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Jun 11

From the Town Administrator's Desk - June 7, 2018

Posted on June 11, 2018 at 10:11 AM by Elizabeth Dukes

By Gregory Federspiel

With the efforts advancing to propose a new Memorial School, I thought it would be helpful to provide an overview of our capital needs and funding strategies.  Paying for the long list of capital needs we have identified and having funds available for the inevitable surprises that will come our way in the future are two of the biggest challenges we face as a community. 

We have roughly $100 million worth of capital assets in total when you consider roads, buildings (including our portion of the schools), pipes, seawalls, etc.  Assuming most assets have a useful life of about 30 years, we should be spending about $3 million a year to maintain what we currently have.  At April’s Annual Town Meeting, voters approved $1.8 million in capital projects on a cash or “pay as you go” basis utilizing general fund revenues and utility fees.  We have been slowly growing this amount over the last few years and plan to continue to do so over the next few years to reach $2.0 million.  While a healthy sum, this falls short of maintaining our current assets.

To augment this strategy we have recently begun to replace debt exclusions with annual capital exclusions as old debt is retired.  Three years ago our annual town debt payments totaled some $1.9 million.  In FY18 (the current fiscal year) this dropped to $1.6 million and voters approved a $300,000 capital exclusion to fund the purchase of the streetlights and converting them to LEDs which will save us tens of thousands in annual operating costs.  For FY19, debt payments will drop to $1.5 million and voters approved a $400,000 capital exclusion to help fund the reconstruction of the troubled Central Street dam and culvert.  In each of the three years the total raised through Proposition 2 ½ exclusions for the Town came to $1.9 million.  Looking ahead, in four years town debt payments will drop to about $1.0 million giving us the possibility of paying for needed capital projects with $900,000 in annual capital exclusions without increasing the amount of excluded taxation (an important improvement over the past 25 years.) 

Combining the two cash based strategies provides us the nearly $3 million in annual capital expenditures we need.  This amount is sufficient to do the non-school projects we anticipate over the course of the next fifteen years.  We may actually do less in one year and more in another as we save up cash to do larger projects.  But this pay as you go strategy will mean we avoid interest payments and can direct 100% of our funds toward needed infrastructure repairs/replacements, a strong position to be in.

A similar strategy does not work for the schools given the magnitude of each school project and the timing.  The middle high school bonds were approved by voters as new excluded debt that started back in 2004.  These bonds will not be payed off completely until 2034.  Our share of the payments are declining yearly by some $30,000 or so with larger drops coming in 2024 and 2031.  The cost of the new Memorial School project is likely to be similar in size to the middle high school.  And for planning purposes, we can anticipate a third similarly sized bond for the needed improvements to the Essex Elementary School by the early 2030’s if not before. 

We will need to look to other strategies to help shoulder the costs of the elementary school projects as well as major maintenance projects at the middle high school.  Besides higher debt exclusion votes, other strategies might include growing our commercial tax base – particularly in the Limited Commercial District which received favorable review during the master planning process recently conducted – freeing up operating funds through more efficient operations, including possibly shared services with our neighboring municipalities, being less conservative in our estimation of local receipts (excise taxes, permit fees, etc.), waiting until more debt is retired (early 2030’s) and redirecting funds currently used to pay down our pension and OPEB liabilities, which should be fully funded by the early 2030’s as well. 

How best to approach our infrastructure needs while not over-burdening tax payers poses real challenges.  With the Memorial School project proposal coming before voters in the fall, debates on how best to meet these challenges will be front and center.