Saturday, October 28, 2006

Those Rainy Days

The old aphorism advises us to “save for a rainy day”.

Most states and many municipalities maintain “rainy day funds”. One of the more prudent actions of the Massachusetts legislature during the go-go economy of the late 1990’s was to stash a significant amount of money away in anticipation of an inevitable economic downturn. Just before the recession of 2001 that fund had grown to around $2.3 billion. During the next two years a significant portion of it was used to cushion the blow caused by a drastic decline in state revenues.

Although tapping this fund didn’t prevent reductions in state aid, it prevented an even greater impact on local government budgets. Returning the state’s rainy day fund to proper levels is one of the reasons, in addition to returning local aid to the level of 5 years ago, that Kerry Healey’s support for an immediate cut in the state income tax is misguided.

Massachusetts state law provides for cities and towns to create their own emergency funds, called Stabilization Funds. All but 13 of 351 communities have established and funded accounts. Their total balance is $440 million. Some of those who have not include Belmont, Concord, Hingham, Newton, Wilmington and Boston. The Department of Revenue recommends funding levels equal to 5% of annual operating budgets. Most reserve under this level, but the range is wide with the highest found in the town of Rowe at 67%. This is no doubt an effort to plan for life after the nuclear power plant and the massive revenue it provided. Milton has just under $1 million in its fund, about 1.28% of our annual budget. The statewide average balance is 2.33% of budgets.

We owe the establishment of our Stabilization Fund to resident Mary Fitzgerald. In 1996 Ms. Fitzgerald was the Chair of the Warrant Committee. She was concerned that the Town had no reserve of this kind. Through persistence and persuasion she convinced the Warrant Committee and the Town Meeting to appropriate $500,000 to fund the beginnings of a reserve. This was no small accomplishment. Diverting $500,000 from our perennially tight budgets meant some pain and some tough budgetary decisions.

Experience has shown that to be effective a Stabilization Fund must satisfy two criteria. It must be large enough to provide a significant infusion of money during hard times without being completely depleted. And it must have a funding mechanism that provides for both consistent and meaningful contributions to quickly return the fund to appropriate levels after it has been tapped. Without these features Town Meeting is unlikely to use the fund for fear of having nothing in the event an emergency even more serious than a short recession occurs.

Today neither of these needs are being met. At just under a million dollars the fund is not large enough. Looking at the last two recessions, we probably need enough to make a difference for two fiscal years, perhaps $500,000 per year. This wouldn’t preserve everything, but it would reduce the impact on lost services and make recovery of those services less onerous post recession. A balance of say, $2 million, would allow the town to do this while preserving a significant amount of money as a base for rebuilding the balance.

But our current funding mechanism is also inadequate. The year after $500,000 got the fund started no contribution was made. In 1998 the Warrant Committee requested a $100,000 contribution and Town Meeting said no. Budgets were just too tight. The only other sizeable addition to the fund occurred in 2000 when Warrant Chair Charlie McCarthy fought for depositing $200,000 in supplemental Lottery Receipts in the fund. Our budgets are simply too tight to expect regular, sizeable contributions to come from diverting money from immediate needs. What we need is a source of new revenue.

A change made in 2003 to Massachusetts General Law presents an opportunity. That year the Legislature expanded the number of Stabilization Funds a community could have. As part of that effort they also added a new provision to the Proposition 2 ½ law. Before this provision, proceeds of a Prop 2 ½ override could only be earmarked for a stated purpose for one year, after which the money would be allocated as all other funds during the annual budgetary process. The new provision states that an override passed for purposes of funding a Stabilization Fund must be allocated for the same purpose in subsequent years. Town Meeting, the final budgeting authority, could not change this and divert the funds to another use.

We now have the means of creating a separate source of funding that is both significantly large and reliably consistent. An otherwise insignificant Stabilization Fund Prop 2 ½ override in the amount of $100,000 would cost the average taxpayer somewhere in the vicinity of $10-$15 per year. And yet it would result in a doubling of our fund in under 10 years. It would grow annually by 2 ½ %, preserving its buying power over time. It would remove the funds from the annual struggle to balance our budget. And the fiscal discipline it demonstrates would be viewed favorably by our bonding agencies.

We need to prepare better for shocks to our fiscal well-being, because our margin for safety is too small and budgetary pressures are not likely to go away. In addition we should look for other “one-time” money to add to the fund. Former Warrant Committee Chair Emily Innes championed the idea of placing the remaining money in the Land Escrow Account in the fund; and current chair Katie Conlon proposed this at the 2006 special town meeting. We should resolve the issues that arose and put that money in the fund.

I encourage elected officials to investigate this approach.

More information on the new law can be found here:

Monday, October 02, 2006

Trash Stickers, Again

At the last Selectmen’s meeting Chair Jimmy Mullen announced his wish to reduce the trash sticker fee from $3 to $2. The reason for doing so? Lots of people really hate the fee, according to Mr. Mullen. There was no discussion of how the $300,000-$400,000 of revenue would be replaced, or alternatively what cuts in Town services would be implemented if the fee is reduced. Indeed, no vote was taken on the matter. The Town Administrator was asked to prepare a report on the trash sticker program for discussion at the next meeting.

I think a little background is in order.

Municipalities nationwide face a growing problem with the disposal of Municipal Solid Waste. According to the EPA there were 7683 Municipal Solid Waste landfills in 1986. By 2001 there were only 1858. Massachusetts had hundreds of such landfills over 25 years ago. Today there are 17. As municipal landfills have been closed, capacity needs have been met by the creation of huge, regional landfills. States like Massachusetts and New York have only 5-10 years capacity remaining, at which point all or a substantial part of our solid waste will need to be transported out of state.

There is a world of difference between having your trash collected and taken to your community dump or landfill and having it picked up, transported long distances and then paying the landfill operator for the privilege of putting it in a hole in the ground. As regionalization creates longer and longer distances between communities and disposal sites, and as the supply of landfills struggles to handle increasing amounts of solid waste, costs escalate. The further you ship waste, the transport costs increase. A decreasing supply of landfills within easy reach means increased tipping fees.

Like many other communities Milton had to deal with this issue in 1999. State regulations mandated the closing and capping of our landfill. We were faced with the need to transport our trash and pay tipping fees for its disposal. This new cost amounted to approximately $750,000 in the first year, and we were faced with the problem of how to fund this new expense. The Board of Selectmen offered residents a choice between an override or a “Pay as you throw” trash sticker program to pay for some of these new costs. The residents opted for a trash sticker program.

The trash stickers were originally priced at $1.50 each, and then were raised to $2.00. These prices never covered the entire cost of the program, but probably paid for 67%-75% of it. A year ago this Spring the Selectmen raised the price to $3.00, something the Warrant Committee had been urging for two years as it dealt with budget shortfalls. In making that recommendation the Warrant Committee looked at how other communities were handling their trash costs. Then member Brian Cherry conducted a survey, which I have updated as of October 2, 2006.

The survey of 23 South Shore communities found that 10 have a transfer station program (Braintree, Cohasset, Duxbury, Hanover, Hanson, Hingham, Hull, Kingston, Plymouth, and Scituate). The remaining 13 communties have curb side pickup programs – 5 incorporate the cost into the general budget and 8 charge a fee.

Community--------------March 2004-----------------October 2006

Halifax-------------------$1 sm/$1.50 lg.------------$1.80 sm/$2.50/lg.









As you can see, the majority of surveyed towns have had to institute fees to meet news costs of solid waste disposal, and of 9 communites, our $3 per week sticker price is the third lowest.

Of course no one likes to pay taxes or trash fees. That is hardly a revelation. The fact remains that residents chose to pay for this program with fees rather than through property taxes. If the fee doesn’t at least keep up with increases in the cost of trash disposal, we’ll be diverting ever increasing amounts of money from our general revenue stream that would otherwise pay for other vital town services.

Reducing this fee now would be fiscally irresponsible. Do we have a surplus that no one is aware of? Have we ever been in a situation other than one in which we fight to maintain the level of services we have now? The Selectmen can make the politically attractive decision to reduce fees, but the Warrant Committee and the Town Meeting will have to cut budgets somewhere to make up the difference. And residents will experience the cuts in service. Perhaps residents wouldn’t be so upset if someone took the time to explain to them the growing cost of getting rid of our trash, or let them know whether they were going to have to get along with fewer Police, Firefighters or Teachers as a result of a hasty, ill-advised action.