1. MMA’s Leadership Conference for Selectmen June 12, 2010 Budgeting Basics For Newly Elected Selectmen John Musante, Assistant Town Manager/Finance Director Town of Amherst

2. Quotable Quote “Someone asked me once to describe the role of city manager. I said it was like being the quarterback in the last two minutes of a professional football game, with your team down by six. The only difference for a city manager is, your own team members are allowed to tackle you.” John Menario, retired City Manager of Portland, Maine John Menario, retired City Manager of Portland, Maine

3. Budgeting Basics - Agenda Budget Calendar Budget Calendar Forecasting & Goal Setting Forecasting & Goal Setting Capital Planning & Debt Capital Planning & Debt Best Practices – examples, more examples Best Practices – examples, more examples Your Questions & Comments Your Questions & Comments

4. Budget Calendar Getting Started (September – December) Getting Started (September – December) Review Prior Years’ Operating Results Review Prior Years’ Operating Results Multi Year Financial Projections Multi Year Financial Projections ID Short/Long Term Financial Planning Issues ID Short/Long Term Financial Planning Issues Select Board & Finance Committee Budget Guidelines Select Board & Finance Committee Budget Guidelines Development of Operating and Capital Budget Requests by Department Heads Development of Operating and Capital Budget Requests by Department Heads

5. Budget Calendar Review & Passage (January – June) Review & Passage (January – June) Proposed Operating and Capital Budgets by Town Manager/Select Board & Superintendent/School Committee Proposed Operating and Capital Budgets by Town Manager/Select Board & Superintendent/School Committee Update Financial Projections (state aid, new growth, etc.) Update Financial Projections (state aid, new growth, etc.) Budget Hearings: Finance Committee Budget Hearings: Finance Committee Town Meeting and City Council Town Meeting and City Council

6. Budget Calendar Implementation (after July 1) Implementation (after July 1) Closing the Books (free cash and audit) Closing the Books (free cash and audit) Tracking Revenues and Expenditures versus Budget Tracking Revenues and Expenditures versus Budget Setting the Tax Rate Setting the Tax Rate

11. Joint Meeting of the Select Board, Finance Committee, School Committee, & Library Trustees October 15, 2009 Preliminary Financial Projections for FY 11 Budget Planning (July 1, 2010 – June 30, 2011) (July 1, 2010 – June 30, 2011) John P. Musante, Assistant Town Manager/Finance Director Town of Amherst

12. Tonight’s Agenda Fiscal Trend Monitoring Report (NEW) Fiscal Trend Monitoring Report (NEW) Current Situation and Outlook Current Situation and Outlook FY 09 Operating Results FY 09 Operating Results FY 10 Approved Budgets FY 10 Approved Budgets FY 10 (current year) Issues FY 10 (current year) Issues Revenue & Expenditure Projections for Next Three Years: FY 11 -13 Revenue & Expenditure Projections for Next Three Years: FY 11 -13 FY 11 Budget Planning Calendar FY 11 Budget Planning Calendar Your Questions & Comments Your Questions & Comments

13. What Are Our Baseline Sources of Revenue? FY 10 1 - Sources of Revenue - FY 10 Town of Amherst

14. What Are Our Current Expenditures? FY 10 2 – Current Expenditures – FY 10 Town of Amherst

16. 3 - Property Tax Revenue Town of Amherst Amherst Trend Favorable MarginalX Unfavorable UncertainX The Property Tax is the Town's primary revenue source for both operating and capital spending. Annual increases are limited by Proposition 2 1/2. The substantial increase in property tax revenue in FY 05 and FY 06 is in part due to the successful override in March 2004. The analysis shows that the only significant increases in constant dollars from year to year occurred when an override was passed by the community.

17. 5 - State Aid - Actual and Constant Dollars Town of Amherst Amherst Trend Favorable Marginal Unfavorable X Uncertain Reliance on state aid for funding has both an upside and a downside. While increases in state aid may permit additional services, increased state aid as a percentage of operating revenue may be difficult to manage when there is a reduction in this funding. State Aid is lower in FY 10 than FY 01 in both actual and inflation adjusted dollars.

18. 6 - State Aid as a Percentage of Operating Revenues Town of Amherst Amherst Trend Favorable Marginal Unfavorable X Uncertain State Aid as a percentage of operating revenue dropped significantly in FY 04 and again in FY 09 (mid-year) and FY 10. State Aid is lower in FY 10 than FY 01 in both actual and inflation adjusted dollars. State aid as a share of Town revenues is smaller than at any time since the enactment of Proposition 2 1/2 in 1980.

19. 7 - Revenues Related to Economic Growth Town of Amherst Amherst Trend Favorable Marginal Unfavorable X Uncertain A balance between economic growth and other (non-growth) revenues mitigates the effect of macroeconomic changes--during a recession a higher percentage of revenue from non-growth sources is preferred. The decrease in building permit fees may be an indicator of smaller future increases in the property tax levy.

20. 8 - Revenue Per Capita - Actual Town of Amherst Amherst Trend Favorable Marginal X Unfavorable Uncertain X Revenues from the property tax have increased by the allowable limits of Proposition 2 1/2 and were further increased in 2005 via a voter-approved referendum. Local receipts have also increased due to increased reliance on user fees to fund certain Town services such as LSSE. State aid has fluctuated and now is below FY 01 levels even before adjusting for inflation.

21. 9 - Revenues Per Capita - Constant Dollars Town of Amherst Amherst Trend Favorable Marginal X Unfavorable Uncertain X Property tax revenues have increased at about the rate of inflation except in years (2005) when an override was passed by voters. State aid and local receipts have not kept pace with inflation.

22. 10 - Operating Expenditures Per Capita Town of Amherst Amherst Trend Favorable Marginal X Unfavorable Uncertain Increasing operating expenditures per capita can indicate that the cost of providing services is outpacing the Town's ability to pay. Since 2001, Amherst's expenditures per capita have only increased slightly when adjusted for inflation ( constant dollars).

23. 11 - Expenditure Growth By Category - Actual Town of Amherst Amherst Trend Favorable Marginal X Unfavorable Uncertain Spending levels below 100% mean that year's expenditure was less than 2001 levels. Intergovernmental assessments (retired teachers health insurance, School Choice/Charter sending tuition, and PVTA), Education, Employee Benefits, and Human Services expenditures have increased the most since FY 01. General Government and Public Works spending are below 2001 levels, even before adjusting for inflation.

24. 13 - Municipal Staffing Levels Town of Amherst Amherst Trend FavorableX Marginal Unfavorable Uncertain Since FY 00 staffing levels are relatively constant. However, Public Safety FTEs have increased by 14.37 FTEs while all other Municipal FTEs have decreased by 11.39 FTEs, or 12%.

25. 14 - Salaries & Benefits as Percentage Total Operating Budget Town of Amherst Amherst Trend Favorable MarginalX Unfavorable Uncertain Total benefit costs as a percentage of wages and salaries had increased dramatically over the past two years, with little reason for optimism that the trend will change. The rapid increase is primarily the result of increased costs of providing health benefits to municipal employees, as total spending on health benefits is projected to double from FY 2005 to FY 2008.

26. 15 - Debt Service Town of Amherst Amherst maintains a strong credit rating, due in part to a low percentage of debt relative to general fund revenue. Over the past seven years, debt service as a percentage of general fund revenue has remained relatively low and stable. Amherst Trend FavorableX Marginal Unfavorable Uncertain

27. 16 - Long Term Debt Town of Amherst Like debt service, rating agencies look at long term debt as a percentage of assessed valuations and per capita. Overall, Amherst's long term debt has remained relatively consistent. Amherst Trend FavorableX Marginal Unfavorable Uncertain

28. 17 - Reserves & Fund Balance Town of Amherst Free cash and a stabilization fund permit greater financial flexibility and provide the Town with a safety net. Between 2002 and 2007, Amherst's reserves as a percentage of operating revenue declined substantially, but have rebounded slightly since then. Amherst Trend FavorableX Marginal Unfavorable Uncertain

31. REVENUES REORGANIZE REDUCE “If we don’t change where we’re headed, we’ll keep going in the same direction…” -- Yogi Berra

32. Hard Choices Ahead A presentation to the public by the Facilitation of Community Choices Committee Fall 2008 Voice Your Choices! Review the presentation, then complete an on-line Town, School, and Library Services Questionnaire www.amherstchoices.org www.amherstchoices.org

33. What’s Next? Potential Relative Impact on Various Gap- Closing Ideas Potentially high impact Potentially high impact Proposition 2 1/2 Override Proposition 2 1/2 Override Potentially moderate impact Potentially moderate impact Increases in State Aid Increases in State Aid Local Option Taxes (Meals, Lodging) Local Option Taxes (Meals, Lodging) Increase Economic Development Increase Economic Development Potentially low impact Potentially low impact Increased reduction in costs through efficiencies, consolidation and regionalization Increased reduction in costs through efficiencies, consolidation and regionalization Increased revenue from ambulance service Increased revenue from ambulance service Increased fees for services Increased fees for services Unknown impact Unknown impact Negotiations with UMass, Amherst College, and Hampshire College to increase support of town (PILOTs) Negotiations with UMass, Amherst College, and Hampshire College to increase support of town (PILOTs)

40. 40 Long-Term Capital Planning Five Year Capital Improvement Plan Five Year Capital Improvement Plan Funding sources identified Funding sources identified Linked to operating budget and revenue and financing strategies Linked to operating budget and revenue and financing strategies Target funding equals 10 percent of the tax levy. Target funding equals 10 percent of the tax levy. Town may override this target. Town may override this target. FY09 – 7.25 percent FY09 – 7.25 percent FY10 – 6.50 percent FY10 – 6.50 percent If Town overrides target, a plan is to be presented to bring funding to 10 percent within a reasonable timeframe. If Town overrides target, a plan is to be presented to bring funding to 10 percent within a reasonable timeframe.

43. 43 Financial Management Investment Management Policies Investment Management Policies Town guided by Massachusetts General Laws Town guided by Massachusetts General Laws Debt Management Policies Debt Management Policies Targeted for major projects Targeted for major projects Authorization and issuance to be fit into the Town’s targets for total capital spending Authorization and issuance to be fit into the Town’s targets for total capital spending General Fund debt service not to exceed 10 percent of General Fund revenues General Fund debt service not to exceed 10 percent of General Fund revenues At least 50 percent of total outstanding principal to be retired within 10 years At least 50 percent of total outstanding principal to be retired within 10 years

44. 44 Financial Management Reserve and Liquidity Policies Reserve and Liquidity Policies Combined balance of Free Cash and Stabilization Fund to be maintained at 5 to 15 percent of general fund operating revenues. Combined balance of Free Cash and Stabilization Fund to be maintained at 5 to 15 percent of general fund operating revenues. Free Cash to be maintained at least 5 percent of of general fund operating revenues. Free Cash to be maintained at least 5 percent of of general fund operating revenues. Stabilization Fund large enough to buffer General Fund from the impact of two to three years of declining state aid and local receipts. Stabilization Fund large enough to buffer General Fund from the impact of two to three years of declining state aid and local receipts.

45. From GFOA’s Elected Officials Guide to Long-Term Financial Planning (5 keys) 1. Elected officials main contribution to financial planning is a long-term vision and setting priorities for the government. 2. Financial planning should be central to governance and management – not just a one- time event or a staff tool. 3. Elected officials must take leadership, maintain fiscal discipline, and stick to the financial strategies despite pressure to expand programs, reduce taxes, etc.

46. From GFOA’s Elected Officials Guide to Long-Term Financial Planning (5 keys) 4. The link between the financial plan and the budget is crucial – elected officials must demand that the budget reflect the strategies developed via financial planning. 5. Elected officials must be able to step back from the details and adopt a strategic mindset.

47. Your Questions & Comments John Musante, Assistant Town Manager/Finance Director, Town of Amherst John Musante, Assistant Town Manager/Finance Director, Town of Amherstmusantej@amherstma.gov More Information More Information Town of Amherst Town of Amherst www.amherstma.gov/budget MA Department of Revenue, Division of Local Services MA Department of Revenue, Division of Local Services www.mass.gov/dls