The Town Administrator’s Fiscal Plan

Town Administrator David Colton has proposed a five year fiscal plan for the Town. I’ve been asked by a number of readers to explain it. I apologize in advance for the length of this post, but I see no other way to give a good explanation.

A presentation of it can be viewed here:

http://www.townofmilton.org/Public_Documents/MiltonMA_BComm/06%2001-27%20Strategic%20Fiscal%20Plan.pdf

At last year’s Annual Town Meeting a citizen’s article called for the establishment of a long range planning committee for the town, similar to the School’s Long Range Planning Committee. Perceived deficiencies in the article lead to it being voted down, but sentiment about the need for more planning was widespread. Now, as we approach another Town Meeting, David Colton has developed a thoughtful plan which at least addresses fiscal issues on a comprehensive basis over a five year period.

The proposal deals with the following:

a) the looming substantial deficit in the fiscal 2007 budget

b) a persistent lack of funding for capital improvements

c) insufficient reserve levels

d) an increasingly divisive annual budgeting process

e) over reliance on Prop 2 ½ override votes

It contains three key recommendations.

1. Pass a significantly large override this year.

2. Implement a five year expenditure plan which grows more slowly than revenues.

3. Utilize declining debt service payments to fund capital expenditures.

Significant Override

Initial projections show about a $3.5 million gap between the budgets submitted by the various departments and anticipated revenues. The budget requests represent attempts to recover some of the losses caused by cuts in recent years. It’s been five years since we had an operating override. Even in good economic times Milton has needed periodic overrides of Proposition 2 ½ because we have a structural fiscal deficit—our revenues grow at about 1-1.5% less per year than the cost of level service funding. The last 5 years have not been good economic times. The recession caused deep cuts in revenue, primarily in the form of state aid.

We’ve made it through this period largely by cuts in staffing. The increase in trash sticker fees last year has been the only revenue enhancement action taken in the five year period. So we have fewer Teachers, Policeman, Firefighters, Library Staff and Public Works employees. We’re no longer replacing Police cruisers on a prudent basis. Student athletes must pay onerous fees to play sports, with many of limited means simply not playing. And of course we have not been able to make any progress on our capital needs, having established a Capital Stabilization Fund in 2004 to which we’ve been unable to add any money other than the $10,000 which established it.

To balance this year’s budget by once again cutting staff from an already deficient workforce level would have a significant impact on town services across the board. The effects on our Schools and Public Safety would be especially pronounced. Using a combination of cuts and a smaller override would put us in the position of asking the taxpayers to pay more while we still make very noticeable cuts in the services they will receive. Our past overrides have always been less than was actually needed. This simply recognized the difficulty in convincing the community to raise taxes. This results, however, in less than true level service funding, and hastens the time when another override is necessary. A significant override in the neighborhood of $3.5 million permits us to establish a service level equivalent to what we had before the economic downturn. Equally important, it creates a significantly elevated spending floor, a necessary precondition, together with the other two recommendations, to forging a future less reliant on overrides, and with adequate reserves and investment in capital needs.

Five Year Expenditure Plan

Working with all town department heads, and assuming a successful override this year as discussed, Mr. Colton has developed a five year expenditure plan. Although unforeseen circumstances could change the allocations, the plan calls for an agreed adherence to a bottom line which essentially maintains something close to level service budgets for the five years. Any new initiatives would require additional, new funding.

The key aspect of this recommendation is a growth rate less than the expected growth in revenues. Over the five years expenditures would grow at about 6% less than revenues. This produces surpluses beginning in FY 2008 and growing to over $3 million in FY 2011. These surpluses allow us to:

a) stop using free cash for operational budgets. Free cash is essentially the unspent portion of budgets at the end of fiscal years. All towns have free cash. Many have much more than we have. Fiscally strong communities consider this one time money, and allocate it to reserves. We’ve had to use it in our annual budgets because we are starved for revenue. Using the surpluses Colton’s plan produces, we can start allocating our free cash to reserves beginning in FY 2008. By 2011 reserves will increase by over $3.6 million.

b) create excess levy capacity. What in God’s name is that? It’s pretty simple, actually. Proposition 2 ½ places a cap on the total amount of taxes that a community can raise through the property tax. That cap is called the levy limit. Communities tax property owners an amount up to the levy limit. That’s called the tax levy. Most communities need to tax up to the levy limit, which means their tax levy is equal to their levy limit. Some lucky communities can get by taxing citizens at less than what Proposition 2 ½ allows. The difference between the levy limit and what is actually taxed by the tax levy is excess levy capacity. The city of Cambridge has $65 million in excess levy capacity. Our neighbor Quincy has $6.5 million in excess levy capacity.

The surpluses produced by a sizeable override this year, coupled with fiscal constraint over five years, allows us to begin levying taxes below what the natural levy limit would be beginning in FY 2008. Over time this builds up to a fairly large amount of potential revenue which can be tapped by the town should it so choose. Since this revenue represents unused revenue within the levy limit, it can be tapped for use without a Proposition 2 ½ override. Using any of it would raise taxes of course, but only to the extent that permissible tax increases from prior years had not been levied.

Excess levy capacity gives the town flexibility in budgetary matters and reduces the frequency of Proposition 2 ½ overrides.

Use Declining Debt Service

Milton currently spends about $4.6 million on debt service. A portion of that pays for “over the levy limit debt.” This debt payment is funded by revenue from a prior Proposition 2 ½ override and when the debt is paid off, the revenue stream ceases. Another portion of our debt payments is for “under the levy limit debt.” This is debt we pay for out of our annual operating revenue.

The Colton proposal calls for taking advantage of a declining debt service over the next five years. It suggests that rather than allowing the moneys used to pay debt service to simply go back into the revenue stream for allocation, it be earmarked for the Capital Stabilization Fund. Projections indicate $1 million available for allocation from this fund by 2011.

Recap

A significant override this year allows us to establish a reasonable level of service and, when combined with budgetary restrain over the next five years, creates surpluses. These surpluses enable us to re-direct Free Cash to reserves and to develop an excess levy capacity which reduces the need for Proposition 2 ½ overrides. Earmarking “under the levy limit debt” payments freed up due to declining debt to the Capital Stabilization Fund gives us the funds needed to begin tackling a $23 million backlog of capital needs.

All in all, I think David Colton deserves a great deal of credit for this plan. I do have a concern that the revenue projections may be a bit optimistic. But that shouldn’t affect the basic soundness of the plan. We now need to see whether the Selectmen, Warrant Committee and School Committee will support it and take it to Town Meeting. The override on which this all hinges is sizeable and would increase taxes substantially. The challenge is to find a way to communicate the substantial benefits to all Town Meeting members, and to the voters.

Commercial Development

In a letter published in this week's Milton Times, an opponent of commercial development at the DPW Yard wrote: “Our taxes are on a par with Walpole, Randolph, Braintree, and Dedham.” This is simply not the case.

The current average single family tax bill in Milton is $5470. Walpole’s is $4727, or 14% less than ours. Dedham’s is $4486, or 18% less than ours. Braintree’s is $3054, or 44% less than ours. Randolph’s is $2976, or 46% less than ours. Despite average residential tax bills 18% to 46% less than ours, all but Randolph spent as much or more per capita in 2004 on services for their citizens. How do you suppose they did that?

Just as it is patently untrue to claim that commercial development will not produce important revenue for Milton, so too is it wrong to suggest that a modest amount of commercial development will destroy the character of Milton. The RFP for the DPW Yard, which will be issued once the Inspector General’s office dismisses the abutters arguments, is the product of 10 months of a thoroughly open process. The proposals received will be properly analyzed, and all the potential impacts on the town studied. Should the town choose to pursue the commercial development we so desperately need, there is no reason to expect that we can’t have the same kind of tasteful project which other towns like ours enjoy, perhaps including some of the same amenities, which we have long lacked.

Selectmen Issue DPW RFP

The Board of Selectmen this evening voted to issue an RFP for the possible development of the DPW Yard. The action comes some 10 months after a Milton resident presented the Board with a conceptual proposal for a commercial project. The proposal was responsive to the Community Development Plan’s recommendation to rezone the DPW Yard from residential to commercial in an effort to diversify the town’s tax base.

The RFP solicits a variety of ideas, from commercial and residential to mixed use. This leaves for the evaluation stage the consideration of what type of development, if any, best serves the needs of Milton. The upcoming budget season, culminating in the Annual Town Meeting, will likely highlight the Town’s serious need for additional revenue and our almost total reliance on the residential homeowner for such new revenue.

We’ve long known that the lack of a commercial tax base places an extra burden on the homeowner. In the not too distant future, this community will face the choice between substantial increases in single-family tax bills or substantial reductions in services. While commercial development cannot aid us in completely averting this hard choice, the Town’s decades long aversion to commercial development has made it a more stark one. The question now is will we once again ignore the opportunity for some mitigation just as our opportunities to do so are dwindling, absent a whole scale rezoning of the town, and just as the problem is reaching serious proportions?

For the year 2005, the last year with full statewide data, only 9 communities in the state had a lower percent of their total real estate valuation from commercial, industrial and personal property (CIP). Those communities were Alford, Boxford, Carlisle, Chilmark, Dover, Aquinnah, Gosnold, Shutesbury, and West Newbury. All of these communities had less than Milton’s 3% from CIP (For 2006 Milton’s percentage has slipped to 2.9%) In 1982 Milton’s CIP percentage was 8.6%. Much of the decrease in this number is the result of the phenomenal rise in home values across the state during the past two decades. But the statewide decrease during that period has been 48% while Milton’s CIP has declined 86%. The difference is a worsening situation with respect to the diversification of our tax base.

The revenue we derive from CIP taxes is slightly less bleak due largely to the fact that we have a split tax rate with a significantly higher rate for commercial, industrial and personal property. In this fiscal year, 5.6% of our tax levy revenue came from CIP. In 1986 it was 6.2%. This 11% decline in the last 20 years is despite the fact that we went to a split rate for taxes in 1988, otherwise the reduction would have been even more pronounced.

Given this reality, it is difficult to understand some of the discussion with regard to Town Planning. At the January 9th meeting of the Board of Selectmen, one of the Selectmen stated that a residential development for the DPW Yard for residents 55+ would diversify the tax base. Such age restricted residential housing is preferable to single family homes because the lack of children normally associated with it means a net gain in taxes because there are no school costs associated with the residents who move in. But this is not a diversification of the tax base. It is residential development. It increases our dependence on the residential tax base. During the same period when we’ve done little to foster commercial development we’ve continued to build a couple of dozen single family homes a year; we’ve constructed Fuller I and recently Fuller II; and we allowed by special permit the construction of the Wharf Street development on commercially zoned land. Of course we called it mixed use because it was planned to have a restaurant. We’re still waiting for the restaurant.

Recently, at an unusual morning meeting of the Planning Board, owners of property in the Central Avenue business district shared some initial plans for the Hendries Plant, the Fallon Ambulance site, and the Central Avenue parking lot. The Planning Board has been working on a Zoning article to encourage mixed use development at these sites, including a substantial component of commercial businesses. In every case the proposals contained a minimal commercial component and requests for a larger number of residential units than was contemplated by the planning board. The Hendries site is a good example. The concept is for an approximately 44,000 square foot project with 3000 square feet of commercial space, well below the 25% the Planning Board hoped to encourage. At these low levels, the projects will contribute substantially to increasing our dependence on the residential property owner. I hope the Planning Board will not hastily capitulate to what may be the most profitable alternative for the owners, but not the best solution for the Town.

There seems to be this notion that as long as we can bring in more people to share the tax burden, provided they are childless, we can enjoy more revenue and somehow not worry about the diversification of our tax base. But there is a day of reckoning with that shortsighted thinking. Soon our Town will be essentially built out. At that point the mix of tax sources will be set, and more or less must be lived with far into the future. Do you want the residential burden to be 96%, 97%, or more? Or would it be better for the town to work to get the residential share down to the low 90’s or lower? The development of the Central Avenue business district needs to be mixed use to make development viable. But there is no current plan to make the residential portion age restricted, which means it will be a net loss in terms of revenue even with a substantial commercial presence. To use the DPW Yard, perhaps the largest remaining piece of land in the town suitable for commercial development, for even more residential development, strikes me as sticking our heads in the sand.