Reading, MA — Last Wednesday, the Massachusetts Senior Deputy Commissioner of Local Services, Sean Cronin, shared insights into local municipal finances with the Finance Committee’s (FinCom) Financial Forum. Cronin explained that statewide, 65% of local revenues come from property taxes, whose growth cannot exceed 2.5% of total assessed property valuation plus new growth every year according to the state law known as Proposition 2 1/2. He also reported that total statewide revenue growth increased by $6.8 billion from Fiscal Year 2012 to Fiscal Year 2022, which is a 52% increase. Of that increase, $3.3 billion was new growth. The average single-family tax bill in the state increased by $2,000 in that same time period. Cronin also pointed out that 40% of that growth occurred in the state’s top fifteen municipalities, with Boston alone accounting for 22% of the growth.
Cronin continued, referring to state aid as a “critical part of municipal finance.” State aid for FY 2022 was budgeted for $7 billion. About 10% of municipal revenue comes from local receipts such as motor vehicle excise taxes, meals taxes, and lodging taxes.
Cronin also spoke regarding municipal unassigned funds, often known as “free cash.” These funds are accumulated through many years of saving, and Cronin indicated they should be preserved for one-time expenditures and not used for operating budgets. He recommended that a municipality’s free cash reserves be at least five to ten percent of its operating budget. He also indicated that the combination of free cash and stabilization reserves should be over ten percent of the operating budget to achieve the highest bond rating needed for borrowing.
Cronin concluded by offering a list of best practices for towns, including having a financial management team, clear financial policies, a capital improvement plan, and the development of long-range forecasts. A long-range forecast “acts as a bridge between the operating budget and the capital improvement plan, bringing all fiscal policies and economic variables together to establish a coordinated managerial direction,” Cronin offered.
Town Accountant Sharon Angstrom presented a financial overview for the FY 2024 budget. She projects property tax revenues to be $87.3 million, or a 3.4% increase over FY 2023. She also anticipates $28.3 million from the combination of local revenues, state aid, and other sources. “We are just starting to get local revenues back to pre-pandemic levels,.” Angstrom noted.
Angstrom also reported a free cash estimate of just under $19.7 million for FY 2024. She did state that if Town Meeting approves all the articles involving the use of free cash on the warrant, this will drop to $16.8 million. Reading also has $1.7 million in the general stabilization fund and $200,000 in Finance Committee reserves. In FY 2022, revenues were $2.6 million over estimate, and expenditures were $2.48 million under budget. This money was added to free cash at the end of the year.
Angstrom presented actual accommodated costs for FY 2023 and projected amounts for FY 2024 and FY 2025. She noted that the excluded debt for the high school and Wood End School will be paid off in FY 2024, and the library will be paid off in FY 2025. This launched FinCom into a discussion regarding the use of free cash in the budget. Angstrom noted that current inflationary levels create a challenge for the use of free cash in the future. “Based on what we project, based on what we use, . . . will determine when we have to go back to the voters [for an override],” FinCom chair Ed Ross suggested.
Superintendent of Schools Thomas Milaschewski then shared the reasoning behind the need to rebuild the Killam Elementary School, which has not been renovated since it was built in 1969. Milaschewski split the needs into two sections, facilities needs, and program needs. Killam is the only school in the district with lead in the drinking water. It is not in compliance with the Americans with Disabilities Act at the entrances, in staff and student bathrooms, and the cafeteria stage.
Milaschewski continued sharing that the school has classrooms that can only be accessed through other classrooms and has limited electrical and data access points. The school has no sprinkler system and needs “large scale” door and window replacements. Milaschewski concluded that sightlines from the main office need to be improved for security purposes and that there is water infiltration into the basement during heavy rainstorms.
Program needs at Killam, addressed by Milaschewski, include limited spaces for small group intervention and support, English language learners, and special education students. He also indicated that the RISE program is growing and will likely require additional space in the future.
Director of Finance Susan Bottan updated the forum on the Massachusetts School Building Authority (MSBA) process. She described the process’s three stages. The first stage is the preparation which Reading is currently part-way through. This process is 270 days long and started for Reading on June 1. This stage has, as its final step, local authorization of funding for a feasibility study and schematic design. The second stage is the scope definition phase, during which all the site testing is done, and construction documents are prepared. The final stage of the project is construction. Bottan indicated that the entire process is expected to take up to three and a half years.
School Committee vice-chair Carla Nazzaro reported on the implications of Town Meeting voting in favor of the article to use $2.2 million from free cash for a feasibility study and design schematics for the project. She shared that the funding will hire an owner’s project manager, will secure a designer to develop a specific solution on the site that includes the needs of the entire district and that is the best fit for Reading, and it will advance our understanding of the needs and options for the site.
Nazzaro continued to point out that the funding is essential because it will advance Reading’s eligibility into the second stage, as described by Bottan, and it will bring better estimates for the final project cost. Nazzaro concluded by indicating that the funding includes contingencies and would be added to the final reimbursable amount for MSBA funding.
The Financial Forum concluded with Town Manager Fidel Maltez sharing the possibility of renting or purchasing the former Walgreens building on Harnden Street for use as a senior center. The building owner has proposed a rental agreement of $18,000 a month for the first nine years of the contract, with a rent of $36,000 a month for years nine through twenty. The owner has also suggested a sales price of $7 million less a $2 million sales credit for purchase of the building. Maltez also reported a rough estimate of $7.3 million for renovations to the building. Select Board member Karen Herrick noted that this amount is considerably less than it would cost to build an entirely new building.
Maltez also shared that the economic development bill before the legislature now includes a $1 million earmark for a new senior center. The Select Board will be discussing the options in an executive session at its next meeting and has placed an article on the town meeting warrant authorizing the Select Board to purchase and place a debt exclusion question on the ballot, allowing the voters to decide. The Select Board has ninety days to act on the proposal, though Maltez indicated that this time frame could be extended.
The Financial Forum concluded at 10:15pm.