[0:00] good all right well good evening everybody I I want to thank you all for

[0:04] coming just to introduce myself my name is Ben butrick and I am currently the

[0:10] chair of the Essex finance committee I've been on the finance committee for

[0:15] 7even years uh it's starting to sink in this is a little uh uh it Municipal

[0:23] Finance is a murky area to dip your toes in and so um I want to thank you all for

[0:29] coming tonight because I know Municipal Finance is not necessarily at the top of

[0:35] everybody's excitement list but hey it's January right

[0:40] so um so thanks for coming out um we have about an hours worth maybe less of

[0:49] prepared material um and then we have time for

[0:54] discussion and question and answer and really want to make this interactive so

[1:00] I'll try and be sequential just in terms of questions that come up in any

[1:04] discussion but I'm going to be a little bit relaxed in terms of Robert's rules

[1:08] because I really want this to be participative uh so

[1:14] um uh a little bit of background in terms

[1:18] of how this came about oh sorry oh we should go into

[1:22] session yeah 603 I will call the board of Select my meeting to

[1:27] order go ahead call you better call us all right and we should also uh call the

[1:32] finance committee into session uh we may have four of us which would be a quorum

[1:39] so I'll make a motion to go into session of the Essex finance committee so moved

[1:44] all in favor I thank you all right so um the purpose of tonight is to go over

[1:51] some of the basic concepts around Municipal Finance in terms of how the

[1:58] town operates uh focusing on things like proposition 2

[2:03] and A2 what is the levy limit how do assessments work why are my taxes what

[2:09] they are what role do my taxes our taxes play in terms of the functioning of the

[2:15] town and what are the various constraints that the town operates under

[2:19] with respect to taxation um I got my January tax bill uh I think

[2:28] most residents have received their tax bill and it's kind of an interesting

[2:33] year because um a lot of the assessment numbers have gone up uh and the um the

[2:43] tax rate has gone down and that's sort of a curiosity that people have I mean

[2:49] in my particular situation my tax my my assessment went up by 5 and a

[2:54] half% my tax bill is going up by 1.2 2% uh because of that mill rate

[3:03] interplay with valuation so how does that work why is that and that's sort of

[3:09] what we're going to talk about tonight we're also going to cover things like

[3:13] free cash what is free cash uh what is the difference between operating and

[3:18] capital expenses and we'll try and make it exciting right so the extent to which

[3:23] we can do that I think is successful so um those are the objectives the thing I

[3:30] was going to mention is that this is really designed for Essex residents

[3:33] because as part of our objectives uh for tonight um let me just uh try and

[3:41] Advance my slides um so we'll kind of lay out the

[3:48] the laws of the land so basically how M municipalities work in

[3:53] Massachusetts and then talk about what's unique about Essex structurally we're

[3:59] really small town relative to other municipalities in the state so that

[4:04] creates some quirks and some uh challenges so we'll talk about that um

[4:13] and then it's just you know we'll open it up for

[4:15] questions so uh this is basically a list of all the material that we're going to

[4:22] cover tonight and I actually wanted to kick off this session by just playing a

[4:27] a video uh it's 88es long it's a little bit hokey it's the division of local

[4:34] Services basically local Finance in Massachusetts is

[4:39] overseen by the the um Massachusetts uh division of local services so things

[4:47] like the management of proposition 2 and a half and uh the assessment process and

[4:54] how tax rates are calculated reporting Etc all is overseen by the department of

[5:01] local Services they have a whole series of materials and primers and and that

[5:07] that is sort of the the core of a lot of what is being used uh tonight um so I

[5:17] will attempt

[5:21] to play the video hopefully it'll

[5:28] work

[5:49] you click the link up there what's that uh wait I think it's just

[5:54] delayed there we go all right hopefully this isn't too

[5:59] loud when it comes through [Music]

[6:06] but like most households and businesses local governments must manage a stream

[6:11] of Revenue and expenses to ensure that services are delivered to its

[6:17] constituents Municipal expenses vary by type and by community and include

[6:22] education Public Safety Public Works and other

[6:28] costs to budget for and fund these expenses

[6:32] cities and towns rely on different revenue streams including property taxes

[6:36] and local receipts such as meal and motor vehicle excise municipalities also

[6:41] receive local aid from the state and may use their own Financial reserves for

[6:46] these costs as

[6:50] well property taxes are the most significant Revenue source for

[6:54] Massachusetts municipalities as they are the primary revenue source for all

[6:58] cities and towns across the the

[7:05] Commonwealth on average property taxes account for over 70% of local

[7:12] budgets therefore understanding proposition 2 and A2 a Statewide law

[7:18] that governs property tax assessment is a key part of Municipal budgeting and

[7:24] management approved by Massachusetts voters in 1980 proposition 2 and A2 sets

[7:29] limits on the amount of property tax that can be collected or levied by a

[7:34] city or town annually it outlines how new growth in the tax base can be

[7:38] identified and sets guidelines for Levy limit overrides under rdes and

[7:47] exclusions a detailed walkthrough of proposition 2 and A2 can be found on

[7:51] dls's Municipal Finance training and Resource

[7:54] Center since property taxes are the primary source of revenue for

[7:58] Massachusetts minnes IP alties the assessor serves as a key

[8:02] member of a community's financial management team among their other duties

[8:07] the assessor prepares and maintains an accurate Property database and

[8:12] classifies real estate into four classes residential commercial industrial and

[8:18] open space they also determine the valuation of property as of the January

[8:23] 1 assessment date which requires knowledge of various appraisal

[8:28] methodologies

[8:31] once the municipality's tax rate and property valuations are approved the

[8:35] assessors also prepare a tax list and warrant and commit taxes to The

[8:40] Collector they also Grant abatements and exemptions to taxpayers who must file

[8:45] timely applications with the assessors and administer motor vehicle and other

[8:49] excise

[8:54] [Music]

[8:58] bills [Music]

[9:01] the assessor Works closely with the collector as well as other members of

[9:05] the financial management team as we will see teamwork amongst local officials is

[9:10] essential to effective financial management in every

[9:13] Community let's look at just a few of the responsibilities of other local

[9:19] officials the tax collector is responsible for billing and collecting

[9:23] all taxes committed by the assessor as mentioned the collector receives the tax

[9:28] commitment from the assessor sends bills to taxpayers and collects corresponding

[9:34] payments in some communities The Collector collects not just taxes but

[9:38] all accounts due to the municipality such as water and sewer

[9:45] bills once collected funds are turned over to the

[9:50] treasurer who is the custodian of all Municipal

[9:54] funds the treasurer is responsible for the deposit investment and dis

[9:59] dispersement of Municipal funds they work with the community's financial

[10:02] adviser and bond councel and supervise the debt issuance

[10:06] process the treasurer also manages the tax title process once the collector has

[10:11] made a tax taking as the result of an unpaid

[10:16] Bill the accountant or auditor records all of the financial transactions of the

[10:22] municipality they use this information to prepare financial reports like the

[10:26] balance sheet submission in schedule a for review by the division of local

[10:30] Services the accountant auditor also prepares interim reports for the

[10:34] community to consider during the fiscal year to assist in budgeting and also

[10:39] notifies departments monthly of unspent and unencumbered appropriation balances

[10:44] all bills for payment are approved by the accountant auditor who monitors

[10:48] spending to assure that Goods have been delivered and services have been

[10:54] rendered these and other members of the financial management team worked

[10:59] together with other appointed or elected officials Who oversee and manage local

[11:03] government but who are these other elected or appointed

[11:10] officials this depends on whether the community is a city or a

[11:15] town in most towns an elected select board serves as the chief executive

[11:20] branch with responsibility for developing overall policy and

[11:24] coordinating the general operations of town

[11:27] government the select board appoints certain officials in the town whether it

[11:31] be in accordance with State Statute a charter provision or local bylaw the

[11:36] select board issues town meeting warrants and negotiates collective

[11:40] bargaining agreements for all departments except schools and approves

[11:44] vendor and payroll warrants for payment by the

[11:49] treasurer the select board also prepares or reviews budget proposals for town

[11:54] meeting approval these budget responsibilities are usually shared with

[11:58] the finance Comm committee a body that advises town meeting on financial

[12:03] matters the board also plays a role in tax policy by voting to place a

[12:08] proposition 2 and a half override debt exclusion or Capital outlay exclusion

[12:13] question on the ballot the legislative body of a town is

[12:17] town meeting as the appropriating authority

[12:20] of a town town meeting adopts the budget and authorizes debt

[12:25] issuances town meeting also has local lawmaking Authority through the

[12:29] enactment of bylaws most towns have a chief

[12:33] administrative officer that oversees its day-to-day operations this person is

[12:38] usually referred to as the Town Administrator or town

[12:41] manager as with other roles the responsibilities of this individual vary

[12:45] by Community but will typically involve the coordination of the financial

[12:49] operations of the Town other Duties are likely to be assigned by the select

[12:54] board as

[12:57] needed in a city the mayor or city manager is the chief executive officer

[13:02] the mayor or city manager has all the duties of the select board in towns

[13:07] including a pointing Authority and oversight of administration and

[13:11] finances in a city however this individual prepares and submits the

[13:16] budget to the city council which can then only approve reduce or reject the

[13:21] mayor's budget proposal the city council is the

[13:26] legislative branch in a city and is the municipality's appropriating authority

[13:31] which adopts a budget and authorizes debt it also has law making Authority

[13:37] through the enactment of ordinances city council plays a role at

[13:41] tax policy by placing proposition 2 and a half questions on the ballot with the

[13:45] mayor's approval we've reviewed just some of the

[13:49] responsibilities of local officials who play an important role in the financial

[13:53] management of their communities which requires collaboration

[13:57] amongst a financial management team for more information visit the

[14:02] division of local services website at mass.gov

[14:07] DLS there you can find the municipal Finance training and resource center and

[14:11] find more information about roles and responsibilities of local officials and

[14:15] best practices for municipal financial management you can also visit dls's

[14:20] YouTube page all right promise that's the only

[14:25] video we're going to watch tonight but I just thought it it

[14:29] introduces a lot of the concepts just uh in a pretty efficient

[14:36] way I mean actually a lot of what was stated in there does in terms of how

[14:40] towns operate you know it does apply to Essex in terms of how all the different

[14:46] parties work together and um as well as the various Concepts revenues

[14:53] expenses uh reserves proposition 2 and A2 the assessor the the role of the

[14:59] assessor tax rates and that's pretty much all what we're going to discuss

[15:06] um I wanted to just start this is actually from the finance committee

[15:11] report that gets generated before town meeting I wanted to start with revenues

[15:17] um they said in the video that typically property taxes account for 70% or more

[15:25] of a municipality's uh income coming revenues

[15:30] that's certainly true in Essex in fact taxation accounts for More than

[15:37] 70% uh you know as you can see here it's 74% but that's actually just property

[15:43] and personal tax if you factor in excise tax Motor Vehicles excise tax you factor

[15:51] in meals tax Hotel taxes Etc which show up in the green slice then we're looking

[15:59] in excess of 80% in terms of Reliance on taxes uh as a source of Revenue um what

[16:08] what I did here was I separated out water and sewer water and sewer is its

[16:13] own Enterprise in terms of money coming in and money going out in terms of their

[16:21] expense structure so if you want to look at the two together our annual budget is

[16:26] $23 million if you separate out the water and sewer um we're just under 20

[16:32] million as you can see here um the the tax levy and I'm going to talk about

[16:38] that in a moment uh and try and Define some of the terminology that you hear

[16:43] get used but our tax levy as you can see in terms of uh in terms of property

[16:51] taxes runs about 3/4 of our Revenue so in fact if you look at our our tax levy

[16:58] number it's under it's between 14 and 15 million right now so it sort of fits in

[17:04] with looking at the revenue picture for the

[17:10] town all right so now I'm not going to play the video but I I do want to just

[17:15] delve into proposition two and a half I think most people understand

[17:22] that when we refer to the tax levy that's basically the money that's coming

[17:28] in through taxation through property tax taxation that is a that is a um you know

[17:35] a a single number uh it's in the you know 14 to 15 million range right now

[17:41] and I'll go specifically through the exact numbers for

[17:45] Essex um proposition 2 and A2 at its core and it was set up in 1980 as the

[17:53] video said because there was Massachusetts had the nickname of

[17:57] taxachusetts and we had sort of a runaway taxation problem and part of

[18:02] that was at the property tax level because there was really no uh there was

[18:07] really no check or sealing in terms of the ability for municipalities to uh to

[18:14] tax residents basically what it did was it put into place a limit saying you can

[18:20] only increase your tax levy that dollar amount by 22% per year and that's why

[18:26] it's called proposition 2 and A2 so I think what's confusing is most

[18:31] people think well my tax bill shouldn't be going up by

[18:35] 25% and there are some quirks about proposition 2 and a half and that's what

[18:41] I wanted to talk about are what are the quirks that cause that so the tax levy

[18:46] that we've defined the tax limit is basically the um that the amount that

[18:54] the municipality has the ability to tax up to and it's a function of proposition

[19:00] 2 and A2 I'll Define it on the right there which basically you have the levy

[19:05] the tax levy and the tax and if you take the prior years limit or the the you

[19:12] know amount up to which you can tax proposition 2 and A2 says well you can

[19:18] grow it by 22% as a

[19:21] Baseline and then you are allowed something called New Growth which I'll

[19:27] Define on the next slide but it's basically new building new developments

[19:32] anything that hasn't been assessed or part of the tax levy that's

[19:38] introduced then that's considered New Growth that's part of the role of the

[19:42] assessor is to Define what that new growth is

[19:48] um the the other thing the other sort of Quirk about proposition 2 and A2 is you

[19:53] can go up by more than 22% plus New Growth if you think about that sort of

[19:58] as the Baseline by doing something called an override and I think we all

[20:03] hear these terms we we you know we we had our own override experience last

[20:08] spring so the override basically requires voter approval as an exception

[20:16] to the proposition 2 and a half rules the

[20:18] 22% plus new growth and so that's basically how proposition 2 and a half

[20:25] works we operate under a 25% model um part of the issue is when we plan our

[20:35] budgets each year and there's a seasonality to our budget process we

[20:41] typically plan our annual operating budget for each

[20:45] fiscal year starting now and basically running through the spring and coming up

[20:52] we have fiscal 25 so right now we are in fiscal 24 fiscal 24 actually starts July

[20:58] 1st of the prior year and um we don't actually know what that new growth is

[21:05] going to be when we're planning for that next year so that's one of the quirks

[21:11] about proposition 2 and a half is you can sort of guess at what you think your

[21:16] new growth is going to be based on what it is but you don't actually have those

[21:20] numbers when you're doing the budget work from year to year so um new growth

[21:28] overrides we've talked about that and then here's the really sort of tricky

[21:33] part there's this term called excess capacity or Levy capacity

[21:39] so what happens is a municipality doesn't have to tax up to

[21:45] what that Levy limit is and a lot of times

[21:50] municipalities um in the desire to be conservative will uh will tax up to a

[21:57] certain level and leave a little bit of that of excess capacity and also you

[22:02] don't know what the new growth is going to be in advance right so you find out

[22:06] about that after the fact the extent to which you don't tax up to the the full

[22:14] Levy limit you can actually carry that forward to the next year and then you

[22:22] can do that again the next year and carry it forward to the following year

[22:27] and we've gone for a whole string of years in

[22:31] Essex carrying forward our excess capacity so when we had the override for

[22:38] the district last spring and it didn't pass we were able to use that excess

[22:45] Levy capacity and so what happens is that

[22:50] means that our taxes have gone up by more than

[22:54] 25% plus New Growth our taxes have gone G up

[22:59] 25% plus New Growth plus the override did pass for the tech it did not pass

[23:05] for the district so there was a small override that did pass and then we had

[23:11] this this excess Levy capacity so the average taxpayer in Essex likely saw

[23:19] about 7% of an increase and that's been triggering questions because people were

[23:26] like well how can that be didn't past the override and we operate under

[23:30] proposition 2 and A2 because we had a whole string of years with which we had

[23:34] that carry forward Levy capacity and so that's one of the factors at play

[23:43] um uh I also took the definition of New Growth this is from the DLS I it's

[23:49] pretty much what I said it's new development that um uh it could be condo

[23:56] conversions or something that is is basically either wasn't subject to tax

[24:01] during the prior assessment or was taxed in a different sort of way and it gets

[24:06] kind of technical but I think for our purposes tonight that's basically all we

[24:10] need to to know um what I wanted to do is to lay out the numbers uh for Essex

[24:19] so our Levy limit uh was our for fiscal 23 remember

[24:26] we're now in fiscal 24 so this was last year's Levy limit we were at

[24:32] 14.02 million you get the 25% growth so it

[24:37] grows by 350,000 we have the override for Essex

[24:42] Tech which was passed which is another 56,000 and then we assumed new growth of

[24:49] 100K again at the time we didn't know actually what that new growth would be

[24:54] so our Levy limit went from 14 14 up to 14520 so if you do if you just take a

[25:03] percentage increase from 14 14.02 million to

[25:11] 14.531 then that's an increase of 3.62 but then we had the

[25:18] 435,000 of excess capacity which was also applied and that brings us up to

[25:26] closer to a 7% number for the town and so I'm and I'm

[25:32] going to talk about the assessment process because all we're talking about

[25:36] is the whole bucket all the properties in the town

[25:40] basically this is the levy this is what's collected from all the different

[25:44] properties in the town everyone's individual experience is going to be

[25:49] different and I'll explain that but I should probably pause cuz this is pretty

[25:54] Technical and uh even though we have time for for Q&A I just want to see if

[26:00] anybody has any questions about any of these definitions or how proposition 2

[26:05] and a half actually

[26:10] works Brian Bri so oh sorry up um so you said it but

[26:17] you Brian wrestler 30 Jo you said it but you didn't quite say it that so I think

[26:22] my question to you is two and a half is is a arbitrary number would you agree

[26:28] with the statement is an arbitrary number that allows that that creates a

[26:32] line of the stand against which a voter check occurs and is not tied to any real

[26:36] world metric or like inflation or anything like that so it's just a it has

[26:40] nothing to do with with with with actual finance and how much things cost it only

[26:44] has to do with we had to pick a number somewhere where we say before this you

[26:49] we don't need voter input after this we don't we need vo input yes I agree with

[26:53] that it is a hardcoded number which is a little bit curious because uh I mean

[26:59] this law was enacted at a time when inflation rates were really high in the

[27:04] early 1980s and we've been in a period of

[27:09] disinflation since then looking on a long-term multi-decade macro basis we've

[27:14] been in a period of disinflation you know up until 2021 late 21 into 22 when

[27:22] we saw the spike in inflation so it's a little bit of a it's a tricky time

[27:27] period right now in terms of operating under this constraint so it'll be it'll

[27:34] be interesting Sorry's keep going that would explain why you'd been able to car

[27:37] some excess capacity for years until you you hit a point where where some of your

[27:41] other costs might have gone up relative to inflation and now and now you're

[27:44] reading into that that's right and I would also say and we'll kind of get

[27:48] into the town expenses too we we've been pretty conservative in terms of our

[27:52] budget assumptions around uh Town expenses which I'll I'll talk about but

[27:57] it has allowed the flexibility you know which actually was helpful uh this past

[28:03] spring I think I think the takeaway from this is that you should always assume 2

[28:10] and a half% is sort of the framework that we're operating under

[28:16] plus anywhere from a half to a percentage point on top of that so you

[28:22] know if we have new growth it could be we're looking at 3 and a

[28:26] half% as uh it's you know we just we don't know that in advance of that

[28:31] happening so from a budget planning standpoint we usually don't factor in

[28:35] New Growth because at the time of the planning it's an unknown so uh and then

[28:40] you all know about overrides and heard about you like you understand the idea

[28:44] of overrides in concept uh overrides can be for both

[28:50] operating purposes and then debt overrides which um are another type of

[28:56] exclusion to prop two and a half uh but I I'm not going to get into debt right

[29:00] now but there's just different types of overrides uh but I think the excess Levy

[29:06] capacity is probably the most heads scratching concept for most people so I

[29:11] just wanted to uh be clear about that um all right

[29:19] so the board of assessors is responsible for uh for doing valuation assessments

[29:27] on property each year that valuation is published it was just published uh and

[29:33] you can look it up by address and that there's a whole

[29:38] framework with which assessments get done and there's a whole sort of uh

[29:44] playbook for how you actually handle assessments and uh it's it's not across

[29:50] the board obviously it depends on the type of property um one of the things

[29:54] that can impact assessments are things like additions to a house um anything

[30:00] that's going to uh you know require a homeowner investment uh to add value to

[30:07] the property um theoretically would be subject to uh to you know increasing the

[30:15] assessment um so I don't want to get into the intricacies of how assessments

[30:21] are done other than just knowing that it's it varies by individual

[30:28] uh individual property owner um and then this sort of gets into

[30:36] defining what the tax rate is or What's called the mill rate uh this is another

[30:42] area of real confusion for people uh when people see their tax bills going up

[30:49] but then they see the mill rate going down it doesn't mean that the town's tax

[30:55] levy is going down with a lower mill rate it's a mathematical quirk in terms

[31:02] of how the the tax rate the mill rate actually gets defined so what happens is

[31:09] you have the tax levy that you know the whole bucket which is under the the

[31:15] control of the rules around proposition 2 and a half in terms of how that Levy

[31:21] can grow so if if you assume no new growth no overrides no exess capacity

[31:29] you know the levy Grows by 2 and 1.5% right but property values

[31:33] particularly in the last few years like in some cases property values have been

[31:37] going up 10 15 20% over the last few years so how does that get reconciled

[31:45] the what happens is the tax levy can go can can go up by 2 and a half% but

[31:52] assessments could go up by 15% and what that means is that your tax

[31:59] rate is going to be lower because the tax rate is simply mathematically taking

[32:03] the tax levy and dividing by the total assessment of the

[32:09] town uh and the the tax rate basically is the the total assessment divided by a

[32:15] th000 because it's calculated as the amount of tax per

[32:20] $1,000 so this is tricky I'm not expecting you to understand that just in

[32:25] terms of giving a definition so I did a little um illustration here this is a

[32:31] pretend town with three houses and you can see the three houses are stacked up

[32:38] there if you add up the the assessment of those three houses you get a million

[32:46] 875 you have a tax levy and don't read into the interplay between these numbers

[32:51] this is just our starting point the tax levy is

[32:55] 225 so if you take take $22,500 and you divide it by the total

[33:01] valuation divided by a th000 so you take 225 and you divide it by

[33:10] 1,875 you're going to get $12 that's the mill rate so if we go to

[33:17] year two tax levy goes up by 25% and just to keep this illustration

[33:24] simple subject to the rules of proposition 2 and A2 we now have those

[33:29] three houses the house at the top went up by 10% worth

[33:34] 550 the house in the middle went up by less than 10% went up by

[33:40] 25,000 in the bottom house went up by 25,000 you total all of those up you get

[33:49] a m975 so the total has gone up by

[33:53] 100,000 if you take the tax levy and you divide by the total valuation of

[34:00] those houses divided by a th of the total

[34:05] valuation divided by th000 you get a tax rate of

[34:10] 11.78 oh sorry 11.68 so does everybody understand that math basically it's the

[34:17] the tax levy is kind of separately managed the whole bucket and then the

[34:22] assessments are done through a whole methodology to assess values

[34:27] the tax rate is just a mathematical the result of a mathematical equation and

[34:34] so um year two is kind of simple year three

[34:41] we've introduced some new growth we've added a house to our town so that brings

[34:47] the total valuation you know it jumps it jumps way up by

[34:55] 450,000 the tax levy went up by 22% plus some new growth which was

[35:02] allowed under the rules around the assessment or um under the rules around

[35:07] proposition 2 and a half as a result of the assessment

[35:11] process the tax levy spiked up but the tax rate went down even

[35:19] though the community was growing so um and it's the same math all the way

[35:25] through so literally um jod had sent me the Essex uh the page that you know has

[35:33] the total valuations of the town and the tax

[35:37] levy and I did the same calculation divided it got our new tax rate which is

[35:44] 1332 so it's just it's just math basically that determines the TA tax

[35:50] rate if the tax if the mill ratees going up or down doesn't make any difference

[35:56] really really because every individual taxpayer based on their assessment

[36:01] experience and their home value is going to have a slightly different

[36:06] experience um I think that is confusing to a lot of people

[36:13] so yeah

[36:20] questions oh my gosh this is great I feel like I've crack that nut

[36:28] hopefully this won't take an hour to get through um all right so I just wanted to

[36:33] get on to expenditures of the Town um so we have that we have that money coming

[36:41] in um that money coming in is largely through taxation as we just talked about

[36:47] and then local receipts that slice of the pie we also have money coming in

[36:53] from other sources uh state aid ALS Al if we do a bond issue there'll be some

[36:59] money coming in although that that's usually for uh Capital

[37:04] expenditures um but we have to pay the debt service and that shows up on the

[37:10] slice here but I don't think Essex is all that different from many towns in

[37:17] Massachusetts if you look at the breakdown of where money gets spent uh

[37:23] Far and Away education is the top expenditure for the town um biggest

[37:30] slice there and then Public Safety which rolls up fire police um uh emergency

[37:37] response Etc uh and then um Debt Service is is showing up as 11% that's actually

[37:46] coming down because I'm going to show you the debt schedule shortly as debt

[37:50] rolls off The Debt Service until you have a new bond issue Debt Service will

[37:55] typically come come down over time um and then you can sort of see the rest of

[38:01] the expenses one of the things that I was just going to mention that is the

[38:04] role of the finance committee is this looks very simple in terms of the the

[38:11] rollups but we look at um literally hundreds of line items so all of the

[38:17] different departments have individual line items that are typically either

[38:23] Personnel related or their expense related

[38:27] uh meaning you know supplies non sort of human costs so um that's our town you

[38:34] can see the expenditures basically we're

[38:37] municipality right so the expenditures generally have to match up with our

[38:44] revenues um uh but the extent to which they don't

[38:50] is uh is free cash and I'll talk about that in a moment um

[38:57] so uh just a quick delve into operating versus Capital

[39:04] expense um I had referenced before sort of the seasonality the annual budget

[39:11] that we go through in planning for each year is

[39:17] those are recurring expenses to the town so those just those those recur over

[39:24] time Capital expenses are items that are uh sort of one-time expenses

[39:33] even though the debt service will require you know ongoing that will that

[39:38] will be part of our annual expenses uh onetime generally speaking

[39:44] one-time expenses are capital and typically invol involve borrowing or

[39:51] could be funded through use of reserves um versus operating which is

[39:58] generally recurring again these are DLS definitions up here so um I just thought

[40:05] it would be helpful to to reference that uh free

[40:11] cash so when our uh when our expenditures at

[40:18] the end of on June 30th of each at the end of each fiscal year when we go

[40:23] through what are the expenditures What would the outlays for the Town versus

[40:29] the money that came in uh whatever that difference is gets

[40:35] qualified and has to be certified by the is it the Department of Revenue uh that

[40:40] does this yeah that has to be sort of certified free

[40:43] cash um our free cash has been running fairly High uh and

[40:51] one the it gets back to conservatively managed managing budgets but a lot of

[40:58] that also is we don't always know what the revenue is going to be coming in

[41:03] again until after the fact so things like meals tax hotel tax we um we we

[41:13] can't assume we have to be very conservative in terms of our assumptions

[41:18] for Revenue coming in and then we can also manage our budgets and so that in

[41:23] recent years has resulted in a fairly uh sizable amount of free cash but free

[41:29] cash is basically just the differential

[41:34] um freecash is basically like the savings right at the you know the the

[41:40] amount that you've uh accumulated during the course of the year that free cash

[41:45] can be deployed and that is typically typically we do that in the fall because

[41:50] we know what that free cash number is it gets certified in either

[41:55] October sometimes times it gets kind of close to town meeting and we just sort

[41:58] of we're guessing what we think our free cash is and then that money gets

[42:03] deployed typically that get money gets deployed for

[42:08] things like for example a new fir Tru as was the case uh this um this past

[42:15] November um we also put it we make annual contributions into something

[42:21] called OPB which is uh it's other post-employment benefits I.E healthc

[42:29] care for retired workers uh retired Town workers and basically we have to fund

[42:36] that liability from the town so we put money away and that money is to cover

[42:44] that future liability we have some discretion in terms of what we can put

[42:48] in each year our OPB fund is actually very well-funded in terms of relative to

[42:57] other municipalities which is great because if it's not then it's a little

[43:02] bit of a ticking Time Bomb because once that liability has to be paid out you

[43:06] need to have the money there it's also one of the few parts of our budget that

[43:11] can actually be invested in stocks and bonds generally speaking Municipal

[43:16] budgets are very limited in terms of where the money can be invested it has

[43:20] to be in conservative cash uh cash equivalent instruments uh maybe some

[43:26] short-term treasuries but you know we can't be speculating with Municipal

[43:31] dollars uh and so most of our funds and I'm going to talk about reserves in a

[43:36] moment sit in just interest bearing uh interest bearing accounts uh so they've

[43:42] started to learn earn a little bit more interest recently as interest rates have

[43:46] gone up um but uh so you know one of the question I know this came up in terms of

[43:55] wanting to use free fre cash for operating

[43:59] expenses and uh it's not prohibited it's not considered a best practice and

[44:07] um I'm I put a little illustration together here because annual

[44:14] budgets grow they're recurring costs and so they're always going to go up over

[44:21] time if you fund that from a source of savings either you through any of our

[44:26] Reserve funds including free cash then you have to fund it each year so um the

[44:36] only time that it's really appropriate to do that is if you imminently know

[44:40] that you're going to have a source of new Revenue coming online and so

[44:44] therefore you're kind of you using it in kind of a uh an interim or sort of a

[44:50] one-off basis to cover that future recurring expense but um uh generally

[44:56] speaking the budget gets covered through taxation which is allowed to grow pretty

[45:02] much with as expenses grow uh although sometimes you get some

[45:09] mismatches all right reserves our town is kind kind of unique um a lot of towns

[45:18] might have three or four different Reserve funds we have like a dozen or

[45:23] more um Jo referred to it as what is it called the envelope the envelope method

[45:29] the envelope method of you know you you're stuffing an envelope in terms of

[45:34] putting putting money away for different purposes and so what I did was I took

[45:39] all of our Reserve balances it may be kind of hard to see what those numbers

[45:44] are but they this shows the the balance of our

[45:49] reserves um the bar chart is as of SE September

[45:56] 30th but the data labels are actually after town meeting because we

[46:03] appropriated funds in town meetings so for example you can look at the bar

[46:07] chart for free cash which is the fifth one from the left and you can see it was

[46:12] you know 2.4 million the data label says 7 almost

[46:19] 750,000 which is the green part of the bar so the the orange part is basically

[46:24] money that we that we allocated from free cash and so we make these moves at

[46:31] town meeting you can see you know such and such as being funded you know from

[46:35] from free cash or going from one fund to a certain

[46:40] expense uh the OPB trust fund I think we funded at

[46:46] 175,000 so that's actually negative the little orange bar because it went uh

[46:51] money went in uh but these are the these are of the balances all the way down to

[46:57] you know weeded a climate change fund they're just little buckets for

[47:01] different purposes basically and um Brendan uh some of these

[47:08] require 2third vote to use some require simple majority is that right is there a

[47:14] determinant in terms of what it um the it was just a change in rules that allow

[47:23] it used to be majority vote to put and 2/3 vote to take out it was just a

[47:29] change where some of the funds can now be voted on majority to take

[47:34] out and um that's new we haven't dealt with that yet because it'll be for an

[47:39] upcoming cycle um but it has been uh harder to take the money out and spend

[47:45] it than it is to put it in that'll help because um but uh so this still taking

[47:54] money out of the these Reserve funds requires a vote like in that video it

[47:59] talks about town the town residents as the legislative body for the town we

[48:04] still need to vote to actually pull money out of these funds so

[48:10] um and and I know it's easy to say well you know Essex has 10 million Essex is

[48:16] sitting on 10 million worth of reserves or whatever that number is if you go

[48:21] down it um but you know things like the bigger ones like OPB were restricted it

[48:28] can only be used for uh healthc care benefits of

[48:32] retirees um the sale of real estate is specific to real estate related

[48:39] expenses uh sewer free cash is part of the Enterprise there stabilization fund

[48:44] really is kind of a rainy day fund uh so I mean it is more kind of General use um

[48:52] there's also uh in here uh uh let's see this this thing called Reserve fund

[48:58] which has a little over a 100,000 that the finance committee has discretion of

[49:03] using that Reserve fund for like we need a new pump or something down at the you

[49:07] know water plant and kind of like money needs is needed in a pinch the fincom

[49:12] can appropriate funds to be used from that Reserve fund we just replenish that

[49:17] each year um but these are all sort of pretty specific purposes I don't know if

[49:24] anybody has any questions or want to make any comments on any of

[49:31] this okay

[49:36] oh Brank r with 30 CH I just wanted you said it right but I wanted to repeat it

[49:41] because it's one of those things that get said wrong a lot and I think it's

[49:44] worth saying again that often times you hear people say you can't use reserves

[49:47] for operating funds and and the answer is you that you it's just not a good

[49:52] idea right and and and I and you even as recently as FY 23 Brandon we were using

[49:58] it for healthcare cost um and and we've been weaning ourselves off of that yeah

[50:03] in the past we actually used it to a greater extent we got it down to zero

[50:07] then it came back in a in a in a small amount and what that's known as is a

[50:12] structural deficit right you've got something in your budget that you have

[50:16] no real Revenue source for and you're using one-time money for a recurring

[50:19] cost no no yeah yes it can be done but it is not good practice totally agree

[50:25] and totally agree that it's not good practice I just think people sometimes

[50:27] get into a they you hear out loud that somebody repeats through the game of

[50:31] telephone that you can't and I just want to make sure we said that again so that

[50:34] people were one of those no thank you for saying that I mean it's like there's

[50:39] no absolutes in this world of Municipal Finance like there's asterisks

[50:43] everywhere and so I think a lot of times people just want you know like

[50:47] definitives like you either use free cash or you don't and it is uh it's a

[50:52] little bit more nuanced than that so um that's right uh all right we have a

[50:59] slide here just I we talked about the players involved or at least that was

[51:04] introduced in the video in terms of the uh uh the various boards the structure

[51:11] um this is the Essex structure uh and um most of the financial operations and

[51:21] decisions do roll up to the board of Selectmen in terms of approval of

[51:27] budgets but also overseeing Brendan who then is managing

[51:33] some of the financial functions that show up on this chart so in terms of the

[51:37] org chart this is basically uh these are all the different people that are

[51:42] involved in the financial decision making for the town um you know

[51:49] notably uh the tax collection function as part of the um Town's staff on the

[51:57] left finance committee Board of assessors rolling up to the board of

[52:03] Selectmen um the uh this is kind of interesting

[52:08] and sort of Bren and I were sort of going back and forth in terms of the

[52:12] town uh there's 32 full-time employees uh working um in the town of

[52:22] Essex um a lot lot of those are actually so a

[52:28] lot of the so there's 32 full-time employees there's actually about 125

[52:34] total employees because so many of the employees are

[52:41] part-time and so a lot of the functions of the Town actually are covered

[52:48] by a fraction of a full-time equivalent basically right and you and you also

[52:54] need to consider that there's about 50 um called firefighters in the fire

[52:59] department who may not work at all in a given week um so that's a large part of

[53:04] that 125 right there that's about 50 right yeah about 50 and then you take

[53:09] out the 32 full-time and there's various and Sundry um part-time employees that

[53:15] cover different things and then one of the things that

[53:20] uh um I'll say this about Brendan is that he owns a lot of the functions that

[53:27] in other towns would typically be full-time employees like HR

[53:33] it uh grants and uh what am I missing facilities purchasing so he wears

[53:41] multiple hats um and so if you take him as an FTE it would probably add up to

[53:48] three realistically but it's uh you know that on on a chart like this it shows up

[53:55] as you know that you would break out his role as sort of functionally

[53:59] encompassing a number of things so um I mean that's one of the challenges in our

[54:06] town right I mean and we see this with the police department there's a heavy

[54:10] Reliance on part-time officers versus full-time officers you know you take a

[54:15] community like Beverly where they're going to have a whole slew of full-time

[54:19] officers and um we just don't have a lot of flexibility being a small town

[54:25] in terms of our Personnel so basically the flexibility comes through a

[54:32] part-time employee structure to a great for many of the different roles needed

[54:38] to run the town so I don't know if anybody wants to

[54:41] add

[54:44] anything and I'll I'll mention um that that change on the

[54:49] um stabilization fund where it's now a majority vote to take out that was just

[54:55] passed on December 4th so even the fall town meeting that we held on November

[55:00] 13th will still beholden to a two-thirds vote on a stabilization fund um it is

[55:06] still a two-thirds vote to create a stabilization fund but then it's

[55:11] majority vote to put money in and it used to be 2third to take money out but

[55:16] it is now majority to take money out again brand new so that would be

[55:21] extenuating circumstances basically with which we would

[55:25] pull from that the I don't recall taking money out of it in the last no well all

[55:31] of these are but all of these Min funds are forms of stabilization fund oh I see

[55:36] and that that talking about the no no well that new law does apply to the

[55:40] general stabilization fund but also all those small funds okay whereas in just a

[55:45] few months ago it would have been a two-thirds vote to take any money out of

[55:49] any of those funds got it thank you

[55:57] all right I wanted to quickly cover the town's debt schedule um this is this is

[56:04] The Debt Service the annual Debt Service of the town over time going out to 2050

[56:12] and you can see the different uh the different um uses of debt for the town

[56:20] in the different colors so I don't know if you can read this but the lighter

[56:25] blue is the town hall re Renovations that actually drops off in

[56:30] fiscal 23 so we have a bit of a drop uh that uh in starting in fiscal

[56:37] 34 uh we also have a drop that's going to be happening um as the sewer project

[56:44] rolls off uh and that is going to be happening in fiscal

[56:49] 27 um and then the uh Memorial Elementary which is looking out a

[56:55] distance is you know 2050 so there are kind of three key dates in which we see

[57:03] a drop but you can see the general I mean we pay the debt service we're

[57:07] paying off principal and interest each year it's a little bit like your

[57:11] mortgage where your overall indebtedness goes down over time and that's what you

[57:17] see in this debt schedule so I think when we're making decisions particularly

[57:23] Capital decisions about spending it's helpful to be aware of this uh and sort

[57:30] of is there optimal timing to actually start projects uh and what's the impact

[57:36] going to be um so uh I just thought I wanted to

[57:41] illustrate that I also wanted to illustrate how does Essex compare to

[57:45] other towns in terms of our debt service and um there's a lot of numbers in here

[57:53] but it's quite interesting we we are in terms of our indebtedness we're

[57:57] basically in the bottom third of uh the county of Essex County

[58:04] if you look at all the different municipalities um I wouldn't read a

[58:09] whole lot into this I mean I I do think we are pretty conservative in terms of

[58:14] our use of debt we've had some flexibility through the sale of real

[58:17] estate fund and we've utilized that for things like offsetting the public safety

[58:22] building which you know was a way to limit the amount of debt that had to be

[58:27] issued for that different towns are at different points on their cycle in terms

[58:32] of having to make Capital uh you know Capital Improvements to their physical

[58:39] assets I mean our you know our uh public safety building dated from the 1950s so

[58:46] that was you know that was long overdue other towns uh you know you look at some

[58:52] you look at IP switch where their their debt actually just spiked up um other

[58:57] towns uh like Marblehead you know you you typically don't see a town don't you

[59:03] you don't generally exceed 15% in terms of your debt service relative to your

[59:08] budget because that just sort of spirals you toward uh a difficult situation but

[59:15] you can see kind of Essex is not really unusual um there you know Manchester is

[59:22] lower Hamilton and wenam are lower I think Manchester has some capital

[59:27] projects that they need to embark on so that number will probably go up in the

[59:32] next few years I think one of the good things is that a lot of our projects are

[59:37] actually in the rearview mirror in terms of the upgrades not to say we aren't

[59:40] going to need to spend money we are going to need to spend money I think we

[59:43] all know the next big outlay is going to be um Essex

[59:48] Elementary uh so um but I think this is just a helpful I I think it's always

[59:55] helpful to compare where a town stands relative to other

[1:00:01] towns um and that's it so that's that's the

[1:00:06] prepared material happy to kind of engage and talk about any aspect of town

[1:00:13] finance um hopefully this was helpful can um we don't have I don't think we

[1:00:18] have many people on uh online there's a question what what are the pros of

[1:00:24] having so many Reserve accounts I think Reserve

[1:00:28] funds Frozen cons Frozen cons see in the chat yep I see it um that's that's a

[1:00:35] good question I think that question sorry the question is what are the pros

[1:00:40] and cons of having so many different funds um and I think that uh it's a form

[1:00:50] of instilling discipline I think that's the pro so that you

[1:00:55] have you're you're earmarking specific funds for specific purposes and we know

[1:01:00] particularly like um uh things that go through a cycle like Vehicles emergency

[1:01:05] vehicles you know we we fund our own ambulance we have an ambulance fund

[1:01:10] which is one of those that um it it it's a reminder each year that we have to

[1:01:17] acrw for that liability that's periodically going to come up our

[1:01:22] preference would be to not have to issue debt in order to be able to fund that

[1:01:27] purchase and I I mean I think it's great that we were able to pay for a firet Tru

[1:01:31] without having to pay for any you know financing costs because at this point in

[1:01:37] time you have you know with interest rates higher you'd end up paying a

[1:01:42] pretty hefty premium to the cost of that outlay

[1:01:47] but um you know it makes it more confusing I think that's I think I can

[1:01:53] add to it as well in the past we've seen Town buildings before we uh renovated

[1:01:59] this building and built a new uh public safety

[1:02:04] building there would be a lot of deferred maintenance because the town

[1:02:08] okay well we built it but we really can't afford to to do that right now and

[1:02:12] moved on from the beginning of the either the renovation of a building or

[1:02:18] the um building of the the construction of the new public safety building for

[1:02:22] example we've tried to get these funds in place and periodically put money in

[1:02:27] so that when that next thing comes um there's money there and it's not it's

[1:02:31] not a shock it came out of some previous year and it's waiting to to address the

[1:02:36] need as opposed to just deferred maintenance that just keeps going and

[1:02:41] and actually becomes a larger cost because you did deal with a with an

[1:02:45] issue when it would have been easier and and more cost effective to do

[1:02:50] so yep thank you and I will also say it's sort of precedes my time it's just

[1:02:56] it's one of those things about essics we always have we've always had all of

[1:02:59] these funds I don't know when that it actually started but

[1:03:03] uh um yeah Brian sorry Brian gressler 30 CH I've got a couple of questions so um

[1:03:10] in a lot of these overall Town budget discussions we've talked about

[1:03:15] distressed communities and trying to protect distressed communities so uh I

[1:03:19] think one of my first questions is a purely technical one so we have an

[1:03:22] annual Town survey and we know we know what properties get taxed so have we

[1:03:26] ever done a a legitimate analysis or an understanding of where even within how

[1:03:31] demographically our tax income or tax revenue breaks out amongst um certain

[1:03:37] demographic groups and that's a lead in to a question about uh tax deferral and

[1:03:43] abatement programs and ways to help those distressed communities but first

[1:03:46] we need to understand what they actually are and how many there actually are no

[1:03:50] we've never done a formal study of that nature okay so I mean I think think that

[1:03:54] would be useful because we often we talk about helping these groups but then we

[1:03:57] had one thing on annual town meeting um and we we tabled it uh there are other

[1:04:03] programs there are deferral programs and other things like that that aren't

[1:04:06] necessarily funded by the state and require seed funding internally uh

[1:04:10] within you know but are are worth looking at and I think as part of an

[1:04:14] overall discussion about the whole of the budget and where expenses are I

[1:04:18] think this is equally kind of important to make sure that if we think this is a

[1:04:23] problem then let's Act L look at ways to at least address it and then bring that

[1:04:26] to the town and see if we're willing to to to cover the cost of that um so I

[1:04:31] think if you then roll that back into uh override discussions right so

[1:04:38] Ben we were at the a public hearing and the the Town Administrator from

[1:04:41] Manchester talked about kind of setting up

[1:04:44] a uh a more steady understand you know planned override series of small

[1:04:50] overrides right getting to a point and then and then knowing that you know

[1:04:53] every X to X to Y years 3 to 5 or whatever it was you're going to do a

[1:04:58] series of smaller overrides in order to better manage kind of the fluctuations

[1:05:03] of budgets uh we haven't done an operational override since 2003 or a

[1:05:06] school one since 2006 right so I think of that I'm kind of curious at the time

[1:05:11] you kind of you you nodded your head and and and had a discussion with him you

[1:05:15] know that you that wasn't a horrible idea so I'm kind of curious what we

[1:05:19] think about that approach versus the approach we've been taking yeah he he's

[1:05:24] mentioned that actually a number of times in you know different forums

[1:05:29] collaboration uh I think it might be easier to implement that in a town like

[1:05:35] Manchester than in Essex because to your as you just stated we don't have a great

[1:05:39] track record around override so uh so that could be difficult but I also think

[1:05:45] from an expectations management you know there's probably an upside there uh you

[1:05:52] know to doing it that way but I would invite others on that uh question if if

[1:05:58] people want to opine because this is a discussion and it's not overly

[1:06:08] formal we Canna start you want to say something R well I think Brian when you

[1:06:14] talk about a series of small overrides that was mentioned by Town Administrator

[1:06:17] fetish B and Manchester that's very specific to the school in

[1:06:23] the oper ating budget of the school and I think tonight from the town's

[1:06:27] perspective we're talking about the town of Essex and how we manage our funds I

[1:06:32] think in doing a lot of research about our town in general we've found that

[1:06:38] some of our departments aren't keeping Pace with the wage and salary scale of

[1:06:41] other communities if we were going to be looking at an operational override I

[1:06:44] think we need to look with within our own departments first I think I could

[1:06:49] very comfortably tell you that we have a board of health administrator that's

[1:06:53] probably underpaid we have a police department where you

[1:06:57] know many of them may be underpaid we have a clerk and a treasure collector

[1:07:02] that are far below where they need to be so I think that we want to make sure

[1:07:07] that we're talking about everything as a whole and not just specifically about

[1:07:11] little overrides to fund our school that's not what I'm talking about I'm

[1:07:15] talking about everything as a whole because I did say that we hadn't done it

[1:07:17] on operational override for the town since 2003 so so I do think that my

[1:07:21] question was meant as a general thought about that philosophy be it

[1:07:28] school town operating expenses or otherwise is that uh you know because we

[1:07:32] are currently using an the opposite model what are the thoughts of of this

[1:07:36] group of of that operation operational model since it's come up in discussion

[1:07:40] oh I apologize I thought you were Greg's comment was specifically for the school

[1:07:44] no in general right because it's been just as long and I think there are

[1:07:47] internal problems and I think you could theoretically I'm not sure if you can do

[1:07:51] it with the regional district but I know that that towns with that a regional

[1:07:54] District have have lumped overrides that combine operations and schools into one

[1:07:58] override too so so I would also comment that naturally overrides are done

[1:08:03] through town meeting and when overrides are brought forward it's the town's

[1:08:07] people that have the opportunity to vote on that and when we brought them forward

[1:08:11] you know they either pass or fail so that's not any of your elected officials

[1:08:16] that make that decision ultimately we can bring it forward but it's your

[1:08:19] Town's people that vote but we we haven't I I don't think we' brought an

[1:08:22] oper a town operational one forward since the last one passed in

[1:08:25] 2003 I think it was 2005 somewhere around there I think it was 20 I'm I

[1:08:30] look the DLS I think it's it's been quite a few years correct so so we're we

[1:08:34] are making a conscious decision to not bring them forward I guess is my point

[1:08:37] that that was my philosophy question that's fine

[1:08:41] um I think my last one was there there is a there's a risk that that we get to

[1:08:48] a and this one is specific to the schools that we get to a super town

[1:08:51] meeting uh that occurs after after Spring Town meeting here and when funds

[1:08:55] are already allocated and that results in an expense to an unplanned expense to

[1:09:00] the town what are we doing to plan for and mitigate that risk where would the

[1:09:05] funds come from if that were the if that if that if a if all of a sudden there

[1:09:09] was a in August an unexpected bill after Springtown meeting where would the funds

[1:09:13] come from and what are we doing now to mitigate the risk of having those funds

[1:09:17] available should that risk be realized yeah that I can actually speak to

[1:09:21] because at our last Finance committee we talked about the need to have a

[1:09:25] bifurcated budget in terms of uh as we it as we embark on our liaison R roles

[1:09:36] in terms of talking to different town departments we basically have to figure

[1:09:40] out how to make a budget work that is going to uh could be under sort of a

[1:09:46] normal circumstance or you know where we're looking at a a school budget that

[1:09:52] would be you know along the lines of what's been proposed in the preliminary

[1:09:57] budget or I realize that those are still fluid right now but if this ends up

[1:10:02] going to a super town meeting and we end up having to pay for something it's our

[1:10:08] responsibility as a finance committee to make sure that we know how we're going

[1:10:12] to actually be able to address that that liability or that cost and it's going to

[1:10:19] mean making tough decisions and so we need to we're going to need to agree on

[1:10:25] like where do those tough decisions need to be and I think so the lens with which

[1:10:29] we look at each department needs to be under the under that scenario that you

[1:10:38] of the super town meeting I mean but can I guess you know so is it even possible

[1:10:42] to pull out of stabilization if we were in that if we were at that point and

[1:10:45] things like that I you know well yeah yeah and that may actually bring back

[1:10:49] the question of the override because the unintended consequence is if you end up

[1:10:54] you know squeezing the sponge so tightly that you know we can't attract and

[1:10:59] retain employees at the town because you know we can't pay people because of you

[1:11:05] know like as we just talked about we may need to have a broader override just to

[1:11:10] kind of keep the town uh competitive uh as an as an entity so um you know I

[1:11:19] think we we it would have to be a combination of stock Gap and behavior

[1:11:24] change in terms of what we actually see uh but so the the short answer to your

[1:11:32] question is yes and that is um that adds a different complexion to this year's

[1:11:38] budget season than past years all right I think I'm good I think I think just in

[1:11:42] in summary right I think what I was trying to get to as a in that in that

[1:11:45] whole Arc was you know I'd like to kind of dig deeper into

[1:11:52] you know that we dig deeper into some of those ways to help the distress

[1:11:54] communities we keep talking about uh and Beyond just the one thing that was on on

[1:11:58] annual town meeting um and there are potential implication for that that that

[1:12:02] other parts of the you know of the tax base might have to cover the cost of

[1:12:05] that uh and you know and that's I think that's a question for the taxpayers but

[1:12:11] um I think though you know it's hard to talk about about you

[1:12:16] know all of these things without you know individually right they go together

[1:12:20] if we care about those distress communities but we also care about

[1:12:23] paying the fair wage to the police officers then I think both of those

[1:12:26] conversations have to go on no understood understood thank you thank

[1:12:32] you Jake Jake Foster uh School Street want to follow up on a couple of Brian's

[1:12:38] uh questions about uh proposition two and a half and kind of the uh philosophy

[1:12:43] of how we operationalize that I think one of the challenges that we have is

[1:12:47] that we often talk it about as as a kind of a hard limit and we use that limit

[1:12:52] language a lot and particularly given the history of

[1:12:56] not having BR overrides right people kind of view it in that frame of mind as

[1:13:01] an extraordinary thing to pass another way of looking at operation

[1:13:07] of two proposition two and a half is to view it as a way to manage

[1:13:13] inflation particularly as we get into years you know like we're experiencing

[1:13:17] now where inflation all around us is going up well over 2 and a

[1:13:21] half and I was wondering how you all as a board and a committee think about

[1:13:29] proposition two and half do you think of it more as a limit or is a process to

[1:13:33] manage inflation or when might you apply one thinking versus

[1:13:39] another I think I think of proposition two and a half actually as a framework

[1:13:45] or a discipline that um allows for uh coordination among different

[1:13:53] different players as far as expectations around how the budget actually gets

[1:13:57] managed so it creates sort of a universal

[1:14:01] language um uh and it is a way to particularly as people are feeling

[1:14:07] squeezed because of inflation it's a it's a way to um you know have have keep

[1:14:16] that somewhat in check in terms of at least the tax part of it but it's an

[1:14:21] interesting question just in terms of thinking about it I just think about it

[1:14:25] as a framework and you know operating within that

[1:14:32] framework but I invite others I my short answer is I think of

[1:14:39] it as a guardrail I think of it as a Target that we shoot for we try to

[1:14:43] operate within it and it helps us if we can fall below it great if we have to

[1:14:49] exceed it we bring it to town meeting so I'm not opposed to overrides or small

[1:14:54] overrides on a regular basis I just don't want to make that the Habit

[1:14:58] because I think overrides traditionally have been difficult to pass and it's the

[1:15:02] same thing is trying to it's it's like trying to assume the number for free

[1:15:07] cash or for what excess capacity is or New Growth it's a guess so I don't want

[1:15:12] to budget based on in unknown I would rather base it on Prop two and a half

[1:15:18] and then if we have to look forward we're not destabilizing our community by

[1:15:22] using stabilization so back to another point that I didn't answer um using

[1:15:26] stabilization is certainly something we can do if we end up at a supertown

[1:15:30] meeting and we are forced into that situation of having to fund something

[1:15:35] that we didn't vote for in an override situation we would have to look at

[1:15:38] stabilization accounts realizing that those are savings accounts they are not

[1:15:43] refunded automatically so it's the same thing as using free cash and you are

[1:15:48] going to deplete it in the next year you are going to need that money plus

[1:15:52] whatever the growth of of the school budget is essentially destabilizing the

[1:15:56] econ your own local economy so I think of prop two and a half is guardrails and

[1:16:02] it's a Target to shoot for in my opinion it's kind of the short the short long

[1:16:05] answer and I also think it's an opportunity too because if you think

[1:16:09] about that formula and you think about the new growth and I think and and jod

[1:16:13] may have actually have something to say about this just based on her experience

[1:16:16] from the economic development committee is like what do we need to do in Essex

[1:16:21] to actually you know to to get our our new growth number higher I mean we know

[1:16:27] we have limitations just we have a lot of conservation land we don't have a lot

[1:16:32] of you know buildable land uh like other towns do so

[1:16:39] you know are there are there things we could be doing that you know to to bump

[1:16:43] up the growth equation so that's the opportunity part of it I think the two

[1:16:48] and a half percent and then our historic struggle around overrides that may be

[1:16:54] the more limiting or constraining part of the equation so I think I start with

[1:16:59] 2 and half% and then plus opportunities and

[1:17:04] limits well I I I also think though that last year I think the town demonstrated

[1:17:10] you know we were all in with our uh all of our excess capacity I think we left

[1:17:15] 20,000 on the table um before we got to the override scenario so that was seven

[1:17:21] I think seven or eight years worth of excess capacity that again you know the

[1:17:25] taxpayers weren't taxed on that over those seven or eight years but in order

[1:17:29] to bridge that Gap we were willing to use the the whole kitten Kaboodle for

[1:17:36] one year where I think when I joined fincom Ben was actually looking at that

[1:17:42] excess capacity to hopefully get us to this you know

[1:17:47] structural uh you know override or a smoothing of you know this structural

[1:17:53] issue uh that you know we use the entire thing in one year I also think about

[1:18:00] inflation you know not just from uh Town departments but I look at it from the

[1:18:05] taxpayers they're all suffering from inflation as well so it's really hard to

[1:18:11] squeeze you know both ends especially when you have um used your excess

[1:18:16] capacity as far as new revenue for the town part of uh what we're waiting for

[1:18:21] is the zoning project Pro to to progress uh Essex has a lot of capacity issues we

[1:18:28] have a um call fire department that a lot of people in who live in this town

[1:18:35] who have moved here in the last 10 years are shocked to learn that they think we

[1:18:39] have a full-time Fire Department in fact Manchester fincom members were shocked

[1:18:44] to hear that we didn't have a full-time fire department we have limited sewer

[1:18:48] capacity we live on the marsh we um have a lot of Green Space which you know in a

[1:18:56] conversation in the um assessor uh Department I was told when I was doing

[1:19:01] my tour uh for EDC that green space could literally bankrupt our town as you

[1:19:08] take more and more of that those um Parcels off the tax rolls we're

[1:19:13] shrinking that that tax base so it's going up for the rest of us we're in a

[1:19:18] very unique situation with a very tiny town government um so it we have I think

[1:19:25] we have extraordinary challenges and we're old Yankees so we like to pay for

[1:19:29] things right we like to pay cash for that that fire Tru we own our equipment

[1:19:35] we do not lease things we buy things we do not borrow if we do not have to we

[1:19:40] tuck away year over-year until we can actually afford things and I don't think

[1:19:44] I think it's been a great model for Essex and Jake you mentioned the 2 and a

[1:19:49] half% as an inflationary Point Mike because we're live and recording you

[1:19:54] have to get to the microphone as an the 2 and a half% if you go back to where it

[1:19:57] came from that was the longterm goal for inflation in America has been two 2% so

[1:20:03] it's 2% inflationary plus a little half percent for growth so you get into

[1:20:09] trouble when you're in the three four 5% above that so again the rationale was to

[1:20:15] keep level with long-term inflation and allow a little bit of that half percent

[1:20:19] for growth so it is an interesting perspective the way bring it up thank

[1:20:24] you all yeah thanks Jake thanks Jake I procedurally can I ask a question

[1:20:29] as a community oh yeah you're part of the T So Nina just do your name and

[1:20:33] address because we are recorded Nina McKinnon Lil land farm so I had a

[1:20:38] question and I think it's coming up because we're hearing about the override

[1:20:42] that did not pass but um we did see the slide that our taxes on average people

[1:20:48] saw 7% increase of their taxes offand do we we can anyone remember if the

[1:20:55] override had passed what people's taxes would

[1:21:00] be the override didn't pass we have to remember you probably wouldn't have used

[1:21:05] all that Levy capacity so there would be some offset it might not be that

[1:21:09] different okay and so from that I guess my other followup and I should disclose

[1:21:14] I'm on the finance committee so to Ben seven years I have three and a half

[1:21:18] years some know some of these terms more so what are the consequences and I I'm

[1:21:22] say asking this more from the public standpoint to understand what are the

[1:21:26] consequences or impact the fact that we've used up all our Levy limit in the

[1:21:32] one year I think Jody you just said we have 20,000 remaining as we look

[1:21:39] forward I I would say that it um

[1:21:44] it I don't want to put a negative spin on it but it's just another constraint

[1:21:49] that we're operating under in terms of uh uh evaluating budgets going forward I

[1:21:55] mean the other thing that I didn't mention before if you take the

[1:22:00] town's cost structure and uh you know most entities fin uh Municipal entities

[1:22:07] are like this the school I don't think is any different you you look at the uh

[1:22:12] you look at the structure of those costs you

[1:22:15] have human expenses you know you have personnel and then you have uh other

[1:22:22] expenses and the Personnel costs are collective

[1:22:26] bargaining they're contractual costs so we know you know we know that we have

[1:22:31] built in to a certain layer of our budget a 2% increase and uh so then you

[1:22:39] you don't really have levers on those things that have been collectively

[1:22:43] bargained so you're you're looking at the the other expenses uh in terms of of

[1:22:48] belt tightening so it is um uh you kind of have to to look at the whole picture

[1:22:56] without having that I mean the thing is historically we haven't really used Levy

[1:23:01] capacity other than extenuating circumstances like a failed override so

[1:23:07] just in terms of an annual budget process it's not hugely different but I

[1:23:11] mean it is uh uh we've just lost a layer of flexibility that's all right and

[1:23:19] there was a there was a year where the town of Manchester did have to go to for

[1:23:24] an override around the school and the town

[1:23:27] didn't and it was because there was Levy capacity um at the time we should also

[1:23:33] mention that there are a number of things that over time have been kind of

[1:23:37] entrained into the budget so when the canal Point leases were a new thing and

[1:23:44] we went from about $110,000 a year to $500,000 a year on on

[1:23:50] only onethird of the property by the way away that was a new source of Revenue

[1:23:55] when we went from our running our own Regional uh our own

[1:24:00] dispatch to the regional Dispatch Center that was saving like $300,000 a year um

[1:24:09] all of those things over time have have have been put to bear on increasing

[1:24:15] costs in addition to Levy capacity that we managed to save from year to year but

[1:24:22] if you look at the inflationary environment that is most times well

[1:24:27] beyond 2 and a half% those are just some other things that we've been able to use

[1:24:32] but they've kind of all run their course now they're all in trained fully and

[1:24:36] they're not going up anymore um they're fully counted on so you know it's is

[1:24:42] definitely going to be um quite an important discussion as we head into

[1:24:47] what we're doing now this 25 budget

[1:24:56] any other thoughts questions

[1:25:01] comments well um feel free to reach out individually uh and um I appreciate

[1:25:08] everybody coming here uh do we have another question uh Teresa has a

[1:25:12] question oh Teresa uh you can either can we take an audio stream or do you want

[1:25:19] to type it in can you hear me yes yes I'll turn my volume down so it doesn't

[1:25:25] mess up with you is that better you're good we can we can hear

[1:25:30] you yep we can hear um my question I I just have a couple um specific questions

[1:25:35] what was the percentage of the total budget last year that um that was free

[1:25:39] cash that came back well I think our our free cash

[1:25:45] number was 2.4 million yeah so that's around

[1:25:49] 10% rough rough numbers right not on right on the on the basically on the 23

[1:25:56] on the 20 million yeah 2.4 on the 20 so a little over 10%

[1:26:05] right free cash okay um question about OPB when do you are you using from it

[1:26:12] now are you still funding and at what point do you think you're going to get

[1:26:14] to a point of um meter so that you can actually be using from it yeah that

[1:26:20] there's actually I think it gets every 3 years there is uh uh an

[1:26:27] Actuarial uh report that gets updated which has the um liability date I want

[1:26:34] to say that it sort of starts in the 2030s uh in yeah and I mean up until

[1:26:41] this point it's been pay pay as you go so we've always had to pay for retiree

[1:26:47] health insurance cost but we're paying as we go cash every year the goal is is

[1:26:52] knowing that people are going to live longer so there'll be theoretically more

[1:26:55] retirees alive to pay um if you can amass a certain amount of principle then

[1:27:02] that money the interest that comes from that goes to pay what is going to be a

[1:27:07] growing cost of the town and that was recognized many years ago and so it's

[1:27:14] it's like doubly beneficial because a the cost is going up and B we have a way

[1:27:20] to pay that larger cost with without actually hitting current year funds so

[1:27:25] OPB when we get there and I think that's why Theresa is asking about it will be a

[1:27:30] way to relieve a portion of costs that the town is paying year to year but

[1:27:36] until it matures to a certain point and we haven't gotten there yet um we need I

[1:27:40] think we need to talk to our actuary about about the and our financial

[1:27:44] adviser about recommendations around that we're in a we're in a um a growing

[1:27:49] phase not in a using phase but there will be a time fairly soon that we need

[1:27:54] to we need to understand um what what would be prudent in that area right

[1:27:58] because then we have the Ben once so um right now it's about 50% funded give or

[1:28:05] give or take I think when when I started on the fcom it was about 25% funded but

[1:28:11] we've been sort of putting that a portion of the free cast free cash each

[1:28:16] year has been going into OPB sometimes more and right now the interest

[1:28:20] generated rolls into the fund to help get to the goal so if you start using it

[1:28:25] prematurely you're not going to get to the goal as quickly right but when we do

[1:28:28] get to the goal rather and it becomes self-funding for what that liabil that

[1:28:34] future liability is going to be we have the added advantage of not having to

[1:28:39] keep shoveling money into it so that that's why we've been trying to use the

[1:28:43] free cash that's going to be the analysis like do you keep growing and

[1:28:46] rolling in and getting there does that make more sense and does that ultimately

[1:28:51] save you more money than to take a little bit out now but not reach the

[1:28:55] full self funding status that we're trying to achieve which is actually the

[1:29:01] uh the accounting standard is is pushing us to achieve

[1:29:05] it do we do we have any employees that are drawing from it now for former or

[1:29:10] retired employees Brandon do you know no the town is still paying as we go so

[1:29:15] there's there's always a cost so retired employees if they're on the HMO retire

[1:29:21] product the town is funding 25 uh 75% of that they're paying 25% of that if

[1:29:27] they're on the PO or the more uh generous uh product the um Town pays 60%

[1:29:36] I don't think we have anyone on I see what you're saying that just comes out

[1:29:38] in our benefits year to year pay as you go the goal is to have so much money in

[1:29:43] that account that no matter how big over it takes over there's no more current

[1:29:47] your money going in to pay for that cost we always have had the cost we always

[1:29:51] will have the cost the standard is about getting it so that

[1:29:54] self funding right got it Teresa did you have another question I do so just to

[1:30:00] clarify though we don't have a Target date for when that plan is to take place

[1:30:04] you're just reevaluating every few years not yet because the um amount of money

[1:30:09] that the town is able to put in there on a year-to-year basis varies widely and

[1:30:14] so it's hard to predict because if you look at our contribution over the years

[1:30:19] it's kind of noisy not a contri a mandated you know that you've

[1:30:26] agreed to in any way I'm sorry I couldn't hear you on that one I'm sorry

[1:30:30] so you don't have a planned out like a dedicated specified contribution that

[1:30:34] you need to make based on no while we're ahead of like like Ben said we're we're

[1:30:39] ahead of the curve as compared to a lot of other

[1:30:42] towns it's not possible to always say this much is going to go in so there

[1:30:46] would have been more that went in this year but we bought a fir TR because that

[1:30:50] had to happen um and it's been that way all along we have

[1:30:55] made great progress but it's not not entirely predictable yeah I just had one

[1:31:00] other question thank you for that um regarding the levy capacity I was

[1:31:04] surprised to hear how far back it went I know we used excess capacity so when was

[1:31:08] the last year that we you that we um that established a levy at 2 and a

[1:31:14] half% um

[1:31:17] well I'm not sure I under so the question was when was the last year that

[1:31:22] it established the levy at 22% in other words when's the last year that we fully

[1:31:26] levied what we were oh I see what you're saying able to Levy you know um Teresa

[1:31:31] I'm going to have to take that as a followup because I think we'll that'll

[1:31:34] be either CH I don't know off hand but we'd have to look at each year and and

[1:31:39] add that up I can take it take that down right that's okay I it's it's it's a

[1:31:44] specific one I had heard Jody had mentioned I think that uh it it dates

[1:31:48] back but we can we can get like that's a factual question so we can get an answer

[1:31:53] for that thanks for that

[1:31:58] yep any others any

[1:32:02] others well thank you all and like I said feel free to ask any questions I

[1:32:08] think we need to close out right orj I will entertain I will make a motion to

[1:32:12] adjourn all those in favor I all right and I'll make a motion to adjourn the

[1:32:19] the finance committee second all in favor I

[1:32:22] thank you thanks everybody thanks everybody thank

[1:32:26] you

Essex Financial Committee Forum | January 11, 2024

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