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Financial Forecast Minutes April 22 2019_finalMinutes of the Financial Forecast Committee April 22, 2019 6:05p.m. City Hall — Conference Room B In Attendance Chairperson and City Councilor Estelle Rand, School Committee Member Rachael Abell, Beverly School Finance Director Jean Sherburne, School Committee Member Kelley Ferretti, Mayoral Appointee Paul Manzo, Finance Director Bryant Ayles arrived at 6:45pm, and City Council Budget Analyst Gerard Perry. Absent was City Council Appointee Karen Fogarty and School Committee Appointee Medley Long. Also present was City Councilor Scott Houseman, School Committee member Kris Silverstein, and School Committee Member Lorinda Visnick. Discussion Motion made by Mr. Latter, seconded by Ms. Abell to approve the minutes of April 8, 2019 as amended by listing documents presented. Motion passes unanimously. Chairperson Rand advised tonight she hoped to complete a discussion regarding the school budget for the report, and then to have a general discussion about the FY20 deficit and the committee's thoughts involving future deficits. Mr. Perry provided a draft of the Financial Forecast document to Ms. Rand only, since more work was needed to reconcile information provided by Mr. Ayles and Ms. Sherburne. Ms. Sherburne passed out a school narrative and spreadsheet she wrote for the committee report, and then briefed the committee members regarding the contents. Ms. Sherburne indicated that the FY20 budget request from the school committee would be $60,697,111, which is a 5.1% increase from the previous fiscal year. Ms. Sherburne explained the budget included, but was not limited to, a 3.25% increase of City appropriation to meet operational needs and a $250,000 appropriation from the tax levy to reduce kindergarten fees. Additional anticipated Chapter 70 funds would help address other issues such as increases in health insurance, staffing, utilities, etc. There was a general discussion on public school services, and whether this increase was keeping existing services or increasing them. Ms. Sherburne explained that enrollment is a factor for staffing with the need to add a limited number of positions. She also relayed that the Special Education department was seeing move -ins, which would cost the district more. Ms. Sherburne also relayed that there were other desired positions not included in the FY20 budget, for instance in transportation and the business office. Curriculum director positions, and other counselor positions were also not able to be included. Mr. Perry agreed with Ms. Sherburne that the schools are facing rising costs with less state aid and more special education needs; however, from a business model he needs to continue to caution the City Council and work toward a balance budget. From his perspective, he sees reducing fees as taking money off the table; he has an idea about asking City Council to consider removing the $250,000 fee reduction commitment from the appropriation and wait until the Undesignated Fund Balance is determined to see if the City can afford it. Chairperson Rand questioned why this fee to reduction and not some other area of the appropriation to which Mr. Perry replied it is due to the growth in overall school spending in Beverly's budget. There was general consensus this was a philosophical question. Ms. Sherburne pointed out that the 5.1% increase was due in large part to a larger than usual Chapter 70 increase planned for FY20, as well as pointed out that 80% of the school budget is salaries and health insurance. Ms. Perry pointed out that in other municipalities, residual funds are returned to the City coffers. Ms. Abell reminded the group that the Beverly budget for schools is different with zero dollars included for the capital projects and repairs. Chairperson Rand said that the school and city budgets had different end goals. And, Ms. Sherburne discussed the role of circuit breaker and revolving accounts, to which Mr., Manzo added how this allowed Special Ed contingency to be gone for many years. Mr. Latter said he thought the fee reduction seemed like a lost revenue and the City would not get anything for it, except a few votes. Mr. Manzo questioned if there were any one -time expenses such as the school security project, and discussed the lack of a capital expense line item in the budget from which projects are funded or deferred. Mr. Perry explained that approximately 77% of the existing debt appropriations for the city were attributable to school construction, and that there was a capital plan for the city, which included school issues. Mr. Perry asked the group to focus on the approximately $2 Million "gap" that exists in the Financial Forecast and help devise a solution. Mr. Ayles joined the meeting and explained the FY20 budget to the members. The discussion then centered on the risk factors associated with budget preparation. He advised that the revenues average about a 3% increase each year due to Proposition 2 1 /z, new growth, state aid, and local receipts. He explained that any budget that increases beyond 3% on the expenditure side causes budget stress. Mr. Ayles stated he hoped that more state aid may occur in the future, and that the marijuana tax may be of some help, but these factors would not resolve the entire budget challenge. He indicated that both revenues and expenditures had to be reviewed and modified to balance the budget. Mr. Perry explained that the city is required to balance the budget for tax rate approval. Mr. Latter said he was hearing many of the Fortune 500 CEs are forecasting a recession soon. Mr. Ayles offered that the forecast for new growth in FY20 is up to $1 Million from $950,000, which may be light, but is also conservative. Chairperson Rand questioned how much of the deficit in the current forecast is attributable to debt, to which Mr. Ayles said every bit contributes and pointed to the example of the 9% debt ratio as stated in the policy. Chairperson Rand questioned if there was something in the policy that allowed the forecast to include a deficit. Mr. Ayles said he is not sure Beverly had a policy, but it is understood that the forecast is only really good one (1) or two (2) years out, based on assumptions made. Chairperson Rand asked how people were feeling about the deficit in the forecast. Mr. Perry relayed reasons he felt tense about it, summarizing that it boils down to protecting the Undesignated Fund Balance, and how it can be damaged by "creep" in budgets. Ms. Abell asked about capital project items not expended, and could that help the deficit issue. Mr. Ayles explained there may be some small amounts in this area, possibly amounting to around $100,000. However, these funds should be used only for one -time expenditures, which is appropriate financially. There was a general discussion regarding the $2.1M deficit as articulated in the draft revenue /expenditure spreadsheet. There were several discussions about ideas, including the sale of the Briscoe school. The committee could not come up with specific ideas to close the FY20 budget gap. Mr. Latter suggested, similar to previous reports that the committee suggest: 1) cuts in municipal services; 2) cuts in school services; 3) more fees; and 4) possibly join the state's Group Insurance Commission (GIC). Ms. Ferretti offered that we should be careful not to "steal from Peter to pay Paul" in our exercise. Chairperson Rand suggested that the rules be suspended to allow for non - members to participate in the discussion. Mr. Latter made a motion, seconded by Mr. Manzo, to suspend the rules to allow further discussion from non - members. Motion passed unanimously. Ms. Visnick discussed the impact of transfers to both the stabilization fund and OPEB accounts. She further stated her previous request for fund balances on various projects from the administration. Ms. Abell further clarified that a specific report of turn backs or project funds that might not be expended would be part of this request, since it wasn't exactly as she expected in the DLS report. Mr. Ayles stated that at this point in time, due to the budget season, he did not have time to research this, as it would take a considerable amount of time to do so. Mr. Ayles did say that one document that would be valuable to the committee would be the "Official Statement" (or OS) for the city. This is a comprehensive document containing a large amount of data for the city. He would try to get that. Mr. Houseman raised the concern that future deficits are growing in relation to past Financial Forecast reports, and was curious why. Mr. Ayles stated that the expenditures are a driving reason for these deficits, as the traditional revenue increase remains fairly constant at 3 %. Mr. Ayles explained these increases include salaries, pensions, health care, debt, and school expenditures. Mr. Ayles discussed the COLA's with the schools, which is a challenge, though Ms. Sherburne was not in total agreement with this thought. Mr. Perry added that the costs of SPED is a real challenge for the schools. Again, it was stated that any budget increase over 3% causes stress to the process. Ms. Sherburne provided supplementary information to the committee in response to questions from the last meeting about the historical Chapter 70 funding, anticipated assessments & charges ( "cherry sheets "), and cost of substitute teachers over time. The committee agreed to meet on May 13, 2019 at 6:OOpm. Motion made by Mr. Latter, seconded by Ms. Ferretti to adjourn at 8:OOp.m. Motion passed unanimously. Respectfully Submitted, Gerard D. Perry City Council Budget Analyst Attachment: MA DESE Trends in Chapter 70 Aid Components MA DOR DLS FY2020 Preliminary Cherry Sheet Estimates Beverly School Budget Forecast and Assumptions (verbiage for section III.) Teacher Substitute Costs spreadsheet (FY14 -FY19)