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Posted on March 14, 2019 at 9:08 AM by Elizabeth Dukes
FROM THE TOWN ADMINISTRATOR’S DESK
As outlined last week, most of the articles at the April 1st Annual Town Meeting deal with budgets. Most of the proposed expenditures are increased between 0.5% and 2.5% with a few exceptions on either end. The Town’s operating budget is proposed to increase 2.36% and the Town’s share of the School operating budget is proposed to increase 2.76%. Capital expenditures for FY2020 are a bit more complicated and warrant more detailed explanations.
Voters approved the new elementary school last fall and agreed to a new debt exclusion to pay for the project. This means that the higher taxes needed to service the new bonds can be above and beyond the 2.5% maximum property increase Proposition 2 ½ imposes. Most of the bonds have been secured for the project which is scheduled to get underway this summer. Thus the new annual debt service payments begin in the upcoming fiscal year and Manchester’s share of this comes to $1.6 million. This will require a tax increase of 6% though we may be able to lower this impact by utilizing a less conservative local receipt estimate. The good news here is that the interest rate on the bonds came in at a low 3.29% instead of the 5% figure assumed during the run-up to the school votes. This lower interest rate will save Manchester some $12 million in interest payments over the life of the 30 year bond compared to the original projections.
Town capital expenses are also increasing significantly for FY20 but because the increased spending relies primarily on town cash reserves, this increase will not cause taxes to increase. The large increase is primarily due to accelerating our plans to improve the town’s water system. The water pipes in the eastern section of Town, from Magnolia Avenue to the Gloucester city line, are very old, undersized and are heavily constricted with mineral deposits that have accumulated on the inside of the pipes for over 100 years.
By tapping into our Fund Balance (cash reserves which have accumulated above our target amount of 10-12% of total expenditures) as well as retained earnings in our enterprise funds, we are proposing to spend $1.23 million this summer and fall on water line replacement projects on Magnolia Avenue, Ocean Street and Raymond Street. If funds allow, additional pipes in these neighborhoods will be relined. A second phase of similar magnitude is also anticipated for FY21.
This puts the proposed capital expenditures at a total of $4.4 million. This is higher than the annual target of $3.0 million but this is a temporary boost in order to respond to the water issues we have. The long range plan calls for spending roughly $3 million annually for the next 15 years on a pay as we go basis (no new borrowing.) We are able to achieve this level by having voters approve new annual capital exclusions in place of debt exclusions as we continue to retire town debt. The capital exclusion request for FY20 is for $550,000 as we have retired more than this in annual Town debt payments. This approach maintains total non-school exclusions at a near constant level. $3 million over a 15 year period results in a $45 million investment in the Town’s infrastructure – a healthy amount that will allow us to make good progress on all the needs we have.
By the early 2030’s we will have retired all non-school debt and we will have fully funded our retiree liabilities (assuming normal market returns on investments.) We also will have paid off the middle high school debt by 2034. Thus we will be in a good position to issue new bonds for larger projects at this time and/or increase our annual pay as we go approach for our capital needs (which could grow even more depending on the extent of sea level rise and worsening storms.)
Putting together an aggressive yet financially manageable capital improvement plan together has been a priority over the last several years. The proposals for the upcoming Annual Town Meeting continue to advance this plan, with an acceleration of water improvements.