FY24 mid year presentation memo — File 24-0210

City of Somerville Katjana Ballantyne Mayor Finance Department  City Hall  93 Highland Avenue [phone removed]  ebean@somervillema.gov To: Honorable City Council From: Edward Bean, Finance Director Re: FY24 Mid-Year Financial Report per Ordinance 2022-07 Date: February 22, 2024 In accordance with Ordinance 2022-07, I am presenting a report on Mid-Year Fiscal Performance for FY2024. You will find attached to this communication the following: 1. Year to Date expense report for the General Fund by prime account 2. Year to Date expense report for the School General Fund by prime account 3. Year to Date General Fund Revenue by function with individual lines The FY2024 General Fund Budget Totals $339,823,952. The Budget includes all appropriations. The Budget includes inter-fund transfers. The Budget includes state assessments. The Budget includes excluded debt for the Somerville High School Construction. You will note that the General Fund is organized in two funds: City General Fund (Fund 001) - $239,156,915 School General Fund (Fund 003) - $100,667,037 1: General Fund Performance-Expenses (as of 1/31/2024) Total Budget YTD Expend Encumbered Available % Exp/Encumber 339,823,952 173,666,084 27,518,043 138,639,825 59.20% The January 31st Report Date constitutes 58.85% of the Fiscal Year. At this date, 51.10% of the budget was expended and 59.20% of the budget was expended and encumbered. At this stage of the fiscal year in 2023, 58.96% of the budget was expended and encumbered indicating that the pace this year is slightly ahead of the pace of the previous year. In FY2022, 58.75% of the budget was expended and encumbered by January 31st.

Page 2 Breaking the General Fund down into School and City, the results are as follows: City G.F. Budget YTD Expend Encumbered Available % Exp/Encumber 239,156,915 126,185,235 20,565,279 92,406,401 61.36% School G.F. Budget YTD Expend Encumbered Available % Exp/Encumber 100,667,037 47,480,849 6,952,764 46,233,424 54.07% We project an under expend in the General Fund appropriation if this pace continues, although, it is much too early in the fiscal year to accurately determine the amount. Several supplemental appropriations were approved prior to the setting of the tax rate in December 2023 to remediate potential deficits in operating accounts. Supplemental appropriations were made for the following purposes: Expenses related to the move of the Winter hill Community School to the Edgerly School; School Department IT network Expenditures; Lease payments for the Tufts Administration Building; Snow Removal Equipment; and additional Building Improvements money. We do not see projected deficits in any of the Personal Services accounts that cannot be remediated by internal transfers or under expended balances. We are watching closely Police & Fire Overtime Accounts. No department head has indicated a need to remediate a deficit in an Ordinary Maintenance account. Over a third of the fiscal year remains so the possibility may exist. In that event, unexpended balances or transfers within the operating budget will be the preferred route to close the deficits. The Snow Removal Account is the one General Fund Account that can legally run a deficit. However, it is poor financial practice to let it do so at year end. To date, DPW has expended $1,234,033 of the $1,715,688 FY2024 Snow Removal Budget or 72% of the budget. The DPW is allowed to encumber far more than the allocated budget to be prepared to bring in contractors when needed. This is not an indication of what the final expenses will be. 2: General Fund Performance – Revenues (as of 1/31/2024) The FY2024 General Fund Revenue Budget is 340,579,021. Revenue Budget Collected To Collect % Budget 340,579,021 223,291,580 117,384,864 65.56% General Fund Revenue is not received on an even straight-line basis throughout the fiscal year. On average, we collect proportionally more of the annual revenue in the second half of the fiscal year. Some state aid accounts are received monthly, others quarterly.

Page 3 At this stage of the fiscal year in 2024, 65.56% of the annual revenue budget has been collected. For comparison, below is listed the % of budgeted revenue collected at the end of January for prior fiscal years. FY2023 58.92% FY2022 71.24%. FY2021 67.16% The trend in recent fiscal years is to exceed the revenue budget. Collections at a higher % earlier in the fiscal year indicate that the revenue budget will be exceeded by year end. The chart below documents the performance to date in FY2024 by category. Revenue & Other Financing Sources Budget Collected % Budget Property Taxes 244,828,530 167,706,575 68.50% Excise Taxes 11,512,653 4,551,940 39.54% Penalties & Interest on Taxes 696,812 503,192 72.21% Payments in Lieu of Taxes 1,661,522 50,455 3.04% Sanitation Fees 76,879 65,802 85.59% Fees 1,850,773 1,273,317 68.80% Rentals 85,144 133,164 156.40% Other Department Revenue 100,000 20,298 20.30% Licenses & Permits 13,186,071 10,641,185 80.70% Fines & Forfeits 5,168,951 4,216,284 81.57% Investment Income 2,321,526 2,213,707 95.36% Miscellaneous Recurring 961,611 872,269 90.71% State Revenue 53,699,744 26,584,582 49.53% Other Financing Sources 4,458,805 4,458,805 100.00% Total Revenue & OFS 340,579,021 223,291,580 65.56%

Page 4 Some of the major revenue drivers are: FY24 Revenue – Building Permits • Recap budget projection: $8,500,000 • Revenue year-to-date: $7,892,038 • Variable revenue based on # of big-ticket projects in the pipeline. Budget conservatively to avoid long-term consequences on the General Fund. FY24 Revenue – Safety Review Fee • Tied to building permit revenues. • Recap budget projection: $680,000. • Revenue year-to-date: $516,818 -76% of budget • Should exceed budget. FY24 Revenue – Local Meals Excise • Recap budget projection: $2,717,637. • Revenue year-to-date: $1,376,253 -50.6% of budget • Two quarters of revenue • Third & Fourth Quarters Generally Stronger • Should exceed budget. FY24 Revenue – Local Room Excise • Budget projection: $2,425,853 • Revenue year-to-date: $1,922,113 • Two quarters of revenue • Should substantially exceed budget. FY24 Revenue –Investment Income • Recap budget projection: $2,321,526. • Revenue year-to-date: $2.213,707. • Rising Interest Rates Allow Fatter Return on Cash Instruments

Page 5 3. Anticipated levy limit for FY2025 The Chief Assessor is current estimating approximately $12M in new growth for FY2025. In determining what the potential property tax levy limit could be in FY2025, the following is a calculation guide. $238,122,572 FY2024 Property Tax Levy - Under the Levy Limit 341,368 PLUS FY2024 unused levy 238,463,940 EQUALS FY2024 Levy Limit 238,463,940 FY2024 Levy Limit +5,961,598 PLUS 2 ½ % +12,000,000 PLUS new growth 256,425,538 EQUALS FY2025 Levy Limit Based on these calculations, a potential $18,302,967 in new property tax revenue could be raised in FY2025. This is contingent on realizing the $12,000,000 in new growth. The Chief Assessor and his staff will continue to monitor conditions in the field and will refine projections throughout the Spring. 4: Amount of certified free cash remaining The Department of Revenue certified $32,813,163 in “Free Cash” on October 17th, 2023. The amount certified by DOR is based on the operational results of FY2023. Two appropriations have been approved since the certification: • An appropriation of $1,370,177 for legal services relating to the 90 Wahington Street Demonstration Project. • An appropriation of $13,620 to Parks & Recreation to pay invoices relating to the “Learn to Skate Program”. A third appropriation is currently pending: • An appropriation of $171,969 for lease payments relating to the Assembly Square Fire Station. Assuming the pending appropriation is approved, the amount of certified “free cash” remaining would be $31,257,397. As a non-recurring revenue source, DOR guidelines recommend that free cash should be restricted to paying one-time, non-recurring and unforeseen expenditures, funding capital projects, funding capital equipment, or replenishing other reserves. Supplementation of operating budget items with free cash should be minimal, if at all. The City has adopted guidelines for the expenditure of “Free Cash” in its Free Cash Fiscal Policy.

Page 6 5: Existing debt service schedule and projects to be borrowed in FY2024 Current projects are those for which the City has already borrowed and there is a determinate debt service. In FY2024, the debt service for these projects totaled 13,726,805. In FY2025, debt service for current projects will be 13,163,976. Active projects are those authorized by the Mayor and the City Council but have yet to be borrowed. The City plans on borrowing for these projects in May 2024. As such, the cost of debt service is not definitively known. The City estimates additional new debt service in the aggregate amount of $1,797,409 This is assuming a Long-Term Borrowing Rate of 4.00% and a Short-Term Rate of 3.25%. A listing of both Current and Active Projects is provided. DEBT SERVICE Capital Projects FY 2025 Current 13,163,976 Active 1,797,409 Grand Total 14,961,385,811 Capital Projects-Current FY 2025 Debt Service Current Long-Term Debt 13,163,976 90 Washington St - Demolition 204,000 ADA Improvements 81,389 ASQ DIF 1,508,495 Athletic Field Lighting 14,450 Beacon St Reconstruction 155,700 Buena Vista Garage Repairs 103,150 Building Renovations 186,880 Building Renovations - Fire Headquarters 5,125 Building Renovations - ISD 7,456 Building Repairs - Public Safety Building 50,581 Central Hill Campus Improvements 129,263 Central Hill Memorial Park 39,950 Citywide Bicycle & Pedestrian Upgrades 13,800 Community Path Design & Improvements 26,031 Conway Park - Environmental Remediation 96,700 Conway Park - Renovation 346,368 Davis Sq Interim Improvements 24,500 Departmental Equipment 62,475 Dickerman Park Renovations 16,331 Dilboy Stadium Improvements 121,998 DPW Equipment 71,500 DPW Equipment & Vehicles 65,400

Page 7 DPW Hybrid Trucks 37,800 DPW Salt Shed 17,825 DPW Snow Removal Equipment 72,200 DPW Trackless Vehicles 24,000 East Somerville Community School 474,808 Engine 6 Repairs 6,556 Field & Playground Improvements 70,150 Fire Apparatus 343,523 Fire Radio Boxes 42,000 Healey School Improvements 549,120 High School Design & Renovation 9,213 High School Roof Repair 13,613 Highland Ave Fire Station Renovation 7,000 Hodgkins Park 67,681 Kenney Park 45,300 Land Acquisition - 217 Somerville Ave 64,863 Land Acquisition - 45 College Ave 84,831 Land Acquisition - 90 Washington St 443,288 Land Acquisition - Alan St 90,243 Land Acquisition - Armory 294,425 LED Streetlight Conversion 281,250 Lincoln Park - Design & Engineering 32,150 Lincoln Park Renovation 876,450 Lincoln Park Schoolyard 299,586 Modular Fire Housing 44,425 Morse-Kelly Park Renovations 27,381 MSBA School 727,057 North St Playground Renovations 30,650 Outdoor Rec Facility - Albion 57,269 Outdoor Rec Facility - Grimmons 67,681 Park Construction 29,000 Powderhouse Building 29,580 Powderhouse Rd Traffic Signals 48,300 Retaining Wall 29,400 Road Reconstruction - East Broadway 59,600 Roof Replacement - Engine 7 8,100 Sacramento St Underpass Reconstruction 61,400 School & City Building Improvements 111,675 School Construction 47,220 School Renovations 610,353 School Renovations - SHS Auditorium, Kitchen, Cafeteria 182,575 School Renovations - SHS Room 143 7,906 Somerville Ave Streetscape DIF 581,500 Spring Hill Sewer Project - Streetscape 331,250 Streets, Sidewalks, & ADA Improvements 1,490,153

Page 8 Trum Field - Fieldhouse 156,000 USQ Streetscape & Utility Improvements 132,075 USQ Traffic Signals & Lighting 52,000 West Branch Library - Construction 509,413 West Branch Library - Design & Engineering 64,400 WHCS Field 29,450 WHCS Repairs 38,350 WHCS Schoolyard & Nunziato Field 20,400 Capital Projects-Active FY 2025 Debt Service (Estimated) Active Debt (Authorized) 1,797,409 Somerville Ave Utility & Streetscape Improvement DIF 409,920.00 Public Safety Building - Design and OPM 175,489.74 Public Safety Building - Construction Manager at Risk - Pre Const Phase 18,969.89 Building Improvement -FY22 154,984.67 Building Improvement -FY23 82,118.74 Union Square Plaza & Streetscape - Design (25%) 35,000.00 Spring Hill Sewer Improvement Streetscape Phase 1 328,285.02 Street Resurfacing, Sidewalk, ADA Ramp Improvements - FY17 40,112.65 Street Resurfacing, Sidewalk, ADA Ramp Improvements - FY19 53,964.66 Street Resurfacing, Sidewalk, ADA Ramp Improvements - FY20 157,181.34 Street Resurfacing, Sidewalk, ADA Ramp Improvements - FY22 149,560.99 Street Resurfacing, Sidewalk, ADA Ramp Improvements - FY23 226,725.95 Building Master Plan Initial Des & OPM 255,702.54 Davis Square Interim Streetscape Improvements 44,071.14 Clarendon Hill Infrastructure Improvements Project DIF 34,759.62 217 Somerville Ave - Design / Construction 40,481.07 Active Total 1,797,408 The estimated Somerville High School Debt Exclusion for FY2025 is as follows: Long Term Debt -Exclusion (Outside the Levy Limit) Principal Payments Interest Payments Total D/S Somerville High School Construction 2,930,000 3,398,899 6,328,899 Total 2,930,000 3,398,899 6,328,899

Page 9 6: Review of current city staffing trends and vacancies In the fiscal year 2024, the City has successfully filled 227 vacancies and processed 73 transfers. Currently there are 103 open vacancies. At the start of the fiscal year there were 169 vacancies. Despite challenges posed by the current job market, there are encouraging indicators. Notably, the City has achieved an average time from posting to offer acceptance of 101 days, significantly outperforming the NEOGOV average of 119 days for local government positions. A sample of some of the key positions we are currently focusing on filling are listed below, however there are critical vacancies in many departments. • Emergency Management Director - Executive • Deputy Director of Economic Development – OSPCD • Heavy Motor Equipment Operator/Laborer - DPW • Director of Veterans’ Services - HHS • Special Heavy Motor Equipment Operators/Catch Basin Cleaners – Water & Sewer • Working Foreman Plumber – DPW • Electrician - DPW • Recruitment and Retention Manager - HR • Chief of Police- Police Department • Project Manager - IAM Positions that were open for more than 150 days (but have now had offers accepted) include: • Housing Counsel – OSPCD – Housing • Water and Sewer Engineer – Water & Sewer • Residential Decarbonization Manager – OSE • Community Health Worker – HHS • Youth Equity Support – Creole • Recreation Laborer – Parks & Recreation 7: Any additional fiscal concerns It is far too early to accurately predict what our budget capacity will be for FY2025. Major components that feed into the budget such as anticipated revenue sources, new growth, debt service, health insurance expenses, state aid, etc. are not fully vetted out until late spring. We are studying a host of macro level concerns that will impact the FY2025 General Fund budget. • DECLINE IN NEW GROWTH -FY2024 saw a record level of “new growth” added to our tax base, a total of $17,763,972 spurred on by new commercial developments. But development has slowed due to high interest rates, inflationary pressures on construction costs, and difficulty in finding tenants for the new commercial space. These factors will affect commercial valuation. While commercial growth remains healthy, the Chief Assessor predicts new growth of about $12 million. Hence, the growth of overall property tax revenue will decline. The Assessors will be evaluating the trends throughout the Spring and will have updated numbers at budget time. • STATE AID – The Governor’s proposed Budget (House 1) was filed with the State Legislature. Half-way through the fiscal year, state tax revenues are coming in much lower than expected

Page 10 with estimates ranging as high as a $769 million deficit. The Governor proposed a 3% increase in the Unrestricted General Government Aid Account, which is higher than the 2% consensus forecast for state tax revenue growth that was announced in January. A 3% increase results in an additional $903, 635 for Somerville. Chapter 70 Education Aid increased by the minimum of $30 per student. That totals an additional $154,380. However, these increases are blunted by a budgetary decrease of $1,121,747 in Charter School Tuition Reimbursement money. Total estimated receipts for FY2025 on a budgetary basis are $31,817 less than FY2024. On the State Assessments side of the ledger, state assessments against the city decreased by $776,976. The net result measuring receipts against assessments is an increase of $745,159 in state aid compared to FY2024 Levels. That represents a 1.9% increase. The House and Senate budget plans are customarily released and debated in April and May. • HEALTH INSURANCE-GIC -The Group Insurance Commission reported that they are expecting an aggregate increase of 9.6% this year which will be anywhere from 8-11 percent per health insurance plan. The exact rate increases by plan will not be available until early March. As a matter of comparison, the average increase in FY2023 across all plans was 5.6%. Annual increases have been relatively modest since the city accreted to the GIC in 2012. A 9.6% increase would be the highest we have faced. Health insurance expenses constitute 10% of the annual General Fund Budget. • DEBT SERVICE –Interest rates have risen sharply over the past two years. Debt costs are growing with additional capital investments. Analysts are suggesting a softening of interest rates after the Federal Reserve Board meets in June. The City traditionally borrows in May to fund capital project deficits by June 30th. The city works closely with its Financial Advisor to survey the market. We can expect debt service to become a larger percentage of the operating budget as we borrow to remediate critical infrastructure needs. Debt service is currently 6% of the Operating Budget. The City’s AAA bond rating will help. • COLLECTIVE BARGAINING - The City is engaged in successor contract negotiations with several units. The HR Department is conducting a compensation study for both union and non- union positions. The impact on the FY2025 Budget for compensation is not known currently. We would expect a dramatic rise in funding the Salary Contingency. • ESSR & ARPA CLIFF- ESSR is the Elementary and Secondary School Emergency Relief Fund – part of the ARPA Act. School Districts have used this federal money to hire new staff and expanded supportive services. A question for the FY2025 Budget is to what extent will ESSR funded staff and programs be moved to the General Fund School Budget. A similar question arises for ARPA programming that may be assimilated into the City General Fund Budget. • TAB LEASE and WHCIS ONGOING WORK-A supplemental budget was appropriated to pay for a partial year lease with Tufts University effective September 1, 2024, for use of the Tufts Administration Building. A full annual lease payment will be budgeted in FY2025. Any additional monies required for renovation work in the Edgerly Education Center is a priority so that Winter Hill students can be properly housed at the Edgerly for the entire academic year. • MUNICIPAL EMPOWERMENT ACT – Governor Healey filed legislation designed to increase municipal flexibility and strengthen municipal finances. The bill would enable communities, at local option, to increase the local meals tax from 0.75% to 1% and increase the lodging tax from 6% to 7%. A new local-option vehicle excise tax surcharge of 5% would be available to all 351 municipalities. Should the legislation pass, and should Somerville adopt all three options, I estimate an additional $1.6 million could be raised based on current budgetary estimates.