Mayor's FY2012 Budget Message
May, 2011
I am pleased to submit this Fiscal Year 2012 budget proposal to the honorable members of the City Council for your consideration and approval in accordance with Chapter 44 Section 32 of the Massachusetts General Laws. The Fiscal Year Budget totals to $93,507,216; the General Fund total is $77,331,914; the Water Enterprise Fund total is $ 7,111,376; the Sewer Enterprise Fund total is $5,580,378 and the Solid Waste Enterprise Fund total is $3,483,548.
This is my 12th and final budget as the Mayor of the City of Northampton, and one of only two which did not contain dramatic cuts to programs or staff. I have served during the terms of four governors and three presidents. A gallon of gas cost $1.26 in June of 2000; it costs $3.96 today. The economy went from the Dot-Com bubble to the post 9/11 recession and stock market decline, to the sub-prime mortgage crisis, corporate bailouts, and to the current stagnant economy. The country went from a peacetime economy to fighting wars on two fronts, without raising taxes to pay the costs. Healthcare grew from a manageable budget item for businesses and government to a national crisis. Global warming was an interesting scientific debate in 2000; it is now a compelling reality that calls us urgently to review how we live our lives and plan for the future. Cities and towns have tried to manage the provision of basic services to people during a time of decreased assistance from the state and federal governments, and increased suspicion of government on all levels.
In my first budget, the Commonwealth contributed 28.6% of the cost of running our local government; they now contribute 20.7%. In actual dollars, the amount of total Local Aid the City received in 2001 is only $214,017 less than we will receive this year. This aid amount includes School Building Assistance payments for both JFK and the Northampton High School. If the SBA amount is deducted our actual operational local Aid is $86,000 less this year than the amount we received for FY 2001.
Back in FY2001, Local taxes contributed 50.8% of the city’s revenues; this year the local tax share will be 61%. Local tax collections have increased, on average, 3½% per year. This includes the allowable 2½% increase and median new growth of $670,000 per year. It also reflects the two million dollar override passed for Fiscal Year 2010 and the introduction of the local option meals tax, which has provided the City with close to one million dollars over the first two years since its passage. Despite the city budget’s increased reliance on taxes as a share of its total revenue, Northampton’s average single family tax bills continue to rank in the 50th to 55th percentile of property tax bills statewide, as do our water and sewer rates.
Our municipal budgets have grown on average 2.5% per year over the last 12 years. At the same time, certain costs have risen dramatically. The most difficult to manage has been the cost of benefits. During the same period, health insurance and pension costs have gone up on average 6.5% per year.
Overview of Revenues
General Fund Fiscal Year 2012 revenues, totaling a little over $77.2 million, are projected to increase by a little under $2.4 million or 3.2%, from Fiscal Year 2011.
The Property Tax will total $43 million in FY2012. This includes the allowable 2.5% increase ($1,013,900), plus estimated new construction growth of $500,000. It also includes the debt exclusion overrides to fund JFK, Northampton High School and the Fire Headquarters. These override amounts are decreasing in this Fiscal year by $141,463 as the bonds are paid down. The Police Station bond payments are scheduled to begin in 2013.
We are estimating that Hotel/Motel excise tax revenue for FY2012 will be $485,830 and that the Meals tax revenue will be $515,560. This is a combined increase of $152,790 (18%) over FY 2011 projections.
State Aid continues to decline. Local Aid is projected to decrease 1.7% in FY2012 ($268,084). In addition, state assessments are going up by $229,961 for a total loss of $476,717. This reduction in state aid drops the percentage of state support of our General Fund budget to 20% of the City’s revenue base for FY2012. This is the fourth consecutive year of state aid cuts, totaling $2,787,220.
Due to a 16% reduction in the anticipated FY 2012 CDBG allocation, the City is absorbing Indirect Costs related to grant activities.
Tuition for regular and special education students at Smith Vocational and Agricultural High School is projected to increase by $244,000 from FY2011 due to an increase in tuition fees. Parking Meter Fund receipts in support of the General Fund and NBID are estimated to increase by $32,605 over FY2011 due to proposed increases in parking fees.
I am proposing an increase in parking tickets for the next fiscal year. This will bring in an additional $272,500 into the General Fund. Criminal motor vehicle infractions (CMVI) revenues are estimated at $112,600.
The Interfund operating transfers are proposed to increase by $541,462 (11.7%) over FY2011. Most of those transfers are needed to fund the ESCO Service, a new category this year needed to cover the $6.5 million in energy savings projects the City has completed in the last 18 months. This debt service is guaranteed to be funded by the energy savings over the next 15 years.
The Ambulance Fund, now in its second full year, is projected to increase $167,600 (10.7%) over FY2011.
The Landfill Host Community Fee has been eliminated in this budget.
Investment income is estimated at $100,000, a decrease of $10,150 (-9.2%) over FY2011 due to historically low interest rates. Four years ago, investment income exceeded $600,000. While low interest rates save on borrowing costs, they also constrain investment earnings on the City’s liquid assets.
The City has spearheaded an effort to regionalize Veteran’s Services in Hampshire County. FY2012 will see the addition of two more towns bringing an increase of $47,127.
Northampton Public Schools (NPS) and Smith Vocational and Agricultural High School (SVAHS) have lost a combined total of $1,240,757 in federal and state grants for 2012.
________________________________________
Considerations in Building the Fiscal Year 2012 Budget
There are three guiding principles for the creation of this budget:
________________________________________
Maintaining Services
To make up for the loss of Federal ARRA funding for schools, the total Education allocation in the General Fund has increased by $958,778. This represents over half of all new revenues the City will receive in FY2012. The Northampton Public Schools will receive $785,409 of this increase. The Schools should be able to forestall dramatic reductions in force with these increases.
Our Schools need this investment and more.
• Both the Northampton Public Schools (NPS) and Smith Vocational & Agricultural High School (SVAHS) are Level 3 districts. Districts with one or more schools among the lowest-performing 20 percent (Level 3 schools) are designated as Level 3 districts. The criteria for identifying Level 3 schools are based on four-year trends in MCAS performance. Both Bridge Street School and Jackson Street School are level 3 schools; SVAHS is in the bottom 20% of MCAS scores which makes it a Level 3 District.
• NPS class sizes have grown over the last four years of state budget cuts and are at or above School Committee class size goals.
In addition, there are no reductions in City personnel in this budget. Employees have again been asked to freeze their wages at the 2011 levels in order to achieve that goal. Our General Government departments have been squeezed over the last decade while the workload has gone up. Public Safety is just at the levels necessary for us to ensure safety to our residents and visitors. Public Works has seen reductions in staff, underinvestment in rolling stock and buildings, as well as coping with the deteriorating roadway and utility systems in the City.
The only way to pay for increases in salaries is to cut positions. The City and our Schools are self-insured for unemployment costs. The City budgets $30,000, NPS budgets $100,000 and SVAHS budgets $40,000 per year for unemployment benefits. Any increase in claimants due to layoffs would have to be funded through even further layoffs. I do not believe that we can afford to reduce positions to give our employees any increases in salary.
________________________________________
Stabilizing the City’s Finances
Over the last ten years, the City has relied on both Free Cash and our Stabilization accounts to balance our operating budgets. We used those funds as “Rainy Day” funds - savings created during the better times to help us weather bad times. We also created policies for our Stabilization Funds and a goal of 5% to be held in the Free Cash account (Undesignated Fund Balance). This budget has no one-time revenues budgeted and appropriates $150,000 to the General Fund.
In FY2012, 3% to 5% of General Fund appropriations would be $2,173,686 to $3,622,811. The current projection for the Undesignated Fund Balance (free cash) in FY 2012 is $798,595, or only 1.1 % of the FY 2012 General Fund.
There are four accounts in the city budget funded at levels that may need transfers during the course of the year. Three of these – Legal Services, Snow and Ice and Fire Overtime - are dependent on events during the course of the year and are budgeted at a baseline level, with the expectation that transfers will be made as needed. These account baselines should be adjusted upwards in coming years to account for inflationary pressures. The fourth account, Veterans’ benefits, has increased by $559,634 or 942% since 2002. We have funded 75% of this growth through free cash transfers, and we need to be funding this through the budget. If this is not done, Veterans’ benefits will crowd out our ability to fund other needed transfers. This year, I am increasing the benefits line item by $342,850 for a total of $501,710. We will still be short by approximately $200,000 of the FY11 total anticipated benefits cost – that will need to be made up through transfers in FY2012 – but it gets us closer to our goal.
Employee Benefits
Employee benefits now make up 19% of General Fund spending, up from 15% in 2001. There has been a lot of discussion nationally about public sector pay and benefits over the last few months. I think the focus on public employee benefits is misplaced – our health insurance benefits are no more generous than many of the local employers. Our employees pay 20% of the premium cost for their health insurance. Employees (except teachers) pay from 5 to 9% of their pay plus 2% of pay over $30,000 for their retirement benefit (depending on their date of hire). Teachers pay 11% towards their pension and the City is not required to contribute. In Massachusetts, public sector employees are not eligible for social security benefits, unless they qualified in the private sector from another job. If so, they would lose up to about $4,500 per year. Currently, the average pension benefit paid by the city is $19,000 per year. The city’s retirement system is on schedule to be fully funded by the year 2028.
This year, working with the Insurance Advisory Committee and Health New England, we have been able to offer plans to our active employees that will cost both the City and the employees less than we paid last year. Because the new plans have some increases in co-pays for certain services, we are required to bargain those changes with all of our City and School employee unions. That process is currently underway. If the changes are accepted, our total benefits cost will go down by 0.5%.
________________________________________
Investing in equipment and infrastructure
This year, I have included the FY 2012 Capital Plan as a part of the Budget. This has been a long-standing goal of mine and former Finance Director Chris Pile for a few years; I am glad we were able to accomplish it this year.
The goal of our Capital Plan is to make the needed investments in the capital assets that support the delivery of services to Northampton’s residents, businesses and visitors. These assets include our buildings and all of their related systems, all of our sidewalks, roads, bridges and bike paths, our sewer and water plants and pipes, as well as the equipment and vehicles necessary to do the work of the City. It is often difficult during tight budget years to spend money on these assets because of the pressure to maintain services. However, we have seen the cost of postponing these investments – crumbling roads, unsafe buildings and deteriorating equipment. We have an obligation to care for the tangible assets of the City that have been left to us by those who went before us and to make appropriate investments for those who come after us.
The Capital Improvement Plan conforms to the CAPITAL PLANNING & DEBT MANAGEMENT POLICY GUIDELINES (2002) which state: “The funding of capital projects may fall within available revenues.” (please see notes in the sidebar)
Overall net direct debt will not exceed 10% of assessed valuation
FY11 Assessed Valuation: $ 3,212,731,690.
Overall net direct debt for Fiscal Year 2012 is $5,515,416 or 1.7%.
Total General Fund general obligation debt service and capital spending (including debt exclusion and capital exclusion overrides) will not exceed 10% of General Fund operating revenues
For FY2012 our Debt Service is 7.6% of our General Operating Revenues.
General Fund levy-supported general obligation debt service and capital spending (exclusive of dedicated revenue sources such as debt exclusion and capital exclusion overrides, state reimbursements, parking system receipts, etc.) will not exceed 5% of net General Fund operating revenues
For FY 2012, our Levy-Supported Debt Service and Capital Spending as a percentage of net General Fund operating revenues is 2%.
The Capital Improvements Committee reviewed Capital Needs Requests for Fiscal Years 2012 to 2016. There were 111 projects requested with a total value of $87,286,562. Sixty-five of those requests were requested for funding in FY 2012 with a total value of $11,979,337.
The Committee met with each Department Head about their proposed projects and analyzed the available revenue streams to fund each project. After reviewing the recommendations of the Committee, I am bringing forward 19 projects, at a cost of $17,572,500 to be funded through the General Fund, and 9 projects to be funded by other revenue sources including State and Federal grants, receipts reserved, and revolving funds. These are outlined in the Municipal Debt and Capital Plan section of this budget.
In particular, the Plan supports the construction of the DPW Maintenance Facility with half of the cost to be allocated to the General Fund and the remaining half to be split between the Water and Sewer Enterprise Funds. It also programs in $3 million in spending on roads and sidewalks through 2018 and $3.25 million in equipment and building maintenance through 2019. The spending on roads will be programmed in conjunction with any available Chapter 90 funds and with Enterprise funds to repair and upgrade our underground utilities.
________________________________________
Investing in a Sustainable Future
In December of 2007, our City adopted a comprehensive plan, the Sustainable Northampton Plan. This plan is a commitment to growth and change with a full understanding of this generation’s responsibility to leave behind a community that will not compromise the ability of future generations to meet their needs. Sometimes, communities leave the plan on the shelf when it is finished and continue to do business the same old way. Northampton is not that kind of community. Sustainable Northampton has guided City decision making from discussions about land use to the kinds of capital investments we propose. For the first time we are reporting on these efforts in this budget. In the back of this document, we have compiled reports from our departments on the activities that they have undertaken and how those activities support the twelve goals and milestones of the Sustainable Northampton, which was adopted after considerable review and input from literally hundreds of our neighbors.
________________________________________
This is the last municipal budget I will submit to the Honorable Councilors for approval. Writer and theologian Jim Wallis has said that “…budgets are moral documents. A budget tells you what and who are most important to a family, a church, a city, state, or nation.” This philosophy has guided me over 12 sometimes very challenging years, and certainly no less so this year. I have worked to create balanced budgets that support a community which cares about its children and its elders, that values the work of its employees, that promotes responsible stewardship of the environment, that protects its residents, that encourages jobs and responsible growth, and supports the poorest among us. We have all done this work with miniscule support from the federal government and with diminishing support from the Commonwealth.
I have been privileged to work with incredibly talented and dedicated City and School administrators and staff. There are a few people that I would like to single out to thank. Corinne Philippides has been the air traffic controller in the Mayor’s Office for almost twenty years (and she has never fallen asleep on the job!). Karen Bellavance-Grace has been the author/editor of every one of my budgets as well as assistant air traffic controller. Both of them have become treasured colleagues and friends. I thank them for their work and their support. Finance Director Chris Pile retired at the end of April, before this budget was printed, but his fine work for the City is reflected on every page. I thank him for his work leading our Finance Team and his major contributions to the fiscal stability of the City. Finally, I thank the people of Northampton for their support of me during my six terms as Mayor. Northampton is a great city because of her people – it has been my honor to serve you.
Respectfully submitted,
Mary Clare Higgins
Mayor
2012 Budget