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Oct 06

From the Town Administrator's Desk - September 29, 2023

Posted on October 6, 2023 at 2:11 PM by Tiffany Marletta

September 29, 2023
The Town’s Financial Overview
By Gregory T. Federspiel

While few people are thinking about proposed new town and school budgets for next year, efforts are getting underway to prepare the budgets that voters will ultimately need to approve at next April’s Annual Town Meeting. Last week the Select Boards and Finance Committees from both Essex and Manchester got together with the School Committee to share early insights into the prospects and challenges for the Fiscal Year 2025 budgets and beyond.

Manchester enjoys a relatively strong financial position currently, but significant challenges lie ahead, especially regarding the need to reinvest in critical infrastructure and facility needs. These needs are compounded by the impacts of climate change. The Town continues to retain its AAA bond rating and has healthy reserves that have been stable. Most of our non-school-related debt has been retired as we have been paying cash for our capital needs lately. For the past six years our Annual Comprehensive Financial Report has been awarded the GFOA’s Certificate of Excellence in Financial Reporting.

The Town has been adhering to a set of guiding principles and policies that shape our fiscal stance. Reserves have been targeted at 10% of total expenditures. The FinCom recently recommended lowering this to 8%. Use of reserves are limited to emergency expenses or one-time capital outlays. Town operating expenses are not to increase more than 2.5% on average. Total debt is not to exceed 10% of expenditures. Retiree liabilities (pension and OPEB) are to be fully funded over the next 10 years. Current services are to be maintained; any new or enhanced services should be paid for through enhanced efficiencies.

We have built up some excess levy capacity in recent years. This happens when taxes increase less than 2.5%. Budgets were not increased at the early stages of COVID fearing a deep recession. With school enrollment patterns shifting towards Essex for now we have seen a lower than usual increase to our school apportionment allowing us to keep tax increase below 2.5%

Regarding an early look at Manchester’s FY25 budget:

ESTIMATED NEW REVENUES:                                                        ESTIMATED NEW EXPENSES:

A 2.5% tax increase generates $720K                                               Schools at 3.5%  $560K

New Growth generates another $210K                                              Town Salaries @3% $235K

Enterprise Fund Revenues growth $ 90K                                          Town Op. Expenses @ 1.2% $ 50K

Increased State and Local Receipts $ 75K                                        Health Insurance @ 8% $120K

                                                                                                           Pension/OPEB @ 8% $130K

TOTAL NEW REVENUE $1095K                                                      TOTAL NEW EXPENSES $1095K

The biggest challenge for Manchester is the need to reinvest in facilities and the on-going need for infrastructure improvements. We are finalizing a new facility master plan which is identifying some $100 million in new facility needs over the next ten-fifteen years, excluding the need for a new elementary school in Essex. New DPW facilities, a possible new public safety complex, renovated Town Hall, upgrades to the sewer plant and dealing with the new filtering required to remove PFAS from our

drinking water are some of the more critical needs. And looking beyond ten years, seawalls, elevated roadways, and enlarged culverts, etc. will all be needed in the face of a changing climate and rising seas. Taxpayers will not be able to afford the bond payments for all these needs thus hard choices will have to be made.

Each million borrowed will cost the Town roughly $80,000 a year in principal and interest payments. In a few years each percentage point tax increase will generate about $300,000. Thus, $25,000,000 borrowed adds $2.0 million in annual expenses requiring a 6.7 percentage point increases in taxation.

Helping the situation will be new property taxes from the CST project and freeing up funds once our retiree liabilities are fully funded. Combined this could represent some $3 million in available funds for new bonds – about a third of the need. The high school debt is retired as well in about 10 years. How we pace ourselves and what choices we make will have a big impact on future tax hikes.

Bottom line: While the current financial condition of the Town is relatively strong there are significant challenges ahead. I believe we will need a combination of new service delivery models (think shared services amongst municipalities) successful overrides and debt exclusion votes, continued success with grant funds, an expanded tax base, and patience before we can fully address all the needs that are looming.