Committee Report - Finance - 6-16-20 — File 210340

Finance Committee Page 1 of 8 Printed 6/25/2020 June 16, 2020 REPORT OF THE FINANCE COMMITTEE Attendee Name Title Status Arrived Jefferson Thomas ("J.T.") Scott Chair Present Katjana Ballantyne Vice Chair Present William A. White Jr. City Councilor At Large Present Mary Jo Rossetti City Councilor at Large Present Wilfred N. Mbah City Councilor at Large Present Others present: Annie Connor-Mayor’s Office, Rich Raiche-Infrastructure & Asset Management, Alex Lessin-Water & Sewer, Mike Mastrobuoni- SomerStat, Alan Inacio-OSPCD, John DeLuca-Water & Sewer, Suzanne Rinfret-Traffic and Parking, Cindy Hickey-COA, Michael Richards-Purchasing and Balkys Sicard-DPW The meeting was held virtually and was called to order at 6:01 p.m. by Chairperson Scott and adjourned at 8:55 p.m. Approval of the June 1, 2020 Minutes RESULT: ACCEPTED Approval of the June 4, 2020 Minutes Delete paragraph 3, starting with words “Councilor Ballantyne” and replace that paragraph with the below paragraph: "Councilor Ballantyne expressed concerns about residents impacted by the rate increases and wanted an updated discussion about Water&Sewer Owner exemption for owner occupied properties. At the last discussion on March 12, 2020 the argument posed by the Adminstration's in a March 12, 2020 memo, "ACS data indicates that all severely cost-burdened renter households in Somerville have incomes less than $75,000 and 90% of those have incomes less than $50,000." Clr. Ballantyne went on to say that these residents were already exempted from paying water and sewer charges, because they lived in public housing or older affordable housing complexes. The administration still had not come back to respond to Clr. Niedergang's requests. There was no action given that the Administration should stop pursuing Owner Occupied exemptions. Councilor Ballantyne went on to say that there are about 10,000 seniors

Finance Committee Page 2 of 8 Printed 6/25/2020 in Somerville and a significant portion of these residents about 9000 live in their homes per City data, and are on fixed income. Also that Massachusetts seniors have the highest cost of living burden in the country. We need to revisit the topic of providing residential water & sewer exemption for owner occupied residents." RESULT: ACCEPTED AS AMENDED Approval of the June 10, 2020 Minutes RESULT: ACCEPTED 201740: Proposing an ordinance relative to a mid-fiscal year report of municipal finances, with next-fiscal year budget projections. 209789: That this Council's Committee on Finance discuss the peoples' budget and priorities for FY21. The chair asked the committee their thoughts on the schedule and which departments to give priorities. Councilor Rossetti requested the vacancy report for the entire city before the finance committee meets to review the budget. Councilor Ballantyne states this is a transition year and some departments could be very quick. Councilor White stated in the past each department comes before the committee with what they plan to do and their performances which could take 20 to 25 minutes per dept. It was stated that much of budget will be level funded, the only question would be Ordinary Maintenance increases. A question was asked if it would make sense for everyone to give a presentation on their performance and what they expect in the future. Chair Scott was not anticipating doing the standard presentation and to keep the narrative very short. Councilor Mbah would defers to the chair discretion, but not sure if the budget will be 1 month or 12-month budget. He was pleased to hear there are no layoffs unlike some of the other communities. Councilor Rossetti stated she needs to hear from each department head. Mr. Bean had already met with departments for a potential reduction of 20% then had to meet again for about 25% reduction. Councilor Rossetti would like to hear about the impact on the community from the department heads or maybe in a memo. Mr. Bean stated there are no percentage cuts to each dept, but suggested on the revenue side to be conservative to be 25%, the revenue loss is deeper than that. Mr. Bean stated the state has yet to release new revenue figures and believes it will be a 1/12 budget. The dept have been asked to start with level service like travel and start reducing some line items. Councilor Ballantyne stated in preparation for FY21 budget, had put in orders asking for projections for revenue 10 years out, budget 10 years out, all CIP combined. She said that Mr. Bean said this will also affect the city in FY22. Councilor Ballantyne when will the committee have the long-range projections. Mr. Bean stated there is tremendous uncertainty and trying to reach some stability. Don’t know how revenue will come in on hotel/motel and are estimates.

Finance Committee Page 3 of 8 Printed 6/25/2020 He also stated it’s impossible to predict until end of year. Mr. Bean stated FY22 will need to have monies put aside and look at revolving some of free cash. Councilor Ballantyne talked about internal tool on cashflow projections, 5 year projections will help to make decisions. She stated the need for updates in written form to track changes for the committee to make decisions and requested updates by Friday night. Mr. Bean states it’s very difficult not knowing where the base revenue will be and not knowing the variables. He also stated the interest rates had a very good sale in May 2.87%, long term borrowing, cannot update with any certainty. Councilor Ballantyne stated she is still frustrated, asking for reports on projections. Reports are important for the planning, per Councilor Ballantyne. Councilor Rossetti stated the committee needs to consider the rate increase. The projected revenue is the result of the proposed rate increase. Councilor Rossetti wants to see the vacancy report for the entire city before voting on the budget. The chair will update Monday’s agenda to include water and sewer to the agenda. Councilor Rossetti asked Mr. Bean if the city is getting a 12-month budget. Mr. Bean stated that if there are no resolution by June 30, then the Mayor will put through a 1/12 budget. The chair stated the budget should be prepared to be submitted on June 30th. Chair suggested to take a vote on Monday night for a continued appropriation budget for 1/12-month budget. Mr. Bean stated work is underway with departments relating to salaries and other critical services. Councilor White had a question about 1/12 budget, continued appropriation to cover all salaries. Mr. Bean stated the school department, Ordinary Maintenance would have to continue on like electricity, gas, any ongoing contracts, principals and interest payments would be budgeted. Mr. Mastrobuoni mentioned that there will be departments that will want to have a conversation during the budget hearing. He wants to make sure process is smooth for a transparency stand point and when people are available, especially with people working from home. Also, in terms of presentation, departments not preparing accomplishments due to limited time. Chair Scott suggested for department reviews on Monday & Tuesday, with the police department review on Monday, 6/29. RESULT: KEPT IN COMMITTEE 210297: Requesting the appropriation of $699,725 from the Water Enterprise Fund Retained Earnings Account to subsidize the FY21 Water Enterprise Fund Budget. Items 210296 and 210297 were discussed together. The Chair invited Mastrobuoni to walk the committee through the new Splash page. There are no printed books this year with a series of links. The first is the index page has links to all sections to the budget. Active are the revolving funds. Can click into individual pages. The public can view somervillema.gov/fy21budget for the budget. Budget hearing schedule along with archives for FY18, 19 and 20, uploaded Professional &Technical for FY21. On each individual page is water and sewer with a mission statement and what’s different from last year’s budget. Following is a table that will show individual line items for Ordinary Maintenance and Personal Services. This mirrors open.gov transparency portal. Councilor Ballantyne asked Mr. Mastrobuoni how we will see new positions on the page and will it be noted as new position. Mr. Mastrobuoni stated if there are new positions, it will be in

Finance Committee Page 4 of 8 Printed 6/25/2020 the column in the position title row noted as new. Positions removed or moved to another department will have narrative at the top of the Personal Services section. Chair Scott asked about a position that appeared to be new but is not as explained by Mr. DeLuca. It was stated that positions are not in the same order as previously and not easy to follow along. Previous years budgets were created manually, these tables are in a large spreadsheet. Mr. Mastrobuoni ordered the positions by total compensation from top to bottom. This was previously sorted by salary and by divisions of labor. Councilor Ballantyne had a question about the Splash page on the position drop down screen, parks & recreation if new can be added as a dropdown option. Mr. Mastrobuoni stated there are only three new positions this year and he will call them out. Councilor Ballantyne would like to tag positions as new to make it easier to identify positions and retrieve data in the future. The chair also suggested a way to note vacant positions, as well. Mr. Mastrobuoni welcomed any suggestions from the committee on the splash page. Councilor Rossetti asked Mr. DeLuca a question about Mr. Longhorn and when he went to DPW which is in water and sewer budget. Mr. DeLuca stated he went to DPW the first of the year or a little earlier per Mr. DeLuca. The position remains vacant because the decision was made to have him in DPW permanently and then COVID hit. Councilor Rossetti reminded the administration for an updated monthly vacancy report and she is still waiting for the report which would help make decisions. She also stated that the were materials were sent to the committee a few hours prior to meeting and Councilor Rossetti may not be able to comment on the budget. Councilor Rossetti was told by several members of the administration that they were working on the vacancy report but she still has not received it. Chair Scott asked when the public hearing closed for water and sewer which closed at 6 p.m. tonight. It was stated that only one email was received from the public and testimony from the Chair at the hearing. Councilor Mbah asked how much free cash as the department generated. Mr. DeLuca states there are water retained earnings of $1.4M, sewer retained earnings of $2.1M and joint stabilization fund for both water and sewer $11.4M. Ms. Connor commented on the timing of the emails received today. Understands about many having day jobs, everyone worked to get the information to the committee as soon as possible. Councilor Ballantyne asked for the Munis sheet that is on the city’s website for FY21. She asked going forward, where the committee can expect to find the Munis data report. Mr. Mastrobuoni will update the reports on somervillema.gov/fy21budget pages. Councilor Ballantyne requested the information sent to the committee at least 2 days prior to the meeting. Mr. Mastrobuoni stated the data online is update as much as possible, every couple of days for that night’s discussion. Councilor Ballantyne asked how will the committee find out if a report has been amended and asked for a separate email with the amendments. Mr. Mastrobuoni said that what has worked

Finance Committee Page 5 of 8 Printed 6/25/2020 previously is that information is updated to the budget hearing drive. Councilor Ballantyne asked if the information that has been changed is highlighted to make it easier to see the changes. Councilor White asked if Mr. Mastrobuoni could put in an asterisk to make a connection between the table and written detail to make it less time consuming and easier to read the tables. Chair Scott commented on the final tab, enterprise water line item, all expenses are categorized as PS & OM, special items and capital include OM lines. Mr. Mastrobuoni stated all Open.gov is able to show individual lines, not able to show lines broken down in the same way as the summary. Chair Scott reminded that some members of the finance committee would like paper copies which Mr. Mastrobuoni will deliver Friday morning. Mr. Mastrobuoni will send an email to the finance committee and other members who may want hardcopies of the FY21 budget. Mr. Lessin stated the water enterprise retained earnings balance for FY19 was $1,399,069. The delta between the Retained Earnings balance at the end of FY18 and the end of FY19 was $1,287,84. Projected operating deficit for FY20 is approximately $500,000. This projection is based on several factors, including emergency spending at year end and how much revenue the department ultimately collects by the end of the fiscal year. At the end of FY18, the Retained Earnings balance for water was $2.6M ($2,686,918). Retained earning balances have to be certified every year by Department Of Revenue. The water retained earnings balance at the end of FY19 ($1,399,069) was certified in October of 2019. The retained earnings balance at the end of FY18 ($2,686,918) was certified in October of 2018. Again, certified retained earning balance for FY19 was $1.3M. With the projected deficit for FY20, the projected retained earnings balance that would be certified in October 2020 would be $900,000. Mr. Lessin stated the projected sewer operating deficit for FY20 will be approximately $700k ($629,000). End of fy18 certified retained earnings balance was $2.8M ($2,893,365), end of FY19 recertified retained earnings $2,191,488. Projected retained earnings balance at end of this year will be approximately $1.5M, (assuming the projected $629k operating deficit). Total reserve balance in the Water/Sewer Stabilization Fund is $11.4M which is shared between water and sewer. If either enterprise fund runs out, then that enterprise fund would have to draw from the Water/Sewer Stabilization fund. This time last year, transferred $666,000 from water retained earnings balance into stabilization fund. Mr. Lessin will double check transfer and get back to the finance committee. Mr. Lessin sent an email confirming appropriation of $660,847 of certified retained earnings to stabilization fund was approved at end of FY19. On the water side at this time last year, we budgeted a use of $1,391,805 in retained earnings to meet budget requirements. I am now projecting a deficit of $500,000, but again this is dependent on several factors, including emergency spending and revenue collected. Mr. Lessin will check the number, Chair Scott asked for the actual status, and potential impact. Mr. Lessin provided in an email the actual status of the retained earnings balance will not be known until after June 30, 2020. It is dependent on several factors, including emergency spending and revenue collected.

Finance Committee Page 6 of 8 Printed 6/25/2020 Mr. DeLuca stated the stabilization fund is also used for any large catastrophes that happen to the system. Councilor White asked about retained earnings for $1.4M to fund FY20 budget, 400K Councilor White asked if Mr. Lessin keep a running tally on earnings. Councilor White asked what is the deficit at the end of FY20, Mr. Lessin has a projection but it will be changed based any emergencies in the coming weeks. Mr. Lessin stated the FY16 rate study called for a new revenue source. Councilor White asked Mr. Lessin how many years has the city hit the retained earnings. This year projected $1.4M in retained earnings. Councilor Ballantyne stated last year were told that had capital stabilization had $10M shifted over $660,000 to capitalization from retained earnings, constituents struggle with real estate and water as one. Councilor Ballantyne stated that constituents look at water & sewer and real estate taxes as one. Councilor Mbah asked on average how much does the tax payer pay for water and sewer which was presented earlier this month in the rate presentation on June 4th. Chair Scott stated projecting $900,000 earnings, projected use of $700,000. Mr. Lessin will work the numbers and will answer Councilor Mbah’s questions of what does $200k do for the community overall, which could be as much as $5 or $10 per bill. Mr. Lessin will report back to the committee. Councilor Ballantyne asked if Mr. Raiche had any comments on the work that was done. Mr. Raiche gave an update on how the water department did, less than drawn down on retained earnings, the big dollar construction project, do fund planning & design, spend rate was slightly lower than anticipated. Mr. Raiche stated that architectural services purchase orders will roll over and will spend money in FY21 against FY20 budget. He also stated that last year had a number of presentations, liability and plan changes to avoid, the sewer is a lot more complex and will a lot longer before can give an update. More planning to do for CIP. In round numbers have a liability of ½ billion dollars. ½ billion liability, with less than 50 years to address liability, the capital spend needs to be around $10M, at a minimum. Capital spend right now is $6.5M and need to be increase. Extremely important to have retained earning and transfer into stabilization fund. Important to have a robust retaining cash for emergency situations. Councilor Ballantyne appreciated the way the information was presented to the committee which was very different than 6 years ago. She also came back to the Residential exemption and does not want to take this off the table. Councilor Ballantyne stated she will not be able to decide tonight because how the information was distributed was very different and wanted to identify the positive changes in the departments. Councilor White discussed the Proposition 2 ½ that will affect the homeowners. He also stated the Home Rule Petition which was approved by BOA and Mayor and will not be honored. This route would have provided more for retained earnings and take some burden off of the homeowners, if the residential exemption was in place. He suggested using more retained earnings.

Finance Committee Page 7 of 8 Printed 6/25/2020 RESULT: KEPT IN COMMITTEE 210296: Requesting the appropriation of $15,914,535 to fund the FY21 Water Enterprise Fund Budget. Items 210296 and 210297 were discussed together. RESULT: KEPT IN COMMITTEE 210295: Requesting an appropriation of $26,004,509 to fund the FY21 Sewer Enterprise Fund Budget. Mr. Lessin spoke to the changes with a small decrease in the sewer enterprise budget of 6% a reduction in MWRA for the treatment of wastewater supply. Capital outlay account $1M due to expenditures for Sanitary Sewer Evaluation Survey shifting costs away from pay-as-you-go to borrowing. This was part of CIP already; any future requests would go before the council. Mr. Raiche stated this had already been bonded. Mr. Lessin stated there is only one new position for the storm water coordinator fully funded out the sewer enterprise fund and managed by the engineering department. Chair Scott stated a decreased in special items and one new position for a total of $90,692. Councilor White asked about EPA dealing with storm water separation and if there is anything in this year’s budget to address the issue. Mr. Raiche have ongoing commitments received from EPA with regulatory drivers which is why asking for new position of stormwater coordinator. It was stated that over $1.96M are for projects and consulting fees in achieving regulatory drivers. It’s very important to proceed with timelines, EPA definition of affordability Chair Scott stated the budget for FY21 to use all $2.2M of retained earnings used close to $700k. He stated given the department and administration disregard the Home Rule Petition, it would be useful to know how much mitigation would be achieved in the rate if hit the retained earnings. Mr. Lessin will give the answer to this question the next time the finance committee meetings. Councilor Ballantyne asked about EPA and decree asked for explanation. Assumed That the city of Somerville is not the only to repair the infrastructure. In the discussion with EPA, what kind of grade level would EPA give the city? Mr. Raiche there are a number of different statutes and regulatory requirements. Immediate time table has to with quality water coming out stormwater system to alewife and the Mystic. First report due the end of this year. Were on target before COVID hit now a little behind with some of the milestones. Overall dollar liability and infrastructure investment, larger side is on combined sewer. Still do not have a good picture. Have to coordinate with MWRA in Cambridge. Do not have anything to give to DEP because there is still a lot of planning to do. The Chair asked Mr. Lessin how much time he would need to run retained earnings and if it will be ready for Thursday. RESULT: KEPT IN COMMITTEE 210278: Requesting the approval of FY21 expenditure limitations for departmental Revolving Funds.

Finance Committee Page 8 of 8 Printed 6/25/2020 Chair Scott highlighted the difference between the FY20 funds and FY21 to accommodate the program mid-year program, community garden increased, new line for Kibble kitchen, special events fund for DPW with a decrease from $20,000 down to $10,000. Chair Scott asked why is DPW decreased and it’s due to running less road races in the summer and fall due to COVID per Ms. Sicard. RESULT: APPROVED Handouts: • FY20-FY21 IAM Eng Arch Budget Eval 2020Jun11 (with 209789) • YTD Water-Sewer thru 6.15.20 (with 209789, 210295, 210296, 210297)