Town of Brookline

Honorable Members of the Board of Selectmen
And Members of the Advisory Committee

We are in the midst of an extraordinary era. We have witnessed 3,000 American civilians killed; billions in property destruction; hundreds of thousands newly unemployed; the collapse of renowned local and national corporations; and the growth rate in state revenues drop by 15%, the steepest decline in the modern history of the Commonwealth. The Town of Brookline, as much as any other Massachusetts community, is absorbed in this reality. We have mourned. We have enhanced emergency preparedness. We are also experiencing wide swings in our budget – interest earnings are down 48% and 10 years of local aid increases are being reversed.

Not surprisingly, the Financial Plan for Fiscal Year 2003 must mirror these circumstances. But, perhaps more importantly, it strives to reflect this Town’s convictions about community and country. The FY03 Financial Plan looks forward, not backward - - forward to carrying out capital improvements for future generations; forward to sustaining education excellence; forward to a greater role for technology in Town services; and forward to safeguarding all of our citizens to the best of our ability.

It is once again my privilege to submit for your review and consideration the Annual Financial Plan in accordance with Chapter 270 of the Acts of 1985 (the Town Administrator Act) and Section 2.2.5 of the Town By-Laws. The FY03 Financial Plan is presented to you in the amount of $174,531,475, a decrease of $873,735 (0.5%) over the current fiscal year. This includes a General Fund operating budget of $143,844,400, which represents an increase of $5,134,746 (3.7%) over the current year. Also included is a tax-financed capital budget ($6,097,794), enterprise fund budgets ($21,283,267), and an operating budget reserve fund ($1,024,766). [See pages I-24 and I-25 for financial summaries.]

We have endured one of the most challenging years in this nation’s history. Our sincerest hope is that the FY03 Financial Plan will provide a thoughtful and determined approach for meeting the challenges that undoubtedly lie ahead.

FISCAL OVERVIEW

When the Governor's budget was released on January 23, 2002, local aid for Brookline was level-funded. Since October, our own budget planning had assumed this likelihood and preparations proceeded accordingly. Despite this level-funding assumption, the development of the Financial Plan was premised, nevertheless, on a “maintenance of effort” budget because of the Town’s relatively sound financial condition. Maintenance of effort budgeting generally entails avoidance of deep service cuts and allows for the limited addition of new programs within narrowly defined criteria.

Although much appreciated prior alerts from the Brookline legislative delegation had prompted us to make contingency plans for potential cuts in the 5%-10% range for unspecified local aid accounts, our strategy remained to prepare a maintenance of effort budget and then respond as contingencies might arise. Regrettably, the contingency is now.

On February 5th our preparations came to a crashing halt upon receipt of a letter from the Chairman of the House Committee on Ways and Means, who warned:

- “local officials must be warned immediately that local aid in the final budget for FY03 may be cut by as much as 10 percent from FY02 levels.”
- “the safest course for cities and towns is to prepare for a 10% reduction from FY02 in all forms of local aid except Lottery Aid.”
- “The Cherry Sheet estimates that the Department of Revenue will be distributing to cities and towns later this month should, therefore, be ignored.”

Because the Town By-Laws mandate a mid-February submittal for the Financial Plan and, given the lead-time necessary for final calculations and production, we were forced in a matter of five workdays to revisit months of prior effort to account for the local aid cuts announced by the House Leadership. In this compressed time period we identified alternatives, evaluated them with department heads, coordinated efforts with the School Superintendent, and advised the Town/School Partnership Committee of our approach.

Fortunately, our initial Financial Plan preparations were predicated upon the Fiscal Policies that guide budgeting in periods both of growth and retrenchment. We had well established reference points within which to work out details, however difficult, in this time-pressured environment. Perhaps more importantly, cutbacks are being made against a financial program that otherwise is generally sound. By way of contrast, there are reports of many Massachusetts municipalities that are compelled to implement local aid cutbacks on budgetary positions that are already overstressed. While this Financial Plan can not now sustain an across the board maintenance of effort budget, it does offer a 3.7% operating budget increase that fully funds fixed costs, maintains appropriate levels of reserves, sets aside adequate funding for collective bargaining obligations, and supports a limited number of new programs.

There are several reasons why Brookline’s underlying financial condition is relatively stable. Adherence in prior fiscal years to the Selectmen’s Financial Improvement Plan has undoubtedly helped maintain the Town’s financial equilibrium. Policies regarding free cash, debt service, reserves, etc., have had a steadying influence in the growth years and should continue to have a stabilizing effect in these more difficult times. Some of the other factors that have contributed to the Town’s current position are:

- The recession has been tornado-like, touching down with its worst damage in high-growth areas like the R128-I495 Belt. While some
revenue accounts here have declined steeply, others (e.g. motor vehicle excise, building permits) have remained comparatively stable
through December, 2001.

- During the economic upswing, many communities experienced substantial school enrollment increases, which they found barely
manageable in the boom times and will be virtually overwhelming now. Brookline’s school enrollment has been flat since 1996, but
school budget increases have ranged each year from 4%-6%.

- Because the Town has received a disproportionately lower share of local aid (Chapter 70/Education funding accounts for only 13% of
our school budget, among the lowest in the state), we are not over-reliant and, therefore, not as vulnerable to a curtailment of
intergovernmental revenue.

- While over-reliance on the property tax is also to be avoided, the property tax has historically shown itself to be more recession resistant
than income, corporate, or sales taxes, as well as other local revenues such as fees and fines.

- Ongoing expenditure controls have been crucial in readying the Town for this downturn. Labor agreements have been negotiated within
the Town’s ability to pay and have not included language escalators that drive up compensation schedules over time. Through the
comparatively prosperous mid-'90’s the number of permanent full-time personnel were virtually frozen in place. There were
approximately 700 municipal full-time positions in 1995 and 704 full-time positions now.

- Perhaps the single most immediate factor enabling the maintenance of effort budget for FY03 is an anticipated $800,000 increase in
parking meter revenue. About $350,000 is expected from more efficient collections resulting from upgraded meters and about $450,000
is due to the rate increase from $.25 to $.50 an hour voted by the Transportation Board in November, 2001. Statutorily, meter receipts
must be allocated for parking and traffic purposes, but doing so frees up budgetary capacity for other services.

While it is impossible to calculate a 10% local aid cut with precision, it is estimated that this level of reduction (exclusive of Lottery Aid) results in a $1.5 million cut for Brookline. (Depending upon the specific approach taken, the cut could range from $1.2 million to $1.6 million.) Within the framework of the Town/School Partnership, the $1.5 million reduction results in $750,000 of cuts, respectively, for town and school budgets.

In very close collaboration with the School Superintendent, fiscally responsible strategies were developed to mitigate against adverse impacts of actual cuts of this magnitude. First, fixed costs were reviewed to ascertain whether adjustments could be made to lessen the extent of direct cuts in operating budgets. As a result of this review, the BC/BS group health increase was reduced from 7% to 5%; $200,000 in potential savings from the recent bid of the refuse disposal contract was identified; and reductions were made in Worker's Compensation and other accounts. These actions reduced the level of direct budget cuts to $477,035 for the Schools and $472,965 for the Town.

After addressing fixed costs, operating budget reductions were developed that both protected vital services to the greatest extent possible and also recognized the potential long-term nature of the fiscal crisis. For Town Departments, the following summarizes the steps taken to meet the Town’s share of the local aid cut:

- Police vehicle replacement reduced by 30% ($101,884)
- DPW capital equipment and other reduced ($117,882)
- Recreation and Building Department vans eliminated ($48,000)
- Salary and Benefit Adjustments ($174,965)
- Building repairs, legal settlements, other reduced ($30,234)

In summary, the $1.5 million local aid cut is being addressed as follows:

The application of such stringent criteria necessarily resulted in the deferral of many proposals that could not meet these conditions. Some of the proposals that had to be deferred include: additional town funds for the continuation of the Park Ranger program; expansion of permanent custodial staff for the new Public Safety Building; and additional personnel for the branch libraries.

We have every reason to expect that the State fiscal crisis will take more than one fiscal year to resolve, even if the economy shows signs of bouncing back in the next 12-18 months. Our approach must take into account that budget deliberations might be every bit as difficult again in FY04. (During the last recessionary period, the Town experienced three consecutive years of local aid cuts from FY90 through FY92.) With this in mind our long-term approach should reflect the following, to the fullest extent possible:

- Although virtually all spending will have to “be on the table” for possible cutbacks, reductions in the operating Reserve Fund should be the
last resort. In FY01 (just last year) all but $120 of the $875,000 Reserve fund had to be expended to meet emergency and unanticipated
needs.

- The Town should avoid retirement incentives unless they are linked to staff reductions. Without corresponding reductions in work-force
levels, retirement incentives not only will not save money, but will in the long run result in additional costs.

- The Town/School Partnership, which recognizes the primacy of education while supporting essential basic service (public safety, health,
building, etc), must be continued.

BUDGET STRATEGY

The FY03 Financial Plan is based upon a strategy of reinforcing service delivery tied to our core municipal mission, while positioning our assets for a potentially long-term public sector recovery from the current recessionary conditions. As examples: (i) Enterprise Fund budgets (Water, Sewer, Golf) include limited cash reserves that can offset revenue losses from unexpected weather (or other) conditions; (ii) overall reserves have once again been adjusted in accordance with standing policies and are not recommended as funding sources for operating requirements; and (iii) the Debt Management Plan continues the policy of funding capital improvements at a level indexed to 5.5% of prior year net revenues.

The FY03 Financial Plan includes a moderated estimate of property tax “new growth” from new construction in the amount of $1.2 million. Local Aid is decreased by 10% as described above. Some categories of Local Receipts show a downward direction, the result of the economic downturn. For the first time, the balance in the Town’s FEMA Reimbursement Account is being drawn upon to augment requirements in the Town’s on-going service program. This account balance has accumulated over the years due to differentials in the reimbursement rates utilized by Federal/State agencies for declared emergencies and the actual direct costs incurred by the Town. As of January 31, 2002 the account balance was $305,000 with an encumbrance of $197,000 for pending emergency management-related expenditures recently authorized by the Board of Selectmen.

Town fixed costs have been fully funded. Debt service will increase by approximately $1.3 million (9.5%) as the annual debt service of the Baker School and Public Safety Building come on-line. Group Health is a continuing major concern as costs increase by approximately $1.2 million (10.6%). The multi-year electric power contract with Exelon Energy expires in March, 2003 and additional funding is set aside to cover the potential increased costs for a successor contract. Fortunately, favorable bids seem to have avoided a spike in the Town’s long-term refuse disposal contract.

Despite the constraints of local aid cuts and reduced local receipts, the FY03 Financial Plan includes several major initiatives designed to advance to the Town’s overall service program:

· Allocation of $227,000 earmarked for Emergency Preparedness, including $30,000 for interdepartmental training funds in the Fire
budget and $197,000 recently authorized by the Selectmen from the FEMA reimbursement account for essential equipment, facility, and
other needs identified by the Emergency Management Team.

· Implementation of the IT Strategic Plan, as recommended by Pacific Technologies, Inc., through a $200,000 allocation for an Enterprise-
wide IT Department, including:
- A New CIO Position
- A Full-service “Help Desk” Division
- Consolidation of Town and School system services

· Expansion of Parking Enforcement capability as recommended by the Commercial Areas Parking Committee through the utilization of anticipated increased parking revenue in order to transform part-time parking control officers/school crossing supervisors to full-time parking control officers.

· Establishment of a Payroll Unit within the Finance Department to support accounting and human resource functions more efficiently by removing payroll functions from the Comptroller’s office, thereby allowing more capacity for accounting demands (GASB #34, etc.).

· Realignment of the General Services operation from Information Technology to the Purchasing Division and the reassignment of personnel advertising from the Human Relations-Youth Resource Department to the Human Resources Department.

· Continuation of the funding plan for the Town’s Post Employment Health/Life Insurance obligation, estimated at $118 million. In FY03, $229,750 is recommended for this liability.

In addition to adding a limited, but important, number of initiatives to our overall service plan, several standing priority commitments are supported to the maximum extent possible:

· Expansion of Parking Enforcement capability as recommended by the Commercial Areas Parking Committee through the utilization of
anticipated increased parking revenue in order to transform part-time parking control officers/school crossing supervisors to full-time
parking control officers.

· Establishment of a Payroll Unit within the Finance Department to support accounting and human resource functions more efficiently by
removing payroll functions from the Comptroller’s Office, thereby allowing more capacity for accounting demands (GASB #34, etc.).

· Realignment of the General Services operation from Information Technology to the Purchasing Division and the reassignment of
personnel advertising from the Human Relations-Youth Resources Department to the Human Resources Department.

· Continuation of the funding plan for the Town’s Post Employment Health/Life Insurance obligation, estimated at $118 million. In
FY03, $229,750 is recommended for this liability.

In addition to adding a limited, but important, number of initiatives to our overall service plan, several standing priority commitments are supported to the maximum extent possible:

· Funding for education is increased $1.7 million, or 3.5%, which is a
significantly larger increase than provided in previous Town budgets in prior
recessionary periods.
· Within the total $1.7 million allocation for schools, SPED funding is
increased by $535,000, exclusive of collective bargaining, keeping pace with
the needs described by the School administration.
· The accelerated replacement schedule of front-line fire apparatus is
continued.
· Zone management for Parks and Open Space operations, initiated last year,
is expanded to five positions in FY2003.
· The commitment to the Affordable Housing Trust is continued for a second
year in the anticipated amount of $311,225, per the policy adopted by the
Board of Selectmen.

Finally, the FY03 Financial Plan addresses several perennial cost centers, which have, at various times, been characterized as “budget busters”. These are addressed in deliberate fashion consistent with the Fiscal Policies and recent past practice:

- Collective Bargaining – All town (police, fire, municipal) collective bargaining agreements expire on June 30, 2002. Potential town
increases and increases already negotiated for school employees constitute the largest single cost center for the Town. The Selectmen have
issued guidelines to the Town’s negotiating team that reflect cost of living indices, community comparisons, and the Town’s ability to pay
in light of the changing revenue picture. The Town’s guidelines indicate that collective bargaining increases would be offset by savings and
efficiencies from changes in attendance and leave requirements along with greater management flexibility. Modification in group health
provisions will also likely be sought.

- Group Health Insurance – The financial turmoil in the managed care industry continues to drive inflation of group health insurance to rates
far exceeding the growth in government revenue. HPHC is still proposing double-digit increases to many Massachusetts communities and
has notified the Town of a rate increase for its premium-based product of 15% for next year. Blue Cross / Blue Shield has priced their self-
insured program at a 5% increase for the next year. This cost increase is exacerbated by a significant rise in the health plan employee
enrollment. As employees retire, particularly teachers receiving incentives to retire early, they remain on the Town’s group health program
before being covered by Medicare, if eligible, at age 65. Replacing the retired employee further adds to the group insurance enrollment.
Finally, as School personnel levels rise, the School Department, through its share of fixed costs, absorbs a greater cost of group insurance.

- Special Education – The Town makes an extraordinary commitment to Special Education funding. Under the Town/School Partnership
Agreement, SPED is considered a fixed cost, just as debt service obligations are considered a fixed cost. It is unlikely that any other
municipality in the state makes this type of commitment to the funding of special education. Included in the FY2003 Financial Plan is a
commitment of an additional $535,000 for this purpose. This follows increases of $730,000 in FY2002 and $600,000 in FY2001.

- Debt Service – In FY2003, debt service is expected to increase by approximately $1.3 million ($9.5%). Again in FY2007, with the sale
of debt for the Lawrence School, debt service is expected to increase by more than $1.2 million. As part of the capital planning and debt
management process, steps have been taken to slow new debt commitments until debt levels fall back to within the guidelines established
by financial policy.

- Energy – At a time of rising energy prices, it is a challenge to maintain a conservation program strong enough to offset rapidly increasing
prices. A two-year natural gas contract was negotiated in FY2002 that includes prices similar to the prior year's contract. The current
electricity contract, which has been extremely favorable for the Town, expires at the end of the third quarter in FY2003. As a number of
municipal buildings are refurbished, it will be important to monitor consumption use and adopt stringent conservation efforts to stabilize
future price increases.

- Refuse Disposal and Residential Trash Fee - The Town’s refuse disposal contract expires on June 30, 2002. As previously noted, the
initial bids indicate potential first year (FY2003) savings of approximately $200,000 below current costs. Even with these savings,
however, the Town’s reliance on property tax revenue to support sanitation operations will continue to increase. To reverse this trend of
property tax revenue assuming a growing share of the service costs, an increase in the Residential Trash Fee is recommended.

The Refuse Fee was instituted in 1989 in the amount of $200 per household. The 1994 Override included property tax-based funding for sanitation operations in the amount of $460,000 to drop the household user fee to $165.

While the user fee has remained constant at $165 per household since 1994, the cost of providing the service has grown. The property tax subsidization of sanitation services has more than doubled to $1,184,742 for FY2003. This has diverted General Fund property tax revenue from School and Town services to the quasi-enterprise sanitation operation.

The 1994 Override created property tax subsidization of sanitation services at a level of 19.96%. The current FY2003 tax subsidy for sanitation services has risen to 36.07%. To bring the property tax percentage closer to the FY1994 support level, and to reallocate much needed revenue for School and Town services, it is recommended that the refuse fee be increased by $30 to $195 per household as of July 1, 2002. This will establish a subsidization goal of 25% of the sanitation cost, still higher than the level set by the 1994 Override. The fee adjustment will free up approximately $360,000 in property tax revenue that could then be distributed under the Town/School Partnership on a 50%/50% basis to education and municipal budgets. If this is not done, the property tax subsidization will continue to grow and, in a very short period of time, will support more than half of the total cost of providing this service.

FISCAL POLICIES

The Town’s standing Fiscal Policies have contributed directly to the ability to formulate a maintenance of effort budget during a recession. The FY03 Financial Plan continues the practice of adherence to the Selectmen’s Financial Improvement Programs and formal Budget Guidelines, which include:

- Long-range financial projections
- Retention of increased reserves
- CIP Financing policies
- Town / School Partnership Agreement
- Collective Bargaining settlements within ability to pay
- Position freeze on total number of Town employees
- Directives re: use of Free Cash
- Override requirements of 1994

Sustainable Revenue and Reasonable Expenditure Assumptions - Last year, as part of the development of the FY2002 Financial Plan, a careful analysis was undertaken to determine, in the event of a slowdown in the economy, what level of Local Receipts would be sustainable. That effort, which established a new “revenue mix” for the current FY02 budget, helped the Town avoid erratic revenue projections and dramatic swings in service delivery in the FY2003 Financial Planning process. This analysis included a review of how an increase in Local Receipts would effect future year capital funding.

In order to factor reasonable expenditure assumptions into the forecast, an effort was made to broaden the discussion to include both department heads and external sources (Mass. Municipal Association; Mass. Taxpayers Foundation; other communities; etc.). A substantial review of major cost centers, including Group Health, Special Education, Debt, Retirement, Water/Sewer, Refuse, and energy costs, was conducted.

This approach anticipated an eventual economic downturn and guided the appropriation process to avoid building unsustainable income into the Town’s budget base. The severe year-to-date decline (44%) in interest earnings bears out the soundness of this approach.

Reserve Policies - Last year, a review of the Town’s Reserve Fund policies was conducted and areas of possible adjustment were identified. The FY2003 Financial Plan includes these adjustments to the appropriated reserves, non-appropriated reserves, Capital Stabilization Fund, Catastrophe and Liability Fund, and Retiree Group Health Insurance Trust.

· Appropriated Budget Reserve – In order to strengthen the ability of the Board of Selectmen and Advisory Committee to quickly
resolve financial problems, while maintaining speed and flexibility in the community’s crisis management protocol, this reserve is funded at
the full amount (.75% of prior year net revenue).

· Non-Appropriated Budget Reserve – Beginning in the current year budget and continued in the FY2003 Financial Plan, a reduction in
the annual set aside from 0.75% to 0.5% is included in this plan.

· Capital Stabilization Fund – The existing policy calls for a level of funding equal to 1% of the replacement value of municipal buildings
and content. The purpose of the fund is to provide revenue for capital improvements if Free Cash were to fall below $2 million in any year.
The Town has now updated the value of its municipal buildings and contents to the present value of $315 million. Due to high investment
yield, the fund currently has assets of approximately $4 million. An adjustment to the present policy, allowing the fund value to rise above
the previously established ceiling and provide at least four years of reserve, is being reviewed.

· Catastrophe and Liability Fund – The purpose of this fund is to protect the community against major facility disaster or from a
substantial negative financial impact of a lawsuit. Due to the effects of September 11th, the insurance industry, overwhelmed with losses, is
no longer offering insurance against terrorism. This reinforces the Town’s practice of funding reserves to targeted levels. Currently, the
fund is at approximately $1.3 million. The FY2003 Financial Plan calls for the savings from the previously discussed non-appropriated
reserve to again be diverted to this fund.

· Retiree Group Health Insurance Trust – According to a 1998 actuarial study, the Town had an un-funded post-retirement benefit
obligation estimated at $94 million. In 2001, this figure was updated to $118 million. In order to begin to address this issue, the Town
adopted a strategy within the FY2000 Financial Plan to divert savings from Non-Contributory Retirement to this fund. Unmatched health
insurance appropriations were also diverted to the fund at the end of the fiscal year. In order to continue progress in this area, several
options have been included in the financial plan: departments with employees funded by non-property tax sources (Water/Sewer, Golf,
Recreation Revolving Fund, and CDBG) shall include forward-funding for retiree health benefits in their budgets; when annual experience
allows, unmatched funds will continue to be transferred into the fund; once the Town’s Pension Fund is fully-funded, the savings will be
reallocated to this fund; and it is proposed that once both the Capital Stabilization Fund and Catastrophe and Liability Fund meet Town
funding goals, savings from the non-appropriated reserve be diverted to this fund.

Debt Management Plan Adjustments– The Town's policy regarding capital financing is appropriate for a community of the size and needs of Brookline. Each year, 5.5% of prior year net revenue is dedicated to the improvement of capital and infrastructure. The guideline calls for 4.25% to be derived from debt financing and 1.25% from tax-financed sources. In recent years, a growing number of capital projects have received approval by Town Meeting for debt financing. In the next few years, projects such as the Baker School, Public Safety Building, Library, and the Lawrence School will all add to the Town’s current debt levels. The effect of this rapid build-up of debt is the concurrent reduction in the tax-financed portion of the capital funding plan in order to remain within the 5.5% funding cap. Expansion beyond this funding level can lead to a transfer of allocations from direct services to debt service. This places a great deal of pressure on the Town’s ability to continue to provide services at appropriate levels.

In order to keep within the Capital Financing Guidelines, the FY2003 Financial Plan continues the commitment of not exceeding debt service guidelines. In the next several years new projects, such as the Driscoll School, Beacon Street reconstruction, Landfill closure, Health Department Rehab, and Town Hall Rehab, come on-line. The timing of the construction of these projects allows the Town to remain within a 5.5% debt service guideline.

Brookline is one of just 11 communities in Massachusetts that has the Aaa credit rating, the highest possible. Among other factors contributing to this rating, Moody’s Rating Services has cited the Town’s “sound financial operations”; “well developed capital improvement plan”; and commitment to “previously dormant stabilization funds”. Moody’s findings are linked directly to the Town's Fiscal and Budgetary policies.

Town / School Partnership Agreement – Crucial to our annual financial plan is the Town / School Partnership Agreement, signed by the Superintendent and Town Administrator and approved by both the Board of Selectmen and School Committee in 1995. Perhaps unique in Massachusetts’s local government, the Partnership Agreement affirms the primacy of education in the annual budget process. The Agreement establishes the objective of committing planned levels of operating revenues for education regardless of the extent of other demands. The Partnership Agreement commits to education 50% of virtually all revenue that is not dedicated to fixed costs, with the remainder then allocated to other Town operating priorities.

The steady approach over time of the Partnership Agreement enables the FY03 Financial Plan to call for a 3.5% increase in school spending when we are experiencing the first recession in a decade; when state education aid has been cut; and when many other local school districts are facing no-growth or decreased budgets. The proposed 3.5% increase is a far cry from the level-funding or outright cuts that had to be imposed on the Brookline Schools in previous periods of fiscal decline. The graph below shows the annual percentage change of the education change since 1982. The striped lines highlight years when the economy declined and/or fiscal conditions deteriorated.

Collective Bargaining Guidelines – All municipal labor agreements expire on June 30, 2002. The Selectmen have adopted economic and language guidelines for use by the Town’s negotiating team. The economic guidelines are predicated upon cost of living indices, settlement patterns in comparable communities, and the Town’s ability to pay. Language proposals are designed to address attendance and leave trends along with other areas in which potential efficiencies and savings have been identified, including the group health program.

No Net Increase in Town Positions – Several years ago, the Selectmen adopted a position freeze policy on the number of Town personnel. This policy establishes a cap on the total number of Town (non-school) personnel. The purpose of this policy is to ensure that Town staffing corresponds to the Proposition 2 ½ cap on town revenue so that, even in favorable economic periods, staffing is not increased to unsustainable levels. Due to the implementation of the Public Safety Joint Dispatch operation, the current FY02 budget experienced a slight increase: the total number of Town personnel has risen to 704 positions. In the FY2003 Financial Plan, the total full-time position count will be reduced by one position: four existing positions will be eliminated, offset by the creation of three new positions. Beginning in FY2003, the standard measurement procedure for determining authorized positions will be converted from full-time to full-time equivalent (FTE).

Free Cash - The Board’s policy regarding Free Cash (that portion of undesignated fund balance certified as available for appropriation by the State Department of Revenue) requires that, after setting aside free cash in the amount of 0.75% of prior year net revenue as part of budget/strategic reserve funds, free cash will be used exclusively to fund capital or other one-time projects. Free cash for the fiscal year ending June 30, 2001 was certified by DOR in the amount of $6.225 million (see Free Cash history on page II-27).

Override Requirements of 1994 – With one exception, this Financial Plan preserves the 1994 override allocations in the budget base. In the School budget, the override funding of $1.3 million is earmarked for the intended purpose of staffing, technology, supplies, and building maintenance. The $460,000 allocated as a tax subsidy to offset the user fee charge for Refuse Collection and Disposal is continued. In the Town budget, funding in the amount of $200,000 for building maintenance is fully earmarked once again. However, it is proposed that $60,000 of the $1 million for capital equipment be deferred for at least one year.

CAPITAL IMPROVEMENT PROGRAM

Over the past several years, the Town has made a significant commitment to its Capital Improvements Program (CIP) to address the backlog of capital improvement needs created by the under-investment in the infrastructure during the late-1970’s and the 1980’s. In the last 11 years, the Town has invested more than $200 million in the CIP. Although there is more to do in the areas of street repairs, parks and open space improvements, and school facilities upgrades, the commitment to capital improvements is clearly showing positive results.

The recommended FY2003 – FY2008 CIP complies with the Board of Selectmen’s CIP policies, including the key provision of dedicating between 5% and 6% of the Town's net revenue plus available Free Cash. The CIP policies define what a capital improvement project is, how projects are evaluated and prioritized, and how the CIP is financed. The complete text of these policies can be found in Section VII of this Financial Plan.

The recommended CIP calls for an investment of $75.6 million over the next six years, for an average of $12.6 million per year. This continues the Town’s commitment to maintain and improve its infrastructure and to reduce the backlog of projects requiring funding. This compares with the figure of $10.5 million per year noted by the CIP Policy Committee as the necessary spending level to maintain the Town’s capital infrastructure. The total appropriations from all financial sources by year and by project category are shown on the table on the next page:

Click here to view Town of Brookline Capitol Improvement Project FY2003 - FY 2008 (PDF)

Developing the CIP so as to stay within the Board’s CIP financing policies was again very challenging this year. In recent years, the Town has committed debt financing for a number of large projects, including the High School, Baker School, the Public Safety Building, the Main Library, Landfill closure, the Lawrence School, and more. It is now believed that outstanding debt will exceed $150 million with an annual debt service cost of $16.1 million in FY2007.

While it is important that we maintain our commitment to the CIP, it is equally important that we remain committed to staying within our Capital Financing Policies. The Town has reached its funding goal of between 5% and 6% annually committed to capital in the area of debt financing alone. Give the rapid acceleration in our debt, and given that we have the highest debt burden per capita of the Aaa communities in the state, it is crucial that we maintain fiscal discipline in this process. In order to remain within the Capital Financing Policies, there will be little tax-financed capital projects in the next few years. There is expected to be sufficient revenue from Free Cash, CDBG, and State/Federal Grants to provide adequate funding during this period. This will allow the Town the opportunity to pay down some of the existing debt service and re-establish the tax-financed source of capital funding.

Some of the major projects being proposed in the Capital Plan are:

- Beacon Street Reconstruction - Landfill / Park - Various School Improvements - Health Building - Town Hall Rehab - Parks, Open Space, Recreation - Streets, Sidewalks, Traffic	$8.0 Million $6.7 Million $12.0 Million $3.9 Million $6.6 Million $10.9 Million $20.0 Million

It is important to note that the recommendations contained in the CIP are based upon our best estimates of future revenue. Budget reductions at the State or Federal levels could require significant cutbacks in the recommended program for future years. Also, the amount of Free Cash available for the CIP can fluctuate drastically from year to year. Should actual amounts be less than anticipated, then the CIP recommendations may have to be revised.

LONG RANGE FINANCIAL PROJECTION

The cornerstone of our strategic budgeting process is the long-range financial projection. Based upon an analysis of the internal and external factors impacting the Town’s operations and finances, we have prepared the long-range projection, found on page I-24, covering the period FY2003 through FY2007. The Town is facing an escalating deficit position for FY2004 and beyond. Collective bargaining costs, the continued commitment to capital investment, and extreme limitations on local aid, coupled with the structural shortfall caused by Proposition 2½, portend a deficit that will grow to $5.2 million by FY2007.

With a view toward an uncertain future, the Plan’s underlying strategy is to build budgets based upon sustainable revenue and reasonable expenditure assumptions. New discretionary programs have been added as greater efficiencies in existing portions of the budget have been achieved; remaining discretionary funds have been allocated to non-recurring cost items such as capital equipment, supplies, and building repairs; and reserves have been maintained at recommended levels. These steps have resulted in no significant impact to the overall budget base. Some of the trends and assumptions upon which the projections are based include:

REVENUES

Overall, revenue increases (exclusive of Free Cash) are expected to range between $4.7 and $5.0 million, or approximately 3.4%. Excluding water and sewer enterprise revenues and tax/reimbursements related to debt exclusions, revenue will increase by approximately $4.5 million or 3.3%.

- The Tax Levy is projected to increase an average of 3.4% per year. In addition to the standard 2.5% increase allowed under Proposition 2 ½, new growth in the tax levy resulting from building construction and condominium conversions is increased an average of $1 million per year. An amount equal to debt service overrides less any School Building Assistance aid is also included in the calculation.

- Local Receipts are expected to only slightly increase in FY2003, and approximately $300,000 (1.7%) per year thereafter.

- Water and Sewer revenue increases by 4% to 6% each year and is driven primarily by the MWRA Assessment.

- Local Aid, exclusive of School Building Assistance, is expected to decrease by $1.5 million in FY2003. The Police Career Incentive (Quinn Bill) reimbursement is expected to increase based upon a formula of 50% of the previous year costs. SBAP is expected to increase in FY2003 for reimbursement for the Baker School project and again in FY2007 in anticipated reimbursement for the Lawrence School project. Chapter 70 funding is expected to be reduced by $1.5 million in FY03, a result of the state budget crisis. In FY04, Chapter 70 is reduced by an additional $270,000. All other Local Aid categories are level funded throughout the term of the forecast.

- Free Cash, after deducting amounts for non-appropriated and strategic reserves, is used exclusively for the Capital Improvement Program. It is expected that $5.2 million would be available for FY2003. This would gradually decline to an amount of $3.8 million in FY2007.

- Other Available Funds, with the exception of enterprise fund overhead revenue and parking meter receipts, are expected to remain level throughout the term of this forecast.

EXPENSES

- The cost of Municipal Services is projected to increase by $8.5 million from FY2003 through FY2007, an average of $1.7 million per year. Of the total increase, $6.1 million is attributable to the cost of collective bargaining and steps. The balance of the increase, or $480,000 per year, is for all other fixed cost increases such as energy, refuse disposal, capital outlays, etc.

- The cost of School Services is projected to increase by $10 million from FY2003 through FY2007, or an average of $2 million per year. Collective bargaining and steps account for $6.2 million of the total. An increase of $800,000 per year is included for Special Education Tuition, transportation, and education supplies.

- Water and Sewer service costs are expected to increase by $4.3 million (or 23%) from FY2003 through FY2007. The MWRA assessment increase accounts for nearly all of this increase. Year to year increases average approximately 4% to 6% per year.

- Personnel Benefits, which include group health and life insurance, pensions, Medicare, workers compensation, and unemployment compensation, are expected to increase by approximately 13.9% per year.

- Debt Service figures assume full implementation of the FY2003-FY2008 CIP which includes the Public Safety Building, Main Library, Baker School, Landfill closure, Lawrence School, Town Hall building improvements, and Health Department building improvements. The debt service amounts comply with the Board’s CIP financing policies that require 4%-5% of net revenues to be allocated for this purpose. Both Water/Sewer and Golf Debt are included in enterprise revenues paid to the Town in the form of overhead charges.

- The Revenue Financed CIP policy faces tremendous pressure in the next few years. This policy establishes a guideline of 1.25% revenue financed and 4.25% debt financed capital funding each year. Debt service levels are predicted to be greater than the 4.25% goal in each of the next five years. When debt service rises above the 4.25% debt guideline, fewer funds are available from the revenue-financed category.

- Non-appropriated Expenses include State and County assessments, Cherry Sheet offset items, tax abatement overlay reserves, and court judgments. The two largest expenses are the MBTA assessment and the tax abatement overlay reserve. State and County assessments are expected to decline in each of the next four years by approximately $160,000 per year because of a decrease in the MBTA assessment. Due to declining requests for tax abatements, the tax abatement overlay reserve will be tied to an amount equal to 1.5% of the annual levy.

CONCLUSION

The Massachusetts Taxpayers Foundation last year warned in their report “The Perfect Storm” that the combined effects of recession, tax cuts, and fixed health care cost would create a fiscal vortex for the State. The MTF just a few weeks ago confirmed this condition in a report “State Budget ’02: Heading for a Crash”. The MTF now projects that assuming economic recovery this calendar year, with a 3% growth in State revenue (up from a 5% decline), there could still be a $2 billion shortfall for FY03, even if funding for all discretionary programs are level-funded.

The warning issued by the House Leadership concerning a 10% local aid cut reflects the depth of the financial problems confronting the State government. I have worked in or with Massachusetts local government for 30 years and can not recall a similar action of legislative leaders formally announcing cuts more than two months prior to releasing their budget. In checking with former Town Administrator Dick Leary, he too can not recall similar circumstances. Accordingly, there has been no choice but to take these warnings quite seriously in the preparation of the FY03 Financial Plan.

Local aid cuts have hit Brookline hard in the past and it has taken the Town years to recover from them. During the deep recessionary late-'80’s and early-'90’s, the Town experienced three consecutive reductions: -$2.1 million in FY90; -$0.5 million in ‘91; and a whopping -$2.8 million in ‘92. It was not until FY00, a full 10 years later, that the Town’s net local aid returned to the approximate level of FY89. The return to 1989 levels was the result of small, but at least steady, increases, primarily from Chapter 70/Ed Reform funding. The Town’s proportionate share of quite sizable increases in Ed Reform funding was only about 3/10’s of one percent of the total allocation. Further, local aid as a percentage of the Town’s total revenue in 1989 was almost 16%. Over a decade later, the Town has still not yet returned to that level. The current FY02 local aid still remains approximately 11% of total revenue.

Realistically, we need to anticipate that more than one year will be necessary to bounce back from current conditions. As suggested by the Taxpayers Foundation, the fiscal problems of the state might take two to three years to remedy even if the economy recovers sooner. Further, as history shows, it takes many years to rebound from local aid cuts.

Yet, for all the challenges we face, the FY03 Financial Plan avoids deep and difficult service reductions. There are certain initiatives we simply can not afford to undertake and there is much we have to defer, but we have not been forced to undergo severe cuts in core programs. By way of contrast, it is distressing to hear the reports of other municipalities that are in much the same position Brookline found itself in 1994 when a general override was adopted by the voters here.

This community took to heart the lessons of the early-'90’s and has taken the steps to maintain its budgetary equilibrium. Fixed costs such as group health were tackled. Collective bargaining agreements have been negotiated within the Town’s ability to pay. The Town/School Partnership has helped avoid the preposterously impossible budget demands heard in other communities. Reserves have been established and protected. Capital planning has been fully integrated into our budget process. In general, the Town has resisted the impulse to spend up to the revenue potentially available to it from the boom years.

However, this community can not afford either to count its blessings or sit on its laurels. If the anticipated local aid cuts actually occur, the setback will be tangible. Our underlying fiscal impediments are structural and will not recede, even if the economy improves. Low inflation, stable school enrollments, and other factors mask the inherent limitations of Proposition 2 ½, meager intergovernmental revenue, and decreasing local receipts. The needs of special education, information technology, emergency preparedness, energy costs, health costs, and this community’s justifiable insistence upon excellence in basic services simply do not match up over the long-term against the relatively flat line projection for resources.

Brookline’s ability to maintain its balance thus far is testimony to the willingness of everyone involved in this enterprise of Town government to work for the long-term benefit of this community. The Board of Selectmen has repeatedly provided the leadership necessary to forge the long-term outlook for all the elements in Town Government. The School Administration and School Committee have continued to collaborate in a Partnership that is unmatched in this state. Our Town Department Heads, in particular, have stepped up in this difficult time and helped forge an approach to budget cutting that preserves vital services and places the needs of the Brookline community first and foremost. The Town will certainly need everyone's creativity and perseverance more than ever as we fend through the coming difficult years.

In conclusion, I want to extend a special note of recognition to all of the Town employees who day-in and day-out deliver quality service to the residents, businesses, and visitors of this Town. Some of the decisions that lie ahead will be difficult, but they will never be made without your vital role in mind. To the staff of the Selectmen’s Office I owe my deepest appreciation. Deputy Town Administrator Stephen Cirillo and Assistant Town Administrator Sean Cronin have done a masterful job in forging a fundamentally sound Financial Plan, durable enough to withstand a literal last minute blow, unimaginable only a few months ago. Along with Finance Director Harvey Beth, they form a financial management team that can not be matched by any town in this state.

It is sincerely hoped that the Annual Financial Plan, even in this period of budgetary duress, will continue to be seen as reflecting the core values of this community.

Sincerely,

Richard J. Kelliher
Town Administrator

RELATED TABLES AND GRAPHS

Click here for related tables. (PDF):

FY2003 FINANCIAL PLAN SUMMARY - GENERAL FUND AND ENTERPRISE FUNDS

FY2003 GENERAL FUND SUMMARY

FY2003 GENERAL FUND BUDGET$158,336,726

FY2003 GENERAL FUND OPERATING BUDGET

LONG RANGE FINANCIAL PROJECTION FY2003-FY2007