Town of Marblehead FY 2019 Financial Outlook
Overview FY19 The Town enters the FY19 budget process in the black. As in previous years, there are unresolved issues that will likely have further impact on the FY19 budget process. These include: Resolution of the FY19 state budget and the impact on state aid Actual increase in rates for the Town s GIC health insurance plans Final charter school enrollment from Marblehead Collective bargaining contracts (all existing agreement expire 6/30/18) January 2018 2
Positive Factors Health insurance costs continue to be less volatile since transfer to state s Group Insurance Commission (GIC) in FY13; the Town has entered a new 6-year agreement with the GIC for FY19 - FY24 For the 13 th consecutive year, there is no need to consider any permanent overrides to fund the town s operating budget as we plan for FY19 Projected free cash is sufficient to support budget needs for FY19 No projected budget deficits Strong budget oversight & appropriate revenue estimates allow Town to avoid fiscal emergencies Town s bond rating was reaffirmed at AAA this past August by S&P for the 9 th year in a row Helps with borrowing costs, but Town must continue to work to maintain rating A total of 206 communities were rated by S&P in 2017; Marblehead is 1 of 61 MA communities with S&P s highest credit rating January 2018 3
What does AAA rating mean and what is it based on? AAA rating by S&P indicates that the town s ability to meet its debt obligation is strong and at limited risk of being affected by adverse economic conditions S&P bases its rating on: Local & Regional Economy Property Values & Income Levels Management s Financial Practices & Policies Debt Position & Liquidity Budget Performance & Flexibility January 2018 4
FY19 Budget Assumptions Key FY19 Budget Assumptions: Property Tax Levy increases 2 ½ % plus projected new growth State Aid assumes level funding from FY18 (except charter school reimbursement, which is based on a state formula) Health Insurance budget increases by 4% Existing contractual obligations funded Most operating expense budgets funded at FY18 levels Continue to fund energy and utility reserves Debt based on schedules as of August 2017 issuance Multi-year approach taken with all budget decisions January 2018 5
Projected FY19 Revenue Property Taxes $61,432,748 Estimated State Aid 7,281,481 Local Estimated Receipts 3,763,426 Free Cash & Enterprise Payments 7,713,462 Other Available Funds 35,000 Total Estimated Revenues $80,226,117 January 2018 6
FY19 Property Tax Revenue Current FY19 Tax Levy Limit Before Capital & Debt Exclusions $59,952,925 Plus 2 ½ % Plus Projected New Growth FY19 Tax Levy Limit Before Capital & Debt Exclusions $1,489,823 $350,000 $61,432,748 January 2018 7
Revenue Sources for FY19 Budget OTHER AVAILABLE FUNDS $35,000 0.1% LOCAL RECEIPTS $3.8 million 4.7% FREE CASH AND ENTERPRISE PAYMENTS $7.7 million 9.6% Total = $80.2 million STATE LOCAL AID $7.3 million 9.1% PROPERTY TAXES $61.4 million 76.6% January 2018 8
Estimated FY19 Spending Projected FY19 Budget Appropriations $75,771,699 Other State Charges (i.e. MBTA) 574,758 Charter School Tuition Assessment 2,630,503 State Offsets (from State Aid) 21,182 Potential Deficits (Snow & Ice) 250,000 Overlay (potential abatements & exemptions) 500,000 Total Amount Needed for FY19 $79,748,142 January 2018 9
Projected FY19 Significant Increases over FY18 Funding Levels Health Insurance - $442,132 Existing Contractual Obligations Schools - $616,904 Other Town Departments - $66,692 Retirement Funding - $224,254 (based on PERAC schedule) Essex North Shore Tech School Assessment - $50,000 Employer Share of Medicare Tax - $30,000 Curbside Trash & Recycling Collection - $22,000 January 2018 10
10-Year Budget Trends FY09 FY18 Over a 10-year period: Expense budgets (non-school) overall increased 21.7% or about 2.2% per year. Fringe benefits increased 28.6% or approximately 2.9% annually on average. The Town s school appropriation increased 36.9% or 3.7% annually on average. Net charter school assessments have grown approximately 191.2% or 19.1% annually on average. January 2018 11
Millions Spending from General Fund FY09 - FY18 $50.0 $45.0 $40.0 $35.0 $30.0 $33.3 $34.8 $36.1 $36.6 $37.5 $39.0 $40.5 $42.4 $44.5 $46.5 $25.0 $20.0 $15.0 $10.0 $13.2 $12.5 $13.0 $14.2 $13.3 $14.0 $14.8 $15.5 $16.3 $16.9 $5.0 $7.9 $7.7 $7.8 $8.1 $8.5 $8.3 $8.0 $7.9 $8.0 $8.4 $0.0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Total Salaries Total Operating Expenses Total Fringe Benefits January 2018 12
Charter School Assessments Fiscal Year State Assessment of Chapter 70 School Aid State Reimbursement Net State Assessment of Chapter 70 School Aid Net Assessment Increase Over Prior Year Net % Incr FY09 $959,530 $193,081 $766,449 $63,344 9.2% 93 FY10 $1,228,018 $416,565 $811,453 $45,004 5.9% 119 MHD CS Enroll FY11 $1,670,915 $738,655 $932,260 $120,807 14.9% 156 FY12 $1,840,553 $508,044 $1,332,509 $400,249 42.9% 163 FY13 $2,017,464 $449,592 $1,567,872 $235,363 17.7% 174 FY14 $2,166,053 $477,433 $1,688,620 $120,748 7.7% 185 FY15 $2,195,910 $191,738 $2,004,172 $315,552 18.7% 187 FY16 $2,327,090 $282,002 $2,045,088 $40,916 2.0% 189 FY17 $2,533,163 $349,590 $2,183,573 $138,485 6.8% 198 FY18* $2,388,199 $156,275 $2,231,924 $48,351 2.2% 175 Increase FY09 FY18 $1,428,669 ($36,806) $1,465,475 191.2% 82 January 2018 * FY18 data from DOE as of 12/19/17 13
Thousands Charter School Assessments $3,000.0 $2,500.0 $2,388.2 $2,000.0 $2,231.9 $1,500.0 State Assessment of Chap 70 $1,000.0 $959.5 Net State Assessment of Chap 70 $500.0 $766.4 State Reimbursement $193.1 $0.0 $156.3 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 January 2018 14
Energy & Utility Reserve Use $400,000 $361,953 $362,386 $350,000 $300,000 $293,493 $309,306 $309,147 Energy Reserve Utility Reserve $250,000 $249,225 $233,068 $200,000 $175,092 $200,260 $194,768 $150,000 $100,000 $71,948 $50,000 $0 January 2018 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 15
Managing Debt Service as a Percentage of Tax Levy Fiscal Year Total Net Debt Service % of Total Tax levy 2010 $4,716,063 9.39% 2011 $4,079,046 7.94% 2012 $4,724,145 8.81% 2013 $4,089,817 7.47% 2014 $4,328,247 7.63% 2015 $4,916,563 8.33% 2016 $5,477,832 8.93% 2017 $6,208,216 9.71% 2018 $6,726,011 10.14% 2019 (est) $6,441,114 9.49% 10-year weighted avg. 8.92% January 2018 16
Health Insurance Costs Prior to FY09, the Town self-funded its health insurance fund, which created large and unpredictable increases in the budget Between FY01 and FY06, the Town experienced a 5-year increase in health care costs of 132.1%, or an average annual increase of 26.4% As of July 1, 2008, the Town switched to a premium-based health insurance plan and costs began to stabilize On July 1, 2012, the Town became part of the Group Insurance Commission (GIC), which further reduced the Town s exposure to swings in health care costs and stabilized the budget As a result of switching to a premium-based plan, the Town has experienced a 10-year increase in health care costs of 14.4%, or an average annual increase of 1.4%, between FY08 and FY17 The Town and the Public Employee Committee (PEC) have negotiated to enter another 6-year agreement with the GIC, which will cover FY2019 through FY2024 January 2018 17
Health Insurance Spending as a Percent of General Fund Budget 20.0% 18.0% 16.0% 14.0% 13.5% 18.0% 16.9% 18.5% 18.6% 13.8% 15.2% 15.2% 15.8% 16.0% 16.4% 14.4% 14.4% 13.5% 13.3% 12.9% 13.5% 12.0% 11.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* January 2018 *projected 18
OPEB Liability Other Post Employment Benefits (OPEB) Non-pension benefits earned by retirees and their survivors; primarily health insurance Current liability based on actuarial analysis is approximately $181.5M (from most recent actuarial report completed in September 2017) Town took initial step to fund this liability in FY14 by appropriating $250,000 into trust and investing with the state Town increased the OPEB appropriation to $300,000 in FY16 and to $350,000 in FY18; current cumulative balance in fund is $1,739,361 Eventually, Town may be required to fund this liability so continuing this process is important FY15 was the first year in which the full amount of the OPEB liability appears in the Town s financial statements (per GASB regulations) January 2018 19
Conclusion The recommended budget guidelines will produce a balanced budget for FY19 Focus is on maintaining current personnel and service levels, while funding contractual increases Several variables need to be monitored for changes prior to the start of the new fiscal year State aid GIC health insurance rates Outcome of collective bargaining negotiations FY19 budget decisions shall be made with an understanding of impacts on the Town s future finances (FY20 and beyond) January 2018 20