Finance Fundamentals - Chapter 1

On Monday, October 20, the Board of Selectmen began their annual Financial Workshop. The Town Manager presented detailed information, including revenue and cost trends at the local and state level. This information is designed to set the stage for the Selectmen as they direct the Town Manager in the FY10 budget development.

This is my 3rd Financial Workshop and I noted at least a dozen people in attendance, including members of the School Committee and the Finance Committee. Monday was the first time that the Financial Workshop has been broadcast live by SMC on Channel 30 -- a positive step to open up the process to the broader citizenry.

The first 90 minutes of the meeting were devoted to a detailed explanation of the Town Manager's workshop materials.

Shrewsbury has four primary sources of revenue which are used to fund the town's annual budget. The Town Manager communicated that NONE of the four revenue sources is expected to increase by much for FY10.

1. Property Tax Growth is capped by Proposition 2-1/2. At 2-1/2%, this will only add about $1.1 million for FY10. {Property taxes contributed a total of nearly $45 million to Shrewsbury's nearly $100 million budget in FY09.}

2. State Aid has contributed a significant portion of Shrewsbury's revenue in recent years, but for FY10 is uncertain in light of current economic conditions. For FY09 our total state aid of $26.8 million was an increase of 5.3% over FY08. This was the smallest percent increase in NINE YEARS; the increase is unlikely to be matched for FY10. The Town Manager noted that if Ballot Question #1 (Repeal State Income Tax) were to pass on November 4, it would likely impact local state aid, but the specific areas and amount of cuts is unknown.

3. New Growth is expected to add only about $400,000 to FY10 revenues, the smallest amount in more than TEN YEARS. Shrewsbury's residential boom began slowing five years ago. From 1990 to 1999, 2,104 single-family homes were constructed; from 2000 to 2007 only 722 homes have been built.

4. Schedule A Receipts -- key line items are expected to be flat or lower than last year. Motor Vehicle Excise tax will be lower -- residents may be keeping their cars longer or replacing larger vehicles with smaller ones. Charges for water services are tracking lower than expected despite the recent rate increase -- a rainy summer and conservation efforts may be contributing factors. Investment income is likely to be lower due to the uncertainties in the stock & bond markets. The overall projection for Schedule A revenues for FY09 is currently tracking at $12 million -- a significant reduction from the FY08 actual receipts of $13.3 million.

The limited increase in key revenue sources will likely result in some difficult decisions about which programs and services Shrewsbury will be able to deliver in the next fiscal year. In the 2nd half of Monday night's meeting, the Selectmen began discussing a list of 12 questions posed by the Town Manager on page 10 of his materials. I will write a follow-up article on this discussion soon.

Note: The FY10 Financial Workshop will continue for one or two additional sessions in November -- dates to be announced.