Real Estate Tax). Municipal Budget The municipal budget I am recommending is $7,631,115, (+5.44%). Debt Service Total debt service budget has decreased $265,356 (-4.61%) from last year’s budget. Explanation of Budget Impacts (FY2004) Our revenue projections have a material impact on this budget. We have seen revenues
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trending lower over the last few years as interest rates are at record lows and our back tax collection programs have brought in a considerable amount of the outstanding (or delinquent) taxes. School Construction Aid is also a major factor. The dollar impact (revenue losses) are as follows: $ 104,207 $ 86,500 $ 156,509 $ 10,000 $ 357,216 School Construction Aid Interest Earnings Fund balance contribution to operating budget Interest on Delinquent Taxes Total RIGL §45-13-13 This budget has been impacted significantly by a strange set of circumstances which results in an additional projected gross state revenue reduction for school construction aid to Burrillville of approximately $440,000. Three (3) years ago a piece of legislation was passed - RIGL §4513-13. The modification to this law was done without notification to the Town, nor (to the best of my knowledge) our legislative delegation. There was neither a fiscal note nor notification to the Town of the new law’s financial impact on our Town. The change impacts the method of incorporating payment in lieu of tax revenue (PILOT revenue) into the state’s financial aid distribution formulas. Ocean State Power’s PILOT payments to the town had not been factored into these state aid distribution formulas before. That has now changed. What happened, why and how it happened is virtually impossible to track down. We are working with our attorneys and legislative delegation to find answers to these questions and to find a way to mitigate the impact of this change in law. This year (FY2003) the legislature added a flat revenue stipend of $200,000 for the Town as a stopgap measure to mitigate some of the financial impact, but was unable to solve the problem legislatively. This appropriation was certainly appreciated, but the underlying inequity still exists. There may be additional reductions in state aid as this law may be applied to other state aid distribution formulas such as all day kindergarten aid. This, coupled with the state’s current financial difficulties, further affects our budget projections and complicates our methods to address and fund the FY2004 budget. General Construction Aid - The State reimbursement program for the High School Construction Project does not fully reimburse the Town for its expenses in the first few years. Why is this? Because the eligibility dates set forth by the state to qualify for reimbursement do not always coincide with the requirements and schedule(s) to pay principal and interest against the long term bonds and related project costs. In addition, the bonds sold for the High School project are being paid down on a stepped basis with higher principal and interest payments in the initial years of the repayment schedule. In order to lessen (or mitigate) these impacts, my recommendation last year was to use a portion of the interest earnings on High School Bond proceeds as a revenue source to offset part of the budgeted debt service for the high school project. That is what the Council ultimately decided to do in order to help balance the FY2003 budget. The following was originally recommended as offsetting revenue to apply against the
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FY2003 and FY2004 budgets. 1) FY2003 2) FY2004 Dollars to Apply $ 135,000 $ 25,000
NOTE: We do not have a current balance in interest earnings from the bond proceeds that will cover this proposal in FY2004 and I am not recommending this supplement in FY2004. The only potential problem looking forward would be if the reimbursement rate from the state matching grant program drops lower when these reimbursements become payable in future years. Under normal circumstances, this reimbursement percentage can and does change year to year! Burrillville has been trending lower, so this is a real possibility! If this happens, we may need to modify the future recommended amounts. (Note: In FY2004, the Town is tentatively scheduled to receive 42% reimbursement. The reimbursement percentage was 55% in FY2002. This is a direct result of the problem previously outlined with the modification of RIGL§ 45-13-13.) Another future impact is the fact that Ocean State Power’s revenue increases year to year which adversely affects the state’s formula. General Summary When this budget was compiled, final state aid numbers were not known. We do not anticipate any increases to our state aid (revenue) as the legislature finishes its business. This is not guaranteed, but all indications are that this will be the case. The Council should wait until this information becomes available before making your final budget adjustments. There will be no effect on the motor vehicle rate in either scenario, which stays constant at $40.00 per $1000. The projected property tax rate is $20.30 (a $1.40 net increase per $1,000 of valuation), or $3,156.65 total tax for a property valued at $155,500 (average for Burrillville). This corresponds to an average increase of $217.70 per homeowner. Please review the spending changes partially responsible for the impact: Summary - Municipal Changes/Modifications DOLLAR INCREASE (DECREASE) MUNICIPAL SCHOOL DEBT 393,403 600,000 (265,356) PERCENT INCREASE (DECREASE) 5.44% 2.66% (4.61%) TAX RATE IMPACT * $0.49 $0.74 $(0.33)
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* This information is based on using projected valuations for FY2004. These numbers are related directly to changes in spending and may be offset by assessment and revenue adjustments, (i.e. School Housing Aid, other local/state Aid, allocations between the split tax rates – motor vehicle & real estate). Specific Changes – Municipal Factors incorporated into this budget and having an impact on municipal government operations are as follows: (Note – These are summaries or highlights and are not a full listing of changes recommended.) (1) (2) Employee Benefits - $111,225 (9.15% increase), including police pension ($39,800) and health insurance ($63,300). The rubbish and recycling collection programs have increased by $215,000 (45.7% increase). In late 2002, the Town’s rubbish/recycling contractor’s business was closed down by the state basically defaulting our contract. Ironically, it wasn’t the rubbish collection program that was the cause of the state’s actions. It was a transfer station not directly associated with the collection business. Regardless, the Town and at least 8 other communities in the state had to find temporary service and re-bid for new multi year contracts in a very difficult market. At the time of the default, we had a very favorable and extremely affordable contract for these services. Despite the very difficult circumstance we faced, we still managed to secure a longterm contract with an established company (Waste Management) at favorable rates – although higher than the original contract. This situation could have been much worse and far more expensive than our current situation. (3) The Library Budgets are recommended as follows: Jessie Smith Pascoag (4) (5) (6) (7) (8) (9) (+) $ 21,255 (+) $ 8,500 Total $ 234,373 $ 43,500 Percent 24.29% 9.97 %
Town Clerk – Increased $17,500 (11.62%) due to changes in the microfilming process. Public Works - Reduced by $42,500. The addition of the Town Engineer offset by a reduction in snow, overtime & ice controls. Professional Services – These line items have been reduced by $7,050. Recreation – This department has not been materially affected by this budget. Planning & Economic Development – This department has not been materially affected by this budget. Police - $148,921 increase (8.33%). This includes $78,000 for 3 vehicles which were not part of the operating budget last year. Police cruisers should be part of the operating budget on an annual basis.
(10) General Administration: a. Pay raises contractually bound are incorporated and there are adjustments to three (3) Department/Division heads base wages (Finance Director, Building Official and Information Services Manager). I have deferred the potential cost of living pay
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adjustments for department/division heads as well as the incentive pay program until such time as we know more about the financial situation we are facing long term and how the downturn in the economy will affect the ability of the state to fund its municipal and school state aid and mandated programs. b. I am recommending that all “special appropriations” be funded from the tax rate. This adds $92,400 to the tax roll. We funded these from fund balance last year. It is my belief that most of these agencies, etc. do provide a meaningful service. Funding, when available, is certainly warranted in most cases. I also believe that core town and school services should take precedent over these independent and/or outside agencies when prioritizing spending. This is an area the Council may consider adjusting if it needs funds or wishes to impact the tax rate. c. I have not recommended establishment of the “special contingency” line item adopted by the Council last year. My recommendation is based on the fact that our fund balances have been reduced by capital spending, especially the new industrial park.
d. Revolving funds are proposed to be created for the School Vocational/Technical program, Adult Education and Summer School Program. This will allow the school to appropriate the initial costs for these programs from their operating budget with future funding coming from a grant and/or receipts. $ TBD will be budgeted for this revolving account. (11) If we can resolve the financial problem created by enactment of RIGL §45-13-13, additional funds can be appropriated or applied by the Council against the tax rate as you deem necessary prior to June 30, 2003. (12) The Council’s debt reduction program is maintained in this budget. The Town’s longstanding debt service remains one of the highest per capita in the state. The total debt obligation is $43,149,261 as of June 30, 2002. (13) The tax rate will be affected in ten cent (10¢) increments by raising or lowering spending by approximately $80,000. As with each annual budget, this is not the final scenario as the state budget process will ultimately determine the town’s final budget. I urge patience and prudence as things can change rather dramatically before this process is completed. Burrillville Schools The base Education (School) Budget recommended is $23,140,000. This is $600,000 (2.66%) higher than last year. The original budget proposed by the schools was $24,078,036. This has been reduced by a total of $938,036. Given the circumstances, this was, in my opinion, an unrealistic budget and never plausible given the financial problems of the Federal and State governments. One thing to note is that state law requires that all “restricted” or “targeted” state aid programs for schools be set aside from the town’s budget and accounted for separately. Technically, the Council will vote on a reduced (or net) school budget when you vote on a school budget in June. At this time the school budget is recommended to be $23,140,000. In order to fully disclose how much money the schools are spending on all their education
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programs, we must add additional restricted state aid to the base school budget. This brings total (projected) education spending to $24,448,759 for FY2004. NOTE: These numbers may change as the Legislature completes its decision making on school aid. The additional funding recommended in this budget for the schools is $600,000. However, this is not all the new funding available for use by the School Committee in FY2004. The Town Council appropriated $200,000 in April for special capital purchases such as furnishings, building equipment, major repairs, athletic and band equipment. An additional $216,000 was transferred by the Town Council in April from the High School Construction Project Account for use by the School Committee for eligible projects. The Town Council did not have to make this commitment and had a number of options to choose from. As an aside, the High School Building Committee brought this project in under budget, which allowed the funds to be available in the first place. There are very few school construction projects anywhere that are completed within budget let alone under budget, etc. The School’s audit for FY2002 (last fiscal year), reported a surplus of $205,446 for use by the School Committee. Most of this money is made up of Medicare money received from the federal government over the amount we budgeted as expected revenue. This amount is available for use by the School Committee and has been available since the auditors officially completed their work in December 2002. The School Committee can utilize these funds upon request of and appropriation by the Town Council and an accounting to the Burrillville taxpayers as to how the funds are expected to be utilized (i.e. a budget for expected use of these funds). Summarizing the available funding for schools in FY2004: $ 600,000 $ 200,000 $ 205,000 $ 216,000 $1,221,000 Town Appropriation Special Capital Appropriation School Surplus High School Construction Total
This represents a 5.12% percent increase, although some of these funds are for restricted use. Position Statement on the School Committee Although I do not usually delve into the side issues involved in the budget process, I cannot ignore what has occurred over the last five (5) months and believe the record needs to be set straight. The School Committee has endeavored to spin the truth and to shift blame for actions they have taken to others. In addition, they have chosen to take an adversarial role in their relationship with the Council and this Administration without any explanation, other than what we read in the newspapers and hear on the street “so to speak”. I believe the School Committee needs to be held accountable for their actions. The School Committee is autonomous and is solely responsible by law as to how their funds are allocated within the school system. So, if the students were not adequately supplied, did not have textbooks (as has been reported), did not have transportation in certain circumstances or some of the education and supplemental programs were cut back or eliminated, that is a direct result of actions taken by the School Committee.
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Let me say that this is not an ideal situation because the country is in a nearly three (3) year recession. Things are difficult for everyone financially. Regardless of what the School Committee may wish, this is the reality. When the times are good, taxpayers at all levels tend to be more generous and can (usually) afford to spend more on some of the core local programs and projects and are more tolerant to try new things. This does not mean, however, that the taxpayer bank vault opens and future spending commitments become open ended. Prior to this fiscal year (FY2003) the School Committee received $925,000 and $1,028,378 in additional funds to operate the school system. They also received $485,000 in FY2003. Questions need to be directed right to the School Committee and we must keep asking them how they prioritized and then allocated these monies. Choices are made and those who make the choices are solely responsible. If the School Committee chooses to add staff or increase wages/benefits for its employees rather than fund supplies, materials, equipment, etc., that is a choice they make. This is not a judgment on the School Committee’s actions, but it is, effectively, what has happened and they need to explain what they did and why. Whether its adding staff, implementing new programs, giving increases in wages or benefits, or making decisions involving financial commitments, those decisions must be made considering the short and long term impacts of those decisions. What happens in government is that a financial commitment is made and there becomes an “expectation” that future money will be made available to pay for the obligation. I do want to make a point that many times there are good ideas and potentially beneficial programs that require serious consideration for appropriation of new financial resources. However, the Town Council should not be forced to fund these obligations and be expected to simply pass on the cost to the taxpayers. This is, effectively, what is being asked of the Council. The School Committee has yet, in my seven (7) years of service to this community, brought the Town Council into their long term educational program planning and the Council has not been advised (even unofficially) as to what the School Committee intends to do to improve our educational system, what resources are needed and what it might cost to implement the plan(s). The only program that I can recall coming before the Council was an ill-conceived physical expansion of the A.T. Levy School in order to physically accommodate more students in all day kindergarten. The only reason this discussion took place was because the Council was asked to be the funding source for the building expansion that was to take place. At no time has a full and productive dialogue taken place as to whether or not a full day kindergarten program is right for Burrillville and, if it is, what is the best way to accomplish the objectives – both educationally and having the physical space and resources to implement the plan. The Town Council and this administration have been very supportive of the schools. We have never actually cut their budget and have supported almost all of the requests made of us by past School Committee/administration(s). The Council has recently absorbed the impact of the 13.5 million dollar high school addition/renovation project; they have to accommodate a six million dollar sewer expansion program mandated by the State and to fund the library-building project estimated to be upwards of three million dollars. This does not even consider the proposed renovations to the Callahan School, where the school administration will ultimately be housed, the Town/School Recreation/Athletic Field expansion programs, nor the roads, bridges and infrastructure
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that has to be replaced. And there is more! The Ocean State Power Tax Treaty effectively terminates in eight years leaving a potential revenue loss of four million dollars (higher as the agreement comes to term). Economic development and redevelopment projects need immediate attention and even with a full commitment at this point in time, there are no guarantees that this kind of revenue shortfall will be made up, especially if we want Burrillville to develop to the standards we set and to maintain quality of life on our terms. And, we cannot simply bring in just enough new growth to sustain town and school spending increases because that does not solve the problem in the big picture. Municipal verses School Municipal services and changes in our spending priorities and levels should not be compared to the schools. Simple comparisons on a percentage or a generic basis are a gross oversimplification and are not relevant given the different missions and objectives. However, I can say that if the Town does not succeed in our goal to find replacement revenue for the potential Ocean State Power revenue loss, grow our commercial tax base, and find ways to eliminate government mandates, everyone in town, especially the school system, will be adversely affected. Looking forward, free spending and loading fixed costs into the tax levy without being cognizant of these critical factors is not the proper way to manage the taxpayers affairs. The state laws (effectively) allow the schools to prioritize spending and use taxpayers’ monies without any meaningful oversight or accountability. Because of these and other intangibles, the Town Council’s job becomes far more difficult. The ironic part of this situation is that the Town Council is usually tagged with the responsibility (and blame) by local taxpayers for real estate tax increases even though the financial problems we have to address have actually been created by the legislature, the governor’s office, School Committees and labor’s influence on many of the laws governing our great state. Conclusion I have been in local government for over twenty years. Never before have I seen such a combination of problems creating such potential hardships for local taxpayers (short and long term). We try to balance out the many good programs and services we offer to our communities with the ability of our residents to pay for those programs and services. When the economy is not functioning as expected, many people who support schools and municipal services by paying local property taxes are themselves in hardship. We should be very cognizant of this, especially our elderly and those living on fixed incomes. School and municipal tax increases mean a financial loss to those in hardship. I am always mindful of these people when trying to balance out budgets.
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