Our Annual Town Meeting, where voters will decide on next year’s municipal budgets, has been delayed until June 21. None-the-less, we are seeing an uptick in discussions about town finances. There are certainly many aspects of a town’s budget. In the end it is the choices voters make that determine how much in taxes is collected and what services these dollars provide.
By many indicators, the Town is on sound financial footing. We enjoy a Triple A rating from the bond agencies. We have a very healthy raining day fund, and we are on track to fully fund our retiree liabilities (pensions and health insurance obligations.) We have increased spending on capital improvements as we reinvest in our infrastructure that has suffered from years of deferred maintenance. Grant funds, totaling over $6 million dollars in the last 6 years, has been a helpful assist in our capital improvements. Our tax base is stable with modest new growth annually.
Town and School services are at high level, often above that of comparable communities. Staffing levels are stable with the exception our call fire fighter force which has shrunk precipitously. Our multi-year projections indicate that operating costs exclusive of schools can be accommodated with annual tax increases no higher than 2.5% annually. For the current year we got by with a 0% tax increase (mainly by scaling back capital projects in light of COVID) and the target for next year is for a tax increase of 1.5%.
The accomplishments noted above have been accompanied by relatively high tax increases over the past 15 years driven in large part by borrowing for capital projects, including two school projects, and three operating override votes (two for the School District and one for the Town.) School District operating costs are projected to grow faster than other expenses and are a challenge to accommodate within the limits of Proposition 2 ½ year over year. The cost of a third school project is likely to be before us in the not-too-distant future. Longer term we face the need for major upgrades to town facilities and the challenges that rising seas and more damaging storms present.
Our increased capital spending, made possible by a combination of allocating more general fund dollars and utilizing annual capital exclusion votes that track the decrease in annual bond payments, tops $3 million a year. Roads, sidewalks, drainage, replacement vehicles and new water and sewer pipes make up the bulk of these investments. Our cash approach to capital improvements is working well for improvements that are below a few million in total costs (we sometimes set aside dollars over a few years to afford a particular project.)
However, larger capital improvement projects will require us to borrow funds. If we want to borrow without the need for new, large debt exclusion votes that increase the tax rate, then we will need an expanded tax base. This has been part of the rationale for exploring new zoning to allow greater options for new development in the Limited Commercial District which lies to the north of Route 128. A focus on commercial development in this area in town could generate between $2-$3 million in new tax revenue. Assuming $2 million becomes available for capital debt service and combining this new revenue with redirected funds once our retiree liabilities are fully funded in another 12 or so years, would mean some $4 million in annual debt service could become available. This translates to some $70 million in funding for large capital needs.
What are these needs in the next 15 years or so? The possible list includes major rebuilding/flood proofing of the sewer plant ($15 million), a new DPW facility ($14 million), seawall and other adaptation measures to rising seas ($15 million), a new Public Safety facility ($18 million) and Library expansion ($8 million). A new senior center should be possible through use of our reserves and private donations. With luck we can time the new elementary school in Essex with the retirement of the Middle/High School debt. Decisions to move forward with these projects and determining the actual costs are years away but this gives a flavor of the large capital projects we will likely need to tackle.
The Town is in relatively good financial shape and can meet most of its operating needs with modest annual tax increases. School operating expenses pose a bigger challenge but if the District can live within an annual increase of 3 to 3.5% then, again, we are in a pretty good position. Capital investments aimed at maintaining what we have are also doable within our current revenues. The biggest challenge we face is funding large capital projects in the 10 year time horizon. Of course, there are always “wild cards” that throw off the best of plans – a major hurricane that hits us for example! Whether we want to start laying the groundwork for increasing our commercial tax base for these future needs or rely on current taxpayers to shoulder more debt is a question that will be debated in the coming months as we look at possible amendments to our zoning regulations.