Finance Director FY20 Budget Presentation — File 208021

City of Somerville Mid-Year Budget Update April 25th 2019 Ed Bean, Finance Director & City Auditor Michael Mastrobuoni, Budget Manager 1

General Fund Performance FY19 • Through April 22nd, 2019 • Revenue  • Collected 76.9% year‐to‐date. • Projected to exceed revenue budget. • Expenditures • Expended/Encumbered 78.6% of General Fund  appropriation. • Projected to under expend non‐school General Fund Appropriation • Expended/encumbered 83.1% of School Department  appropriation. • Projected to expend at or below the School Department appropriation 2

General Fund Performance FY19: Snow Removal Deficit • The FY19 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 FY20 budget. 3 FY19 Snow Removal Deficit FY19 Budgeted $1,300,692 FY19 Expenditures $1,725,456 Snow Removal Deficit $424,764

General Fund Performance FY19: Recycling Costs • Due to policy changes in China, the City has seen some of the  highest costs for recycling in years. • Price per ton of recycling rose from $6/ton to $94/ton in FY18. • Prices have stabilized around $80‐$90/ton in FY19. 4

General Fund Performance FY19: Recycling Costs • At current recycling price and tonnage trends, it is projected  that the FY20 appropriation will be $675,000. 5 FY18 Recycling Deficit FY19 Budget $650,000 FY19 Expenditures (estimated) $597,741

FY19 Performance: School Dept • Special Education Increases • The District is applying the remaining $2,034,756 in the FY18  Circuit Breaker reimbursement to FY19 Special Education  salaries. • $250,000 of the FY18 Circuit Breaker was utilized during FY18 to  reduce the deficit in the Special Education. • The District is receiving $2,751,426 for Circuit Breaker  Reimbursement during FY19 and the full amount will be applied  to the FY20 budget. 6

FY19 Performance: School Dept • Special Education • Special Education is projected to close the fiscal year on  budget. The FY19 budget for Out of District Placements was  increased by $700,000 to address a shortfall in that FY18 budget  line. • Homeless Transportation: • Transportation for homeless students is projected to be $150,000  over budget. As part of the Mckinney Vento Act, the City receives  a reimbursement  for Homeless Transportation expenditures. For  the current fiscal year, that is projected to be at a 33% rate. 7

FY19 Budget Composition 8 FY20 Budget Summary

Historical Budget Composition 9 Category FY15 FY19 $ Increase  FY15‐FY19 Share of Growth General Govt. $16,897,372 $21,939,286 $5,041,914 13.3% Public Safety 37,791,487 42,749,270 4,957,783 13.1% Culture & Recreation 2,756,291 3,998,661 1,242,370 3.3% Public Works 22,910,804 27,217,850 4,307,046 11.4% Debt Service 10,655,954 12,343,870 1,687,916 4.3% Pension & Fringe 35,669,248 40,422,957 4,753,709 12.5% Other 1,292,500 4,911,270 3,618,770 9.5% State Assessments 13,467,279 14,188,184 720,905 1.9% School 60,317,201 72,679,325 12,362,124 32.6% Overlay 1,697,496 1,647,701 (49,795) (0.1%) Totals 203,455,632 242,098,374 38,642,742

Fixed Costs Drive Municipal Budgets 10 FY19 Budget Share of  Budget Personal Services 68.9% Ordinary Maintenance 24.0% Special Items 6.7% Capital 0.1% FY19 Appropriation Percentage  of Budget Health Insurance $23,119,499 9.6% Pensions 14,364,292 6.0% Debt Service 12,343,870 5.1% Total 49,827,661 20.6% 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: FY15-FY20* • Net State Aid (Cherry Sheet receipts minus State Assessments) is projected to  grow 0.83% in FY20 based on current estimates.  • *State Aid figures are subject to change as the budget process evolves at the  state level. 11 FY15 FY16 FY17 FY18 FY19 FY20* Cherry Sheet  Receipts 44,488,007 44,625,233 46,428,249 46,971,678 47,774,116 48,350,002 State  Assessments 13,467,279 13,409,986 14,035,001 14,235,616 14,188,184 14,484,598 Net State Aid 31,020,728 31,215,247 32,393,248 32,736,062 33,585,932 33,865,404 Percentage  Increase/PY +0.58% +0.63% +3.77% +1.06% +2.6% +0.83%

Revenue Composition Review 55% 69% 33% 20% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY2008 FY2019 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 13% when compared to pre‐recession  budgets (FY08).

State Aid: FY20 Cherry Sheet Receipts 13

State Aid: FY20 Cherry Sheet Assessments 14

Property Tax Summary 15 Fiscal  Year Levy Limit Final Tax Levy Reduction from  Levy Levy  Increase 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 155,996,513 155,031,239 965,274 8.04% FY20 *167,204,030 *The levy limit is only a cap and does not reflect what  will eventually be raised in property taxes in FY20.

Historical New Growth Review 16 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Millions *FY19 Projected $7.3M

Historical New Growth Review 17 $1.46 $1.76 $1.64 $2.51 $2.75 $3.87 $3.65 $1.99 $2.25 $1.69 $1.84 $1.65 $3.43 $3.65 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Millions Annual New Growth by Type: FY14‐FY18 Residential & Open Space Commercial, Industrial & Personal Property

Other Revenues & Excise Trends • Motor Vehicle: Annual variations but on target for FY19. • Hotel/Motel: New hotel in ASQ exceeding expectations.  Estimated revenue $100,000‐$150,000 over budget. • Meals Tax: Expected to exceed budget by $50,000. $604k $1.3M 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Millions Hotel/Motel Excise Revenue $1.1M $2.08M 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 • Ordinance Violations • Condominium Application Fees • Parking Fines • Permitting: • Electrical • Gas • Plumbing 19

FY19 Revenue: Building Permits 20 • Recap budget projection: • Revenue through Q3: • Anticipated Revenue before June 30th: • End‐of‐year projection: $5.5M $4.5M $1.0M* $5.5M *Based on current rate of small + larger untracked project revenue

FY20 Personal Services: Labor • Current Wage & Salary Stabilization Fund Balance: $3,289,885 • Current Salary Contingency balance :  $2,066,236 • Contracts settled during FY19 will be included in the FY20 appropriation. • SMEA B, IAFF, SPSOA. • Non‐Union salaries are adjusted based on merit using the performance  management program. • The following bargaining units are currently out of contract and subject  to budgeting in salary contingency & salary stabilization: 21 Bargaining Unit FY16 FY17 FY18 FY19 FY20 SPSOA – Superiors x x SPEA – Patrol x x x x x Local 76 – Fire x x Local 76 – Fire Alarm x x SMEA A x x x x SMEA D x x x x

Health Insurance & Pension • Health Insurance • GIC premium increases vary significantly by. Overall average FY20  premium increases for non‐Medicare plans is 3.6%. It is anticipated that  the health insurance appropriation will increase between $400,000 and  $600,000. • Pension • Current unfunded accrued liability: $131,058,655 • FY19 appropriation  will be $14.3M, a decrease of $90,923. • Full funding schedule ends in 2033 Type FY19 Active Plans Individual ‐ Active 817 Family ‐ Active 742 Retiree 1,272 Total 2,831 22

FY20 Projected Debt Service 23 • Debt costs growing with Capital Investments and the City  anticipates a healthy increase in FY2020. • General Fund Debt Service in FY2019 is $12,343,870. • City going to market in mid‐May with the assistance of First  Southwest Securities to finance a number of projects  including: • 100 Homes • Lincoln Park Renovations • SHS construction • Beacon Street Reconstruction • Winter Hill schoolyard • Cedar Street Repairs (via the Water & Sewer Enterprise Fund) • Final FY2020 appropriation will be determined based on  market results.

Long-Term Budget Management • Challenges • Cable TV & PEG Access • Kennedy School Pool • Legal Services • Union Square development • Opportunities • Administrative changes & reorganization • Recurring capital expenses in the operating budget • SomerVision 2040 24

Budget Next Steps • May 2nd: Public Hearing on School Department Budget • May 21st: School Board votes on school department budget • Week of May 27th: PDF version of budget document available.  • June 5th: Administration formally submits budget to BOA. • June 6th‐27th: Budget hearings scheduled. 25

Thank You City staff are on hand to answer any questions you may have 26