Dear Readers,

Sometimes the newspaper reports on cuts to state aid, revenue shortfalls, predictions of massive layoffs and the lousy national economy are just too much to wrap your head around. I think it would be more helpful at this point to take a look at the local details; what does all this information mean to a North Andover citizen?

State cuts – how worried should we be?

I think School Committeeman Chris Nobile said it best when he said that because we don’t receive a huge share of State aid to begin with, when our aid is cut, we’re a little better protected than other communities. The current cuts to FY09 and preliminary predicted cuts to FY10 are not as bad as we’d feared. For this year (FY09), chapter 70 educational aid was left intact, but we did lose $255K in municipal funding per Town Manager Mark Rees. The $500K internal reserve fund that Mr. Rees set aside back in November for just this situation will cover the shortfall. The shortfall for next year has already been built into the Revenue & Fixed Costs Committee report and therefore is already anticipated in the projected budget the Town Manager will present to the Board of Selectmen this Monday, February 9th.

Local Revenue Shortfalls – how worried should we be?

Here is where the worry comes in. The bulk of our nearly $75 million total operating budget for FY10 (which is nearly $3 m LESS than FY09) must be funded through property taxes, excise taxes, and various service fees and minor taxes. In years gone by, we enjoyed over a million dollars a year in new growth taxes on new construction. No more. We enjoyed significant income from excise taxes on new vehicles. No more. We’re in a revenue tailspin.

Rising Costs of Doing Business – how worried should we be?

Very worried here too. The rapid escalation in health insurance benefit costs is the easiest to see. We need to join the state GIC program. Governor Patrick is a coward, offering communities a reduction in the Union approval requirement to 50%, down from 70%. He adds insult to injury suggesting that he’ll penalize us if we aren’t able to join the GIC with our hands tied behind our backs.

ALL FOUR NORTH ANDOVER LEGISLATORS NEED TO VOTE TO REMOVE GIC APPROVAL FROM THE COLLECTIVE BARGAINING PROCESS OR WE NEED TO VOICE OUR DISAPPROVAL AT THE BALLOT BOX. This is no longer a question of fighting for or against unions – this is a question of fighting for the economic survival of our town.

Union Contracts – how can we support our employees in this financial climate?
By making sure we keep as many of them employed as possible. That means no raises, union or non-union. Chuck Ormsby was absolutely right when he told the School Committee that the salary reserve in the FY10 budget has no place being there. It needs to be one of the first line items slashed when the cuts begin. And ditto to the Town Manager and BOS if a reserve appears in the municipal budget to be released Monday.

What additional concerns are on the budget horizon that we should be aware of?

1.Free Cash: How many times has BOS Chair Rosemary Smedile lamented the year our free cash “was only $65,000!”? The Finance Committee has warned the Town Manager several times that it is folly to balance our budget year after year with free cash. Guess what? The Town Manager reported to the Finance Committee that the Free Cash number this year is a negative – a shortfall – of $360,000. That means in FY10, we’ve got to cover the FY08 budget deficit before we can even start funding FY10. Will Selectman Dan Lanen be as upset about this deficit as he was about the $250K school lunch deficit two years ago? There’s been a remarkable absence of any budget discussion whatsoever at BOS meetings, so I’m not holding my breath for one now.

2. Stevens Estate Budget Deficit: The current estimate is that we will need to cover a deficit of $170,000 out of operating funds in the FY10 budget.

3. Osgood Landing $600,000 payment from the state: the State requires a return of these monies if significant construction of the project does not take place within a specific time frame. I’ve heard reputable people who ought to be “in the know” say that the deadline is one year, two years, and “3 to 4 years”. Which is it? Here’s the crux of the problem: we’ve already spent the money, that’s the money that the Town Manager, Board of Selectmen and School Committee persuaded a majority of the 400 attendees at last May’s Annual Town Meeting to spend on the new preschool. Despite the fact that Town Counsel told them that same date that the deal was falling apart. Their justification was that Ozzy Properties will guarantee the payment if they miss the construction deadline. I see a problem with that – I was a real estate paralegal during the boom times of the mid-80’s, also worked for a real estate developer of Mill properties [that’s Ozzy Properties’ specialty], and also worked for the National Division of a major title insurance company during the last real estate plunge in the late 80’s, early 90’s. I was witness to scores of real estate developers, law firms and banks going under or barely holding their heads above water. Soooo… what happens if the state calls in the payment and Ozzy Properties doesn’t have the money or refuses to pay? North Andover will have to make the payment, from where it will get the funds I don’t know, and sue for reimbursement and hope for recovery. By the way, if you need further convincing about the current state of development, look no further than the mixed-use development of the Davis & Furber Mill that the Town Manager just touted as a success story for 2008. I live around the corner. I haven’t seen any action over there in months. It’s not the weather.

What the three concerns show is that North Andover is already in the hole for over half a million, not currently reflected in either the Town Manager’s forecast or the Revenue & Fixed Costs report, before we even start to look at the projected $2.9 deficit for FY10. And if anyone has designs on the already inadequate stabilization funds we now have in reserve, I’d keep in mind that it’s one-time money that may be needed very shortly to pay that one-time $600,000 payment back to the state.

Are there any options out there to enhance our revenues?

A few. First, everyone in the country is jockeying for position in line for a national stimulus plan handout, including our state legislators and local officials. Here’s my take on it – the prospect is clouding everyone’s vision about the need for spending reforms. We’re manufacturing paper money without the assets to back it up, mortgaged on the heads of our children, to fund so many agenda-driven non-emergency, non-economy-stimulating projects that it’s hard to separate out the really beneficial portions of the package. I was incredulous when the Boston Globe reported that Governor Patrick was proposing to use some of the money to fund private developments of high-end housing! If stimulus funds make their way back to Massachusetts, I want to see a prioritized spending plan that creates jobs and addresses crumbling infrastructure. I want to see emergency mitigation.

And the new proposed municipal act would give the North Andover Board of Selectmen the option to add a 1% local meals tax, money that would stay local, not go to the state. This is a tough decision though…they just took the burden of the 2007 override tax increase off the shoulders of the residential taxpayer and put it on the shoulders of the commercial taxpayers. Do they also want to add a tax on meals served? Restaurants are already at risk during a recession…would adding an additional five cents to a $50 meal make a difference? The state estimates that North Andover could collect approximately $500k in meal tax revenue. It also estimates that we could raise $76k in telecom revenues, but that option may need court approval.

What can the average North Andover citizen do at this time?

Pay attention, attend meetings, ask questions, vote in the March 31st election, attend Town Meeting. Help our elected leaders lead. Attend open hearing meetings and state your priorities. Understand that we always have choices, sometimes the choices are not all attractive, but they deserve equal consideration. Seek accurate information from reliable sources.

Town Meeting Voters will decide our budget choices for next year. Will you participate or be a bystander? Will you help choose our path forward?

Sincerely,
Sandy Gleed

North Andover does not get any 'credit' for having a lower percentage of our town's budget funded by the state. We would gladly spend every additional dime the state would send.

North Andover is not 'out-of-the-woods' for FY2009 cuts by any means.

The FY2009 fee and tax increases plus $533M Fed aid needed to keep the proposed cuts to $255,000 has not yet been passed by the General Court and/or the Federal government. There is still a long way to go in FY2009. State's received revenues have been significantly below plan every month so far. The economy is still dropping. North Andover could easily get hit with much higher FY2009 cuts before the end of the fiscal year.

The FY2009 cuts won't be limited to the municipal side of the budget. Rees and Marini are supposedly negotiating the split. It wouldn't be 'fair' for the cuts to be taken only by the municipal side which prepared for budget shortfalls and none taken by the schools which maximized spending on the teachers' contract.

Spending money before it actually exists is a real risk. The deflation of Osgood Landing and North Andover's pre-spending of the $600,000 state payment is the latest case in point.

QUOTE:
"Senator Steven C. Panagiotakos, chairman of the Ways and Means Committee, said that tax revenues have fallen well below expectations for the first few months of the year and that the fall-off could be a harbinger of a major slump between now and June 30, the end of the state's fiscal year

"We have a potential $700 million to $800 million deficit facing us," said the Lowell Democrat. "It's a real possibility. It has the potential to come close to $1 billion."

His estimate is nearly twice as high as the current figure circulating around the State House. It also augurs for an almost unmanageable deficit in the next three years..." - State deficit may hit $1b again, Boston.com, 3/12/09

http://www.boston.com/news/local/massachusetts/articles/2009/03/12/state_deficit_may_hit_1b_again/

The FY2009 state aid cuts are not settled yet. With continuingly dropping revenue month by month the likelihood of significant Chapter 70 cuts increases. FY2010 budget estimates also have to expect much lower state funding.

Another concern is the recent announcement that 25% of the federal stimulus money for Massachusetts has been earmarked to build the new addition to the Kennedy library.

QUOTE:

The state collected $1.607 billion in revenues, which was down $309 million from the year before. The decline was $53 million greater than estimates that had been adjusted as recently as January.

With nine months gone in fiscal 2009, revenues are lagging $117 million behind the adjusted estimates, the department said.

Beacon Hill leaders recently have said they are concerned that number could grow much larger by the end of the fiscal year at the end of June, with one key lawmaker estimating the gap could reach $1 billion.... -- State announces tax collections even lower than expected, Boston.com, April 3, 2009 03:54 PM, By Globe Staff

http://www.boston.com/news/local/breaking_news/2009/04/state_announces_5.html

State FY2009 still dropping. Additional cuts could be very significant. Does the SC now have reserves for this? How else will they be covered? State won't announce new cuts until after April 15 tax receipts are estimated. That does not leave much time to maneuver.

http://www.masstaxpayers.org/files/03_10_09_fiscal_house.pdf

Link above is to a presentation Michael Widmer made to the Mass. General Court last month. It's particularly grim for FY2010 and the remainder of FY2009.

QUOTE:
Gov. Deval Patrick says the state is facing another $156 million budget deficit that may grow by an additional $400 million before the end of the fiscal year in June. - Glen Johnson, "Patrick works to close $156 million budget deficit", Boston.com, April 14, 2009

This is just a placeholder for the actual amounts. These continued declines will partially negate the federal stimulus funds and lower the basis for following state budgets.

Watch the news tonight - Governor Patrick will announce today another round of 9C cuts to local funding...

At the Suburban Coalition breakfast meeting this morning at the State House [attended by myself, Selectman Rick Nardella, School Committee Member Laurie Burzlaff and School Superintendent Dr. Marini], the news was grim.

Michael Widmer of the Massachusetts Taxpayers Foundation told the gathering that his group's research indicates that the House 1 budget over-estimates state FY10 revenues by one to one and a half billion.

Regardless of the stimulus funds headed toward Massachusetts, we're facing devastating cuts in services on both the state and local level. His numbers indicate us hanging over a cliff, if not hurtling over the edge, for the next four years.

Mr. Widmer is advising that local budgets for FY10 should project at least a 15% cut in local aid, based on the AFTER 9C CUTS net aid for FY09.

North Andover's recommended FY10 budget revenue is based on an assumption in the Revenue & Fixed Costs Committee report from October that we'll experience a 10% reduction in local aid.

One might speculate that our recommended FY10 budget is out of balance before we even get to vote on it...

Sincerely,
Sandy Gleed

QUOTE:
State revenues are continuing to collapse, falling short by at least an additional $300 million in April and leading state officials yesterday to predict possible cash shortages, budget cuts, more layoffs of state workers, and perhaps additional tax proposals to bridge the growing gaps.
....
Senate Democrats met for nearly three hours yesterday behind closed doors to discuss the budget forecast, and emerged projecting that their budget would use revenue estimates up to $1.5 billion below the House budget,...
http://www.boston.com/news/local/massachusetts/articles/2009/05/01/state_revenues_continue_free_fall/ "State revenues continue free fall: Collections at least $300m short', Matt Viser, Boston.com, May 1, 2009

We should expect large amounts of FY09 cuts in local aid in the next couple of weeks. These will reign havoc on remaining budget resources.

This same over-optimistic projection of state revenue is reflected in the FY10 House budget. We'll almost certainly be faced with State budget cuts during FY10.

Our local budgets need to contain significant reserves to counter this problem.

Dear Michael,

Significant reserves or more realistic revenue projections?

After having sat through another season of Finance Committee meetings, Board of Selectmen meetings and School Committee meetings, I believe that the current proposed FY10 budget over-estimates revenue projections. If you recall, the basis of the town manager's recommended budget each year is the Revenue and Fixed Costs Committee report issued in October. The Finance Committee does keep its eye on month to month budget updates, but I believe an adjustment still needs to be done to lower the projected state aid numbers. At last glance, the proposed budget uses a state aid figure based on a 10% reduction of the pre-1st round FY09 9C cuts. We've suffered subsequent 9C cuts, more may be on the way, the Governor is going to re-file an updated FY10 budget, and the House budget was passed one day after the Fincom voted the recommended budget appearing in the Town Warrant. The House budget will change; the Senate hasn't reviewed it yet; the Governor's revised budget will downgrade our financial prospects; and the distribution of the federal stimulus funds is still a wild card because a major portion of the funds is subject to political debate that hasn't even started.

The Finance Committee reserved the right to reconsider their vote on the proposed budget. I urge them to do so. Michael Widmer of Mass Taxpayers Foundation told municipal leaders attending the April Suburban Coalition meeting on Beacon Hill that his best advice is to budget a 15% reduction, net of ALL FY09 9C cuts, in state aid for our FY10 budgets. I think that is sound advice we should follow.

One of our NAU board members says that people don't pay attention until their hair is on fire. Well, their hair sure is smoldering...they'll surely feel it soon.

Still, North Andover IS in a much better position to withstand the horrible state of our economy than other communities, so long as we keep our eye on the long-term effect of our current decisions.

I hope our citizens have the wisdom to attend Town Meeting and learn about the issues we face and participate in the decision-making. Town Meeting is the legal legislative body in this town - we make the decisions, not our elected boards. The Boards make recommendations that are subject to our approval. That power should be fully appreciated and exercised in an informed manner.

Sincerely,
Sandy Gleed

Sandy,

I agree with you that 'more realistic' (i.e. lower) revenue projections are preferable to just building in reserves. I just don't think lower revenue projections will happen. The second-best choice is to take the budgets agreed to at Town Meeting and allocate some money as explicit reserves. Either way cuts will come; it is just a question of how (and if) we prepare for them.

I also agree that things could be worse and that North Andover is (currently) in better shape than other towns (but we don't live in other towns). Much will hinge on how much of the $1.2M Fed Stimulus money currently slated for North Andover by the Patrick Administration will survive intervention by the General Court.

No matter what it will be tough.

Mike Quinlan

Dear Readers,

I've further reflected on my own last posting, and would like to add a correction and more commentary.

First, the Revenue & Fixed Costs Committee starts meeting in the fall, but the actual report comes out after the first of the year. It's an important document, because it sets the tone for the next fiscal year's budget discussions. You can view the report on the town's website.

I'm an admitted fan of the Finance Committee (and usually the only non-summoned public attendee at their meetings). I'm urging them to reconsider their revenue numbers for FY10...fully understanding that any downward change would mean a re-evaluation of the expense allocations as well...because I am uncomfortable with the way our economy is headed and I believe the lack of budget information coming from the State should be viewed more conservatively on our budget end. To guess wrong, not conservative enough, means service cuts. To guess wrong, too conservatively, means some service cuts now, of our own choosing and under calmer conditions; if there's excess revenues, they fall to the bottom line as free cash to be used in FY11 in the general fund or to be deposited into our still-too-low stabilization fund. I'm more comfortable with the more conservative approach.

The Fincom is limited by the information available. There is no real news coming from Beacon Hill; what's available is speculation in newspapers not always lauded for their accuracy. The fact that our legislators could not meet with our Fincom is problematic. The fact that our Board of Selectmen had the opportunity to delay Town Meeting might have helped, but only if there'd been movement on the state budget.

Our town, like so many others, is stuck not knowing what the future holds. How is this different than any other budget cycle you might ask? This time, the space covered by the pendulum swinging between revenue and expense projections has such a wide girth that the consequences of guessing wrong could produce a riskier outcome.

I'm just as frustrated as everyone else...

--Sandy Gleed

QUOTE:
State tax revenues last month fell $456 million below expectations, further alarming state officials who are trying to figure out how to close a midyear budget gap with only eight weeks left in the fiscal year.
....
The deficit for the last three months of this fiscal year are now expected to drop $953 million below expectations, administration officials said, causing a further hole even after a deficit of more than $3 billion that has already been closed in this fiscal year’s budget.

But with only eight weeks left in the fiscal year, the state’s options are limited. The state only has about $1.3 billion remaining in its reserve account, which means that further cuts are almost certain, possibly to a local aid payment scheduled to go out June 30. -- "April state revenues dip $456m below expectations", Matt Viser, Boston.com, May 4, 2009

http://www.boston.com/news/local/breaking_news/2009/05/april_state_rev.html

The Boston Globe reporting on the revenue receipts has been very accurate so far. Current projections are closing in on Widmer's.

Now it's a question of how much will be pulled from the 'rainy day' reserves and how much from local aid. Even a 'small' cut of $300,000 in the final local aid payment will have a huge local impact.

Governor Patrick proposes to deplete FY10 and FY11 Fed stimulus money expected to be used for education to pay for FY09 state local aid payment. Oh, yes, and further cut reserves to lowest level since 2003. Let's see how the General Court reacts.

With only $70M left, there's no way North Andover will get the anticipated $1.2M from the Federal Stimulus. I hope the schools haven't already spent that money.

FY09 is still not complete...

QUOTE:
Governor Deval Patrick proposed yesterday to use an additional $461 million from the state's rainy day account, which would help close the latest in a series of budget gaps but would drain the reserve fund to its lowest level since 2003.

The plan would reduce reserves, which began the fiscal year with a $2.1 billion balance, to about $800 million. The cushion is disappearing even as economists are warning that this is only the first of several years that will see anemic revenues and strained budgets.

In another sign of the tough economic times facing state government, Patrick is also planning to use $412 million in federal stimulus money to make a scheduled local aid payment to cities and towns. ... the governor plans to deplete the federal stimulus funds, which were billed as a major rescue package pushed through by President Obama, more quickly than was expected.
...
The stimulus money is being drawn from $813 million that the federal government is giving to Massachusetts to restore state aid to school districts and higher education institutions. It was originally scheduled to be spent over three years, 2009, 2010, and 2011. With the latest maneuver, only $70 million will be left that was specifically earmarked for educational uses. --- "Patrick plans to tap rainy day fund $461m in savings, plus stimulus funds, would fill budget gap", Matt Viser, Boston.com, May 8, 2009 http://www.boston.com/news/local/massachusetts/articles/2009/05/08/patrick_plans_to_tap_rainy_day_fund/

Expect continuing rounds of State budget cuts this year. Reserves need to be explicitly created for municipal and school spending to counter these shortfalls.

Any odds of whether real reserves will be created or just another round of 'sharpening pencils'?

QUOTE:

State revenues took yet another plunge last month, ending the financial year $180 million below even the dourest projections and forcing leaders to choose between draining the state’s reserve account and making further cuts in a budget approved just last week.
....
The continued deterioration also puts the state in a precarious situation moving forward, and some are predicting it will require emergency budget cuts just one week after Governor Deval Patrick signed a $27 billion state budget for the fiscal year.

Mass. revenues plummet again
Fiscal year ends with $180m gap; Officials warily eye dwindling reserves,
Matt Viser,
July 8, 2009, Boston.com
http://www.boston.com/news/local/massachusetts/articles/2009/07/08/mass_revenues_plummet_again/