Ash Outlines a Positive Outlook during Financial Forecast Meeting

May 2, 2011
By

Staff Report

There was an era when nothing good could be said about the City’s financial outlook.  In fact, so poor was the City’s fiscal health two-decades ago that the State placed the City into Receivership; the most drastic oversight step that can be imposed on a municipality.  Fast forwarding twenty years later, City Manager Jay Ash’s pronouncement at this week’s annual Five Year Financial Forecast meeting that the City is in good financial shape causes the memory of that era of financial tumult to become even fainter.

“Many of us know too painfully well what can happen when you don’t watch your budget and do the right things to keep it in balance.  Tonight, again, we can take pride in knowing that the r-word remains deeply in our past, as the City is in good financial shape and getting better all the time,” asserted Ash, who long ago said that he would not utter the word receivership because the City had moved so far away from it.

Sure, Ash acknowledged, things could be better.  The City is still running a modest structural deficit, education spending is not where most would like it to be, many would like more police on the streets, costly infrastructure work is abounding and employee benefit costs, most notably health insurance and retirement costs, continue to demand a greater share of the City’s budget.  Yet, not withstanding all of that, Ash says that the City is able to meet its basic budget needs and then some for the foreseeable future.

“I think many communities wish they were in the shape we are here,” speculated Ash.  “Balanced budgets are achievable, there are no discussions about Proposition 2 ½ overrides and no drastic cuts that threaten core services over the next couple of years.  That said, we do have issues that we have to pay close attention to.”

In his Five Year Financial Forecast presentation, which is required by the City Charter, presented annually to the City Council and School Committee and can be found on-line at www.chelseama.gov, Ash methodically plots the City’s financial resources and how likely local, state and federal funding issues will impact the City’s ability to fund services through the end of Fiscal Year 2016.  During that five-year period, Ash predicts the City’s annual deficit will continue to shrink, with funding in the City’s reserves being available to plug any budget holes that are remaining after the City’s financial team performs its cost containment efforts.

For FY’12, which begins on July 1st, Ash projects the City will have a budget that is 3.7% less than the current fiscal year.  Beyond FY’12, Ash estimates that the budget will grow in the range of 2% a year.

Supporting that spending, Ash says that the troubling trend in reduced local aid to municipalities is having a real impact on the City’s ability to reach a balanced budget without the use of reserves.

“Non-school local aid is down 7% for FY’12, and continues a downward spiral that has seen us lose 40% from those revenues over the last decade.  In dollars, we’re projected to receive $6.4m in that account, whereas in FY’01 we were receiving $10.6m.  Throw in inflation, and we could be off as much as $7m in what we would have expected in non-school local aid.  Given that we’re projecting a $1.8m deficit for FY’12, certainly the reductions in non-school local aid can be pointed to as a major culprit,” informed Ash.

Other culprits, as Ash called them, are health insurance costs, rising at 7% and up over 200% since 2000, and retirement costs, up 4.5% and rising each year on a schedule to get the system fully-funded by 2029.  The State is currently weighing options to help municipalities find savings on health insurance and has considered additional pension reform measures for adoption.

“I’ve been a vocal and visible advocate for reform on both health insurance and pensions.  Just on the health insurance issue alone, taxpayers could have 20% or more in what is direct to employee health insurance redirected to direct services and program if we could join the State health insurance system.  That $3m or so would solve our deficit problems and, for the schools, put more teachers in the classrooms,” projected Ash.

As he advocates and waits for non-school local aid to bounce back and for the State to do something on health insurance and pensions to help municipalities reallocate taxpayer money to direct services, Ash says that the City’s economic development agenda and entrepreneurial activities are helping to keep the City’s budget near balance.

“And you deserve so much credit for that,” boasted Ash to the City Council.  “You’ve acted with us to promote the City for investment and you’ve helped us be smart in attracting new revenue sources and refinancing old debt.  And, you’ve resisted the temptation to spend away our reserves, and as a result, we can balance budgets without making any more difficult cuts.”

In fact, Ash explained that the easy cuts and other not-so-easy efficiencies the City could squeeze out of the budget have already been performed.  He said that if the City needed to make any further cuts, they would be painful, like closing the senior center or taking a piece of fire apparatus out of service.

“Mind you, we aren’t talking about doing those things now.  However, the room for error is razor thin and we all need to recognize that if all the revenues don’t show up or expenses like employee benefits continue to grow without any additional controls, there are some lousy decisions ahead.  Fortunately, though, we aren’t there, but we need to be mindful that if we don’t continue doing the right things, we’ll soon be there and probably won’t ever be able to recover,” cautioned Ash.

The Five Year Financial Forecast is a planning document that helps to inform the annual budget process.  Ash anticipates filing a budget next week for FY’12.

“We know where we are and what our limitations are as we plot out where we want to be.  Not everything we have hoped for is affordable, and some of the things we currently have may not be sustainable.  However, we have enough flexibility to continue to manage our budget without the threat of an override or worse.  That’s a good thing,” concluded Ash.


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