Mid Year Budget Update — File 205797

City of Somerville Mid-Year Budget Update April 26th 2018 Ed Bean, Finance Director & City Auditor Michael Mastrobuoni, Budget Manager Ida Cody, Deputy City Auditor 1

General Fund Performance FY18 • Through April 15th, 2018 • Revenue • Collected 75.5% • Projected to exceed revenue budget by $1M (0.4%) • Expenditures • Expended 77.7% of General Fund appropriations • Projected to underexpend non-school General Fund Appropriation by 2.5% or $4M • Expended 84.4% of School Department appropriations • Projected to fully expend School Department Appropriation 2

General Fund Performance FY18: Snow Removal Deficit • The FY18 snow deficit will be remediated through a combination of interdepartmental transfers and a Free Cash appropriation. • The Administration plans on continuing to increase the Snow Removal budget in the FY19 budget. 3 FY18 Snow Removal Deficit FY18 Budgeted $1,298,860 FY18 Expenditures $3,300,000 Snow Removal Deficit $2,001,140

General Fund Performance FY18: Recycling Costs • Due to policy changes in China as well as increased recycling volume, FY18 has seen some of the highest costs for recycling in years. • Price per ton of recycling has risen from $5.89/ton to $97.47/ton in less than a year. 4

General Fund Performance FY18: Recycling Costs • The administration plans on remediating this deficit with a free cash appropriation. • At current recycling prices, it is projected that the FY19 appropriation will exceed $700,000. 5 FY18 Recycling Deficit FY18 Budget $200,000 FY18 Expenditures (estimated) $521,000 Projected Deficit $321,000

FY18 Performance: School Dept • Special Education Increases • Tuitions for students in out of district placements: $800,000 over budget. • Special Ed Transportation: $150,000 over budget. • Increases attributed in part to changes in DCF requiring out of district placements for students . • FY18 Deficit Remediation Plan • Apply salary lag monies estimated to be $511,000. • Slowing spending –requisition system cut off on March 16th. • To date, transferred $250,000 in circuit breaker money to cover the deficit. • Anticipate a transfer of an additional $200,000 in circuit breaker money by year end. 6

FY18 Performance: School Dept • Circuit Breaker • Program started in 2004 to provide additional state funding to districts for high-cost students. • State pays 75% of eligible costs. • CB reimburses for prior year expenses and are paid quarterly. Funds can be carried forward 1 year. • The School Department tries to carry over the full amount each year, so that it can be applied to the following year budget. The revenue is used to set-off the special education salaries. • In FY17, the State underfunded circuit breaker with a reimbursement rate of 65%. Reimbursement at 65% totaled $2,033,776. If fully funded, the reimbursement would have been $2,346,665. The FY17 CB was applied to the FY18 budget. • Draw of Circuit Breaker money in FY18 for deficit reduction impacts the base School Department Budget in FY19. 7

FY18 Budget Composition FY2018 Approved Budget Summary 8

Historical Budget Composition 9 Category FY14 FY18 $ Increase FY14-FY18 Share of Growth General Govt. $15,048,934 $20,446,113 $5,397,179 14.4% Public Safety 36,928,975 42,096,188 5,167,213 13.8% Culture & Recreation 2,703,423 3,969,966 1,266,543 3.4% Public Works 22,782,276 27,174,212 4,391,936 11.7% Debt Service 9,672,724 10,572,795 900,071 2.4% Pension & Fringe 35,913,552 40,244,419 4,330,867 11.5% Other 1,395,789 3,734,000 2,338,211 6.2% State Assessments 12,406,821 14,235,616 1,828,795 4.9% School 56,590,504 68,574,180 11,983,676 31.9% Overlay 1,586,537 1,528,746 (57,791) (0.1%) Totals 195,029,535 232,576,235 37,546,700

Fixed Costs Drive Municipal Budgets 10 FY18 Budget Share of Budget Personal Services 68.9% Ordinary Maintenance 24.0% Special Items 7.0% Capital 0.1% FY18 Appropriation Percentage of Budget Health Insurance $23,624,311 10.2% Pensions 13,981,392 6.0% Debt Service 10,572,795 4.6% Total 48,179,498 20.7% Municipal budgets are heavily influenced by Personal Services appropriations as well as fixed costs such as Health Insurance, Pensions, and Debt Service.

Trends in State Aid: FY14-FY19* • Net State Aid (Cherry Sheet receipts minus State Assessments) is projected to grow 2.28% in FY19 based on current estimates. • *These numbers are subject to change as the budget process evolves at the state level. 11 FY14 FY15 FY16 FY17 FY18 FY19* Cherry Sheet Receipts 43,249,493 44,488,007 44,625,233 46,428,249 46,971,678 47,623,301 State Assessments 12,406,821 13,467,279 13,409,986 14,035,001 14,235,616 14,140,519 Net State Aid 30,842,672 31,020,728 31,215,247 32,393,248 32,736,062 33,482,782 Percentage Increase/PY +0.58% +0.63% +3.77% +1.06% +2.28%

Revenue Composition Review 55% 66% 33% 21% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY2008 FY2018 Other Local Receipts State Aid Taxes 12 As a result of limited growth in net State Aid, the proportion of the budget funded by State Aid has dropped by 12% when compared to pre-recession budgets (FY08).

State Aid: FY19 Cherry Sheet 13

State Aid: FY19 Cherry Sheet 14

Property Tax Summary 15 Fiscal Year Levy Limit Final Tax Levy Reduction from Levy Levy Increase FY14 116,126,060 116,112,597 13,463 FY15 123,036,937 122,165,461 871,476 5.21% FY16 129,440,163 129,147,863 292,300 5.72% FY17 137,032,678 136,071,682 960,996 5.36% FY18 145,062,349 143,491,095 1,571,254 5.45% FY19 153,961,741 *The levy limit is only a cap and does not reflect what will eventually be raised in property taxes in FY19.

Historical New Growth Review 16 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Millions *FY19 Projected Projected New Growth Contributors for FY19: Assembly Square Blocks 5 & 6 Inner Belt $5.2M

Historical New Growth Review 17 $1.46 $1.76 $1.64 $2.51 $2.75 $1.99 $2.25 $1.69 $1.84 $1.65 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Millions Annual New Growth by Type: FY14-FY18 Residential & Open Space Commercial, Industrial & Personal Property

Other Revenues & Excise Trends • Excise Trends • Motor Vehicle: Annual variations but on target for FY18. • Hotel/Motel: New hotel comes online in FY19, adding $270,000. • Meals Tax: Meeting budget in FY18. $604k $1.27M 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Millions Hotel/Motel Excise Revenue $1.1M $2.0M 0 0.5 1 1.5 2 2.5 Millions Meals Tax Revenue 18

Other Revenue Items • The following revenue accounts are projected to exceed their budgets: • Investment Income • Motor Vehicle Excise • Ordinance Violations • Detail Surcharge • Smoke Detector Inspection • Condominium Application Fees • Permitting: • Electrical • Gas • Plumbing 19

FY18 Revenue: Building Permits 20 • Recap budget projection: • Revenue year-to-date: • Anticipated Revenue before June 30th: • End-of-year projection: $8.5M $2.8M $5.2M* $8.0M *Multiple large permits are anticipated in the Spring of 2018, this figure is an estimate.

Budget Development Overview 21 Level Service Budgets Created • Departments submit their level service budgets to create a base budget for FY19. • This includes salary updates, updates to existing contracts, etc. Program Improvement Requests • Departments submit new positions or proposals for inclusion in next year’s budget. • Projects are vetted, cost-out and prioritized through an interdepartmental process. Final Budget Developed • The budget team in collaboration with the Mayor’s Office make decisions based on revenue estimates (capacity), citywide priorities, and other needs.

FY19 Personal Services: Labor • Salary contingency projected increase of 40-45% (approximately $1.2M) over FY18. • Contracts currently pending: SMEA, SPEA, SPSOA, IAFF. • Current Wage & Salary Stabilization Fund Balance: $5,681,336 • Contracts settled during FY18 will be included in the FY19 appropriation. • E-911 & Crossing Guards. • Non-Union salaries are adjusted based on merit using the performance management program. 22

Health Insurance & Pension • Health Insurance • GIC premium increases vary significantly by plan this year. Some increase as much as 7% while others have actually been reduced. It is anticipated that the health insurance appropriation will increase between $750,000 and $900,000. • Pension • Current unfunded accrued liability: $132,035,270 • FY19 appropriation will be $14.3M • Full funding schedule ends in 2033 Type FY18 Active Plans Individual - Active 846 Family - Active 791 Retiree 1,239 Total 2,876 23

FY19 Projected Debt Service Category FY18 FY19 (est) Change Principal / LTD 6,873,624 6,404,823 -6.8% Interest / LTD 2,896,514 3,222,241 +11% Interest / BAN 792,657 2,009,194 +153% Total 10,562,795 11,636,258 +10% 24

FY19 Other Financing Sources • Parking Meter Receipts • $2.4M anticipated. • Free Cash • Reduction to $1.5M anticipated. 25

Long-Term Budget Management • Federal Funding Challenges • CDBG • Schools • Free Cash Balance as of 4/25/18: $9,893,401 to be used for: • Anticipated Deficits • Snow removal • Recycling • Stabilization Funds • GLX • Facility (SHS) • Salary & wage • Community Preservation Act 26

Stabilization Fund Projections • With $1M annual appropriations to each stabilization fund, conservative interest rate projections (1.5-2.75%) and estimated developer contributions to the GLX stabilization fund. • Estimated total balance in FY27 is $57M. 27

Budget Next Steps • May 10th: Budget process tutorial with BOA. • School Board votes on school department budget. • Week of May 27th: PDF version of budget document available. • June 6th: Administration formally submits budget to BOA. • June 7th-28th: Budget hearings scheduled. 28

Thank You City staff are on hand to answer any questions you may have 29