Reading's Proposition 2 1/2 Override - Part 3

To the Editor:

This is the third in a series of letters to the Editor whose goal is to provide background information on the Proposition 2 ½ Override question being presented to Reading voters on October 18. In my last letter I explained the history of Reading’s receipts and expenditures, indicated how increases in our past expenditures have compared favorably to those of our peer communities, and described how our revenues have become increasingly reliant on property taxes while state aid has remained flat since the last override in 2003. The main driver for the Override request is that our annual budget has a structural imbalance that has been filled by the use of increasing amounts of cash reserves that should be saved or spent on one-time costs.

I am pleased that Jeanne Borawski, Chair of the Reading School Committee, has joined me in co-authoring this letter. In it we will discuss the basis for arriving at the $7.5 million amount for the Override, the benefits and costs if the override passes, and the impact on Town and School budgets for FY18 and beyond if it does not pass.

This letter necessarily provides a top-level summary of the topics addressed. Additional information can be found on the Town of Reading website at http://www.readingma.gov/finance-department/assessment/pages/override-information and the budget section of the Reading Public Schools website at http://www.reading.k12.ma.us/test/budget-information/ .

Override – Additions above a Baseline Structural Amount

In my last letter I described how Reading’s budget model was used to project Town revenues and expenditures for the next 10 years. Based on the Town Manager’s projections for FY18, both the Municipal and School Departments will be limited to a 0% increase in their operating budgets. This will result in a $2 million difference between a level-service School budget and the funding that is available. For the Municipal side this difference is $1 million. The conclusion was that a $6 million baseline Override ($3 M for FY18 and $3M for FY19-FY25) would eliminate the Municipal and School budgets’ structural deficits through at least FY25, at which time the town’s finances would need another close examination.

In past fiscal years both the Town and Schools have had to pare back budgets, consolidate positions, lay off staff, regionalize with other communities and find creative solutions to keep service levels as high as possible. Each side would agree that the reductions have not allowed for “level service” budgets for a number of years. One comment we heard clearly from the Community Listening Sessions was the desire to restore some of these budget reductions if we were to request an Override from the voters.

At a joint meeting with the Selectmen on August 16, the School Committee and Library Board of Trustees discussed the amount of Override money that should be sought from the voters. Override options ranging from $6 million to $9 million were considered and debated. In their discussions the Boards focused on the impact to the taxpayers as well as what funding levels would support various services.

The Selectmen unanimously settled on a figure of $7.5 million as a reasonable compromise that eliminated the Municipal and School budget structural deficits until at least FY25 and demonstrated the Town’s willingness to prioritize its needs. It was further agreed that the additional $1.5 million sought in the Override would be split $0.54 M / $0.96 M between the Municipal and School budgets. This split is consistent with the traditional allocation of revenues between the Municipal and School budgets.

Over the summer the School Department discussed this issue at length, creating a list of these six challenges:

1. Retaining and attracting staff
2. Developing well-balanced and prepared students for college, career, and life
3. Supporting teachers and administrators through the transition to more rigorous standards and curricula
4. Continuing to improve special education services and in-district programs
5. Identifying long-term space needs to address program changes
6. Remaining comparable and competitive with other towns and school districts

The School Department created a prioritized list of add-backs and new programs that directly addressed challenges 1-4 and 6. These are summarized in the following table:

School Department Funding Area Requested Amount

Eliminate Structural Deficit ($2M for FY18 + $2M for FY19-FY25) $4,000,000

1. Salary Adjustments (retaining staff) $360,000

*2. Middle School Health Education $140,000

*3. High School Program Improvement $110,000

4. Additional Supports for Struggling Students (Tutors, BCBA) $107,000

5. Curriculum Supervision Leadership $195,000

6. Special Education Leadership $48,000

SCHOOL DEPARTMENT TOTAL $4,960,000

* Partially restored funding for previously cut programs

The Municipal side conducted a similar exercise and created the following list of restored or additional services for the Board of Selectmen to consider:

Municipal Government Funding Area Requested Amount

Eliminate Structural Deficit ($1M for FY18 + $1M for FY19-FY25) $2,000,000

1. Salary Adjustments (retaining staff) $200,000

2. Public Safety (School resource officer, firefighter / paramedic) $160,000

3. Library staffing & hours $60,000

4. Staff support for Volunteer Boards $25,000

5. Technology (equipment 1 year, then staffing) $70,000

6. Additional Town Accountant Clerical Support (PT) $25,000

MUNICIPAL DEPARTMENT TOTAL $2,540,000

Today, the average Single Family Home (SFH) valued at $499,500 pays a tax bill of $499,500 x $14.51/$1,000 or $7,247.75 – let’s call it $7,250.

Here are the components of that tax bill:

Tax Bill Tax Levy RMHS Library

$7,250 $6,905 $161 $184

The RMHS amount remains about $160 until being fully repaid in FY24; the Library amount declines to about $160 and is fully repaid in FY25. Therefore over the next ten years, the table below shows the average SFH Tax Bill and annual change assuming no Override, no more excluded debt or capital, no Senior Tax Relief, assessment of the full tax levy, maintenance of current tax property classification ratios (92% residential; 8% commercial / industrial / personal (CIP)), and maintenance of a uniform tax rate for residential and CIP properties:

FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27

SFH $7,418 $7,590 $7,767 $7,947 $8,132 $8,321 $8,516 $8,563 $8,625 $8,840

Rate 2.31% 2.33% 2.33% 2.32% 2.32% 2.32% 2.35% 0.55% 0.72% 2.50%

Note the reduced impact in FY25 and FY26 when the RMHS and Library debt exclusions are fully repaid. Over this ten-year period, the SFH tax bill will have increased at an average rate of +2.0% annually.

Any Override would be added only to the Tax Levy portion. Over the next ten years, the table below shows that for the same average SFH as described above, a $7.5 million Override would increase property taxes at an average rate of +3.6% annually:

FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27

Rate 11.67% 2.33% 2.33% 2.32% 2.32% 2.32% 2.35% 0.72% 0.88% 2.50%

The following table shows the impact of a $7.5 million Override in FY18 on Single Family Homes at the various assessed value levels. The figures shown are increases in taxes over and above the normal +2.5% cap:

Res. Value Tax Increase

$300,000 $497

$400,000 $663

$500,000 $829

$600,000 $995

$700,000 $1161

CIP Value Tax Increase

$100k - $500k $516

$500k - $1mil $1,192

$1mil - $2mil $2,276

$2mil - $3mil $3,792

$3mil - $10mil $7,307

$10mil + $31,701

Over one year ago the Town Manager and Superintendent met to discuss employee morale, and the challenging hiring process. The conversation evolved to the timing of a future Override election. The usual April choice would mean that two budgets would need to be created and then presented in public during the preceding winter, which would likely damage employee morale and lead to an increase in staff turnover. A September/October election was a preferable choice, even considering the extra cost involved (estimated at about $3,000).

During the winter of 2016, an FY17 Municipal budget that eliminated several positions was presented in public. All but one of those positions could be handled through planned attrition; that one position might be handled the same way depending on an upcoming retirement and promotion. The one employee involved decided not to wait for the promotional process and was hired by another community quickly. Employee morale is difficult to place a financial value on, but it is quite real, as is the high organizational cost of turnover. In the FY17 School Department budget, 7.3 FTE positions were eliminated, including 6.3 FTE teaching staff. In some instances, staff whose positions were scheduled to be reduced left the district for full time positions in other districts.

Given this background, both the Town and Schools are reluctant to lay out exact ramifications of a failed Override vote at this time. In so doing, we hope that the public understands our thought process. However, both sides have publicly and clearly communicated the broad impact of a failed Override vote

Each side has publicly stated that positions and services will be eliminated in FY18 without an Override. The Schools have a higher proportion of their budget spent on labor costs, and have indicated that 30+ positions would be in jeopardy. The Town, with lower labor costs relative to expenses, would need to eliminate 10+ positions.

Over the past year or more, the Town has stated that in order to balance a budget without an Override, services will need to be eliminated or curtailed. Past budget cuts have focused on Town Hall, but future ones will need to be expanded to include Public Safety and the Public Library, which have been exempt from recent staffing reductions. At a minimum, one Police Officer and one Firefighter will be eliminated in each subsequent year without an Override and, frankly, the cuts will likely need to go deeper. It is impossible to avoid this conclusion, given that Public Safety constitutes over 60% of the Town’s wage budget. The Library Trustees have discussed lowering FY18 costs through attrition and expense reductions and then FY19 costs through a reduction in Hours of Service. Public Works, once staffed at 120 employees and now staffed with about 45 employees, will need to cut back on some services and staffing provided to the community. In the school department, the 30+ reductions in staffing will result in higher class sizes at all levels, elimination of courses and programs, potential changes to high school graduation requirements, and eventually a potential negative impact on some students’ college acceptances.

Through strong fiscal management in both the Town and School Department budgets over the last several years, and despite minimal growth in state aid, our Community has been able to lengthen the amount of time since the 2003 override. Unfortunately, despite many money-saving efforts, the balance of financial resources and services provided does not match for the foreseeable future. We have been living above our means for a couple of years, by using our rainy day funds to balance the budget. Please know, however, that regardless of the outcome of an Override vote, we will all strive to meet the expectations of the community with whatever resources are made available. Reading remains a very special place in which to work – and to live.

The final letter in this series will discuss the costs and benefits of the Senior Property Tax Relief measure that was recently passed by Reading’s Town Meeting. This measure is expected to provide meaningful property tax relief to as many as 640 Reading seniors, beginning in FY18.

Sincerely,

Daniel Ensminger, Member and Former Chair, Reading Board of Selectmen

Jeanne Borawski, Chair, Reading School Committee