Wayland eNews

The role and mission of the Finance Committee
The budget process
The town's financial situation
The main drivers of the revenue shortfalls and expense increases
Regulatory and union impact on the budget
Efforts to mitigate the shortfall (Ad Hoc Budget Committee and long term planning) and
Context for Wayland's situation in regards to other towns.

It was an informative session with much detail and time for Questions and Answers. The slides presented are available here. Questions to the Finance Committee can be sent c/o Mike Dipietro, Town Finance Director.

The presentation began with introductions of the members of the FinCom and each person spoke about their background. The members of the committee (Chris Riley (chair), Charles D'Ambrosio, Bob Lentz, Cherry Karlson (vice chair), Sam Peper, Richard Stack, Karl Geiger) bring a wide range of experience to bear on Wayland's financial concerns. Their experience ranges from procurement to commercial lending to CFO for major companies. In addition, many have spent years working on projects and committees for our town.

There are two areas worth summarizing that were not captured in the written presentation:

Summary of factors that have contributed to Wayland's financial problems (the same factors all suburban towns in MA are facing)
The goals and objectives of the FY 2008-2010 Financial Stability Plan that is currently being developed.

Factors Contributing to Wayland's Financial Problem

Decrease in State Aid - in 2003, Wayland received $5.2 million. In 2004, Wayland received $4.2 million. Despite the current financial strength of Massachusetts, state aid has stayed level funded since 2004 and there doesn't seem to be much prospect of reinstating it in suburban towns. Had this funding stayed at the $5.2 million level, the town might actually be in a surplus and adding to the reserves that it has had to deplete over the last few years. Why is this so? Urban legislators dominate the state house, while wealthy suburban communities don't hold much sway.
Health care has increased 22% each year for the last 5 years. From FY 2004 - FY 2007, Health Care costs have increased $6 million
In 2002/03 the State house legislated that teachers could retire early. New teachers were hired to replace them. The town then has to pay for both the new employee's Health Care and the retirees. Since then, Wayland has had approximately fifty teachers retire for a total cost of $500,000 over the first three years of their retirement.
With cutbacks on Health Care at other places of employment, Wayland's Health Care package has become more attractive to employee's families. Whereas in the past, the town would primarily cover the employee, in the last two years, 22 families of employees have been added to the Health Care rolls for a cost of $250,000/year.
Basic costs of Health Care have increased for each person (as it has for non-town employees as well).
Health Care is part of the collective bargaining process and can only be altered during the bargaining process which happens every three years (it will happen in FY2007 for implementation in FY2008). The state is allowed to make changes to Health Care plans for state employees without going through collective bargaining. Legislation to allow similar flexibility for towns has been denied by the legislators.

Lack of a commercial/industrial tax base - Wayland is a semi-rural town and residents pay a premium for that. For all the problems that were discussed about Town Center, financially, it would have been a boon to our town. Compare Wayland to Framingham (using 2003 numbers): 10.3% of Wayland's expenses were covered by State Aid; 15% of Framingham's expenses covered by State Aid. 95.4% of Wayland's tax levy paid by residential real estate taxes; 56.1% of Framingham's tax levy paid by residential real estate taxes. Wayland's Average single family property tax bill $7190; Framingham's average single family property tax bill $3787. If we brought Wayland's state aid and commercial tax base up to par with Framingham's, Wayland's average single family real estate bill would go down to $3752. So the price we paid in 2003 for our semi-rural community is approximately $3300 per home.
State mandates for pensions - All town and school admin employees get a defined benefit retirement plan that is mandated by the state. (note: teacher's pensions are provided by the teacher's union).
The state mandates that we are part of a consortium that pools our pension money and is managed by a designated trustee (Middlesex pension).
The pension must be fully funded by 2028.
Assuming an 8% return on the investments, the town will need to contribute approximately $2.3 million this year, increasing at a rate of 4.5% each year until 2028.
The past year investment returns were lower than 8% necessitating $317,459 greater than anticipated contribution.
Collective Bargaining for Healthcare combined with being a part of a consortium to purchase Health Care:
We are part of a consortium of towns that purchase health care together to achieve cost savings. However, the various towns' schedules for bargaining are not in synch. The Health Care offerings can only be changed at the will of the consortium, not by individual towns. When we are bargaining w/our unions we don't have a lot of flexibility in modifying offerings
The town is looking at ways around this.
For more information, see related article on the Massachusetts Municipal Association website: A Mounting Crisis For Local Budgets: The Crippling Effects of Soaring Municipal Health Costs
Replenishing free cash is important -
Free cash is the amount of money we have at the end of the fiscal year that is not reserved for anything (like a rainy day fund).
Five years ago, we had $5-$6 million in free cash; since then, we have depleted free cash by about $4.5 million to reduce operating deficits and to eliminate or reduce the need for overrides; now only have approx $1 million in free cash
The amount of free cash effects our bond rating. Up until now, Moody's has rated Wayland as AAA (one of the few communities in MA to have this). This rating reflects the fact that Wayland has always had a strong "rainy day fund" - basically, we are a good financial risk because even if there is an emergency, we still had our free cash to take care of it and therefore would not need to jeopardize our loan payments. This rating allows us to borrow money at very good interest rates.
Moody's has indicated that with current free cash levels, we are at risk of losing this AAA rating - this will make all future borrowing more expensive. No one can predict if it would mean 0.25% increase in rates or more, but it does mean $100,000s of dollars per year in future costs.
Moody's would like to see free cash of 5% of the op budget - we currently have about 2 1/2%.
Fincom would like to build up free cash to $2.5 - 3 million. In 2007, they hope to add $325,000 and another $700,000 in FY2008.
Wayland is not alone - all suburban communities are facing the same problems. Wayland's peer towns are about 15 other towns with similar income levels, assessed property values, geography (MetroWest), level of services and quality of schools. Their situation is exactly the same as Wayland's. Please see the MA Municipal Association study at Local Communities at Risk

Goals and Objectives of the FY 2008-2010 Financial Stability Plan that is currently being developed by the FinCom

Overriding goal: achieve a balanced budget without overrides and without slashing and burning our services

Objectives:

provide appropriate level of services
balance services with affordability
maintain property values
create long-term capital plan
maintain top tier bond rating

Process:

compare Wayland to peer towns on parameters such as: education cost/pupil, fire cost/resident, average tax bill, assessments, etc.
Analyze key revenue and expense drivers
establish financial target for key drivers (salaries, pensions, HC and utilities)

Timeline - the Finance Committee is 1 month into developing this, should be completed in January

Submitted by Lisa Valone

© 2008 WaylandeNews. All rights reserved. Last updated: Saturday May 03, 2008 12:38 PM.
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