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Financial Forecast Minutes May 1 2018 CorrectedMinutes of the Financial Forecast Committee City of Beverly May 1, 2018, 7 p.m. City Hall — Conference Room B In Attendance: Ward 2 City Councilor Estelle Rand, Ward 2 School Committee Representative Kelley Ferretti, Ward 1 School Committee Representative Rachael Abell, City Council Citizen Representative Karen Fogarty, City of Beverly Finance Director Bryant Ayles, Independent Auditor to the City Council Gerry Perry, Director of Finance for Beverly Public Schools Jean Sherburne, Ward 3 City Councilor Jim Latter (arrived 7:18 p.m.) Also In Attendance: Superintendent of Beverly Public Schools Steven Hiersche, TBC Mayoral Representative Paul Manzo, Ward 6 School Committee Representative Lorinda Visnick Not In Attendance: School Committee Citizen Representative Medley Long Estelle Rand called the meeting to order at 7 p.m., explaining that the Chair Jim Latter was in transit. Estelle Rand reminded those present of the purpose of the committee's assemblage and requested brief introductions around the table, since there were new faces at the table. Bryant Ayles then explained the purpose of the populated "draft" report, emphasizing it required edits both in the numbers, but also in the narrative, which would come from the committee. For instance, Mr. Ayles said assumptions change and forecasts change, however, the report should not be too aggressive, nor too guarded — in other words, we should not be aiming for peaks nor valleys. Therefore, in the draft, not too many assumptions were changed from the last draft, but the group could assess if changes are needed. Karen Fogarty asked for clarification as to whether last year's committee ever produced a final report. Bryant Ayles informed the group that they had not, in fact, developed a final report due to lack of quorum at the last scheduled meeting, then the budget season moved on and the committee did not reconvene. Ms. Fogarty explained how she felt the last meeting was "contentious" and did not come to agreement, specifically citing the middle school funding and number of full time employees that would be needed to fund the opening of the building. Mr. Ayles acknowledged there were on -going negotiations with teachers and a lot of unknowns when the committee met last year. Bryant Ayles referred to committee to pages 2 and 11 of the draft report. He gave an overview on how revenue estimates were derived, citing the Proposition 2 1 /z statutory limits, plus new growth. He explained how the $950,000 figure had been reached for future years' new growth, explaining the "law of averages" and how after so many up years, the cycle is ready for a down year. Committee Chair Jim Latter arrived at 7:18 p.m. Bryant Ayles discussed how expenses are a little different, since they are more predictable, but subject to policy and staffing decisions such as staff reductions or hiring. Mr. Ayles expressed concern over the deficit projected in the next few years. He explained that despite new growth, which resulted in a supplemental appropriation in FY18, there would be a "debt bubble" coming with the Beverly Middle School and other capital projects. Karen Fogarty had some broad questions for Bryant Ayles related to the new growth and expectation that those amounts roll into the next year as part of the base, how the potential sales tax rollback might affect state aid to Beverly, and about why the 3- and 5- year look worse (or better) now. Mr. Ayles explained how the new police station (public safety building) was now included in the forecasts, since the administration's commitment in January and the progress underway on the feasibility study, so the numbers reflect moving beyond the middle school into the next big project. Paul Manzo made comments about how budgets are conservative and how sometimes decisions are reached not to spend, even when budgeted, especially when considering lending rates, asking Bryant Ayles about them. Mr. Ayles said he kept his "fingers crossed" and always hoped for new growth to continue. Rachael Abell questioned some of the Overlay, Abatement, and Uncollected Taxes in the City's financial reports. Bryant Ayles explained the Overlay amount and how the City has some statutory abatement obligations. Out of some odd 13,000 properties, as well as personal property, assets are generalized in the City and we cannot track (spot) assets, so property owners have the right to file for abatements when they feel they have been over - charged. An example would be when a property is in a neighborhood of highly assessed homes, but is in a dilapidated state. The owner would engage with the Board of Assessors and the Appellate Tax Board seeking tax relief. For Commercial Properties, this may also be the case, however, the City uses independent professional assessors to avoid such cases. Fluctuations come with the larger parcels such as Cherry Hill, which is the 8'' largest in the City, or with Cummings Center, inclusive of Dunham Road, which is the City's largest commercial property. A challenge for the City is that owners do not pay taxes while in the abatement process, and since lawyers cannot collect until favorable, there is an incentive for people to try for them, especially on residential properties, so these are reportable figures while in limbo. As a City, we also encounter some amount of uncollectable taxes, Mr. Ayles informed the group. Mr. Ayles described the various steps used by the City to collect delinquent taxes, recognizing the City is somewhat forgiving when assessed values are lower, but more willing to send one last "naughty letter" in better times. Jim Latter commented how he recalls the City being more forgiving after the last real estate bubble burst as to not force residents into selling their homes during market lows. Gerry Perry added that Beverly enjoys a firm $100 Million dollar tax levy, which is not "spongy." Lorinda Visnick enquired about the PILOTS, which Bryant Ayles confirmed still include Endicott College, Monserrat School of Art, and the Beverly Housing Authority. Estelle Rand remarked that while the hospital was not doing PILOT, it was contributing cash payments to the City; she is aware of many contributions it makes in the community, such as its support for the summer learning initiatives and Be Healthy Beverly. Karen Fogarty asked if the medical office buildings on the campus of the hospital were tax- paying properties; Mr. Ayles believes that since the parcel is majority hospital, the offices did not pay property taxes, but that he could confirm if the "predominant use" applied to the site. Karen Fogarty expressed her concern that many high value properties in Beverly are tax exempts, saying that PILOTS /SILOTs are a way to be a "good neighbor," but perhaps those entities that are "opting out" might need the policy and relationships reviewed to see what leverage the City needs to put on those properties. Bryan Ayles suggested that work occurs in the assessor's office, and includes things such as asking to use billboards and other avenues of support. Bryant Ayles reminded the group that Beverly has a foundation budget, meaning it meets it obligations; however, Karen Fogarty mentioned how the formula gives value to the untaxed property in the town, which skews the "wealth factor" and penalizes Beverly for the valuable land outside our tax levy. Agreeing that the committee would not solve issues in the commonwealth's foundation budget formula, Ms. Visnick inquired about the planned 40R, new transit - oriented buildings, and other housing turn- over in the City, wondering if school enrollment projections are being evaluated on the City's side. She explained how the typical 300 -pupil grade levels are now averaging closer to 345/350 pupils per grade. Karen Fogarty also inquired about the pipeline of projects and new growth estimations. Bryant Ayles explained how over the last three years the City has had some huge projects — the Cummings Center Condos that completed and occupied faster than expected, the 131 Rantoul Street project that similarly came together quickly, and the High -Res Biotech Solutions building site. He said this year is still coming in strong, but a little less so with the notable projects being the MBTA build out, the former Friendly's site apartment complex, and Chroma's build on Sam Fonzo Drive, which comes with a TIFF. In the near future, the Whole Foods site on Brimbal and Cummings development on Dunham Road would be in the mix. He also reminded the group how residential home improvements such as decks, pools, and sheds are also contributing to the new growth, as well as restaurants and business expansions and purchasing new equipment. Finally, Mr. Ayles added how utility companies who are running conduit and setting poles or other infrastructure are also contributing to the collective swell. When asked "where's the capacity ?" Gerry Perry remarked that he felt Beverly is not over - built, but rather had good commercial and industrial opportunities along Route 128. Mr. Ayles added how residential is sometimes "cost neutral" to the City, however, with some of the Ward 2 and Ward 3 multi - family properties converting to condos, the residential sector is showing some new growth. Gerry Perry directed the group to look toward the expense items in the report, mentioning how some items are debatable as to whether they are School or City expense. He then directed those assembled to page 19 of the report, which reflected the school's expenses. Jean Sherburne explained how the numbers included were not the latest, since the superintendent is actively working with her and the school committee on the FY19 budget; she committed to providing an updated view before the next meeting with better numbers. Steven Hiersche remarked how there are still unknowns including the commonwealth's Circuit Breaker reimbursement and enrollment figures. He explained how "the bubble is not popping" in terms of grade size. Bryant Ayles said that while there was a favorable trend on the City's revenues, he did not want to "put a thumb" on it; the expectation is for about $2 Million dollars in new growth in FY18, tied to growth in the economy and things like excise taxes, however, the economy is overdue for a correction. Gerry Perry remark how although the free cash balance had reached $9 Million dollars, there were approximately $6 Million dollars in one -time expenditures underway. And, reminded the group that free cash is typically used to fund one -time expenditures. Rachael Abell stated her opinion that the free cash amounts had been too large and that the City should consider the operational budgets, rather than continue to fund so many one -time expenditure type projects. Jim Latter remarked how the 4th grade class size was creating pressure points. Steven Hiersche circled back to earlier concern about what amount of money would "wake up" the tax payers, since in his experience, it is not about being conservative necessarily. He sees the 4.5% increase in the school budget for FY19 as just one jump, as FY20 will also likely need 4.5% increase with the rising cost of services, including those mandated. And, with efforts to chase after fees declining in efficacy. Based on the time, chair Jim Latter suggested the group focus on creating a reliable report, not assuming a supplemental appropriation would be available, since it may not be there. He reviewed who at the table would actually be responsible for the report and have a vote or contribute to the consensus decision - making at the next meeting. He reviewed: Two (2) City Councilors — Estelle Rand, Jim Latter One (1) City Council Citizen Representative — Karen Fogarty Two (2) School Committee Members — Rachael Abell, Kelley Ferretti One (1) School Committee Citizen Representative — Medley Long (absent) One (1) Mayoral Representative — tentatively Paul Manzo (pending City Council approval) Others who were "workers" for the committee include Bryant Ayles, Jean Sherburne, and Gerry Perry. Kelley Ferretti inquired if the others in attendance had the right to speak at these meetings, to which Jim Latter expressed his appreciation for their contributions to the conversation and encouraged such dialogue to continue. The committee agreed by consensus to reconvening on May 8th at 7 p.m. at City Hall. And, also agreed by consensus to adjourn at 8:57 p.m. Respectfully Submitted, Gerard D. Perry City Council Budget /Management Analyst