Town Managers Recommended Fiscal Year 2018 Budget and

Town Manager’s Recommended Fiscal Year 2018 Budget and Financial Plan Andrew P. Flanagan Town Manager February 27, 2017

Recognized by GFOA for FY 17 Budget Preparation February 27, 2017 2

The Town Manager’s Recommended Budget for Fiscal Year 2018 $181, 679, 548 $2, 985, 293 M / 1. 67% increase over the FY 17 Budget of $178, 694, 255 February 27, 2017 3

Budget Highlights ◦ Town and School Operating Budgets to increase only by the amount of available funds after meeting the funding requirements of all obligations. ◦ Retirement contribution to increase by 10% from current budget per the existing funding schedule established by the Retirement Board. ◦ General Fund Other Post Employment Benefit (OPEB) funding will be based on the following: ◦ 0. 4% of the FY 2018 adjusted revenue budget. ◦ Appropriating the incremental annual savings in the health insurance budget from the OPEB Reform Plan that was adopted in April of 2016 to the OPEB Trust Fund. ◦ Employee Health Insurance expense to increase by 8% ◦ Based on the assumptions as outlined above, Town departmental personnel and expense budgets are increasing by $1, 194, 714 (3. 11%). February 27, 2017 4

Town Manager’s Recommended Budget Fiscal Year 2018 FY 2017 Approved EXPENSES School Department Town Departments Health Insurance & RMTs Debt Service Retirement Water & Sewer Other Obligations Capital Projects Fund Offset Expenditures Warrant Articles February 27, 2017 $76, 099, 203 $38, 437, 389 $17, 905, 037 $14, 790, 396 $8, 360, 984 $7, 670, 495 $4, 512, 606 $3, 440, 000 $2, 070, 000 $5, 408, 145 $178, 694, 255 FY 2018 TM Rec. $ Change % Change $79, 143, 171 $3, 043, 968 $39, 632, 103 $1, 194, 714 $19, 257, 000 $1, 351, 963 $14, 048, 907 ($741, 489) $9, 428, 488 $1, 067, 504 $8, 167, 538 $497, 043 $4, 922, 936 $410, 330 $3, 678, 875 $238, 875 $2, 148, 530 $78, 530 $1, 252, 000 ($4, 156, 145) $181, 679, 548 $2, 985, 293 4. 00% 3. 11% 7. 55% -5. 01% 12. 77% 6. 48% 9. 09% 6. 94% 3. 79% -76. 85% 1. 67% 5

Town Department Budget Highlights • 3. 11% total increase – mainly due to contractual obligations and solid waste costs • 360. 48 total FTEs; increase of 1. 63 FTEs • • IT: 2 Technicians/1 Business Solution Team Leader (net approx. $30, 000) (net FTE +1. 2) DCS: . 5 Program Assistant (No GF Impact)/1 PT Admin (No GF Impact) (net FTE -. 17) CD&P. 1 Transferring Portion of Nurse Salary from Grant to GF (No GF Impact (net FTE. 1) MS / P&F: . 5 Town Custodian – Police Department (net approx. $23, 938) • Notable Operating Budget Expense Increases • Information Technology: $40, 425 for upgrading phone and internet connectivity • MS / DPW-Solid Waste: $295, 245 for Solid Waste, Recycling & Materials Disposal February 27, 2017 6

Gap Between School Budget & TM Recommendation • TM Initial Recommendation (3. 5%) $78, 762, 675 ($2, 663, 472) • TM Revised Recommendation (3. 66%) $78, 884, 369 ($2, 785, 166) • TM Final Recommendation (4%) $79, 143, 171 ($3, 043, 968) Current Gap February 27, 2017 7

Millions $40 $35 $30 $25 Former vs. Current Retirement Funding Schedule (10% Annual increase through 2032) Increase of $3. 28 M over first five years $20 $15 $10 $5 $0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Former Funding Plan for Retirement February 27, 2017 Current Funding Plan for Retirement 8

Millions Health Insurance $30 $25 $20 $15 $10 $5 $0 Appropriations 2018 $19, 257, 000 February 27, 2017 2019 $20, 711, 430 2020 $22, 293, 429 2021 $24, 076, 903 2022 $26, 003, 056 9

Other Post Employment Benefits (OPEB) FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 General Fund / W&S OPEB Appropriation Savings from OPEB Reform Total OPEB Appropriation $1, 015, 783 $1, 037, 949 $1, 060, 622 $1, 083, 812 $1, 107, 530 $1, 135, 218 $1, 163, 599 $1, 192, 689 $1, 222, 506 $1, 253, 069 $632, 938 $769, 703 $906, 194 $978, 690 $1, 056, 985 $1, 109, 834 $1, 165, 326 $1, 223, 592 $1, 284, 772 $1, 349, 010 $1, 648, 721 $1, 807, 652 $1, 966, 816 $2, 062, 502 $2, 164, 515 $2, 245, 053 $2, 328, 925 $2, 416, 281 $2, 507, 278 $2, 602, 079 February 27, 2017 10 10

Projected Obligations to 2032 Obligations as Percentage of Budget FY 2017 16. 94% FY 2018 18. 33% FY 2019 19. 17% FY 2020 19. 87% FY 2021 20. 75% FY 2022 21. 64% February 27, 2017 11

FY 2018 Revenue Overview • Tax Levy to increase by the 2. 5% (less Excess Levy Capacity) • New Growth and Local Receipt estimates are based on five year averages of actual growth and collections. • State Aid projections have been adjusted to reflect the Governor’s Budget (H 1). • Free Cash to be appropriated only for one time capital expenditures February 27, 2017 12

FY 18 Revenue Highlights • Property Taxes – $135. 7 M: 4. 89% / $6. 3 M increase; Prop. 2. 5 Levy Limit; $2 M New Growth; $300 K Unused Levy Capacity; Plus $4 M Exclusions • State Aid – $12. 1 M: -6. 62% / $861 K Decrease (Gov’s H 1. Jan 25 th)/No GF MSBA Reimbursement. Actual Increase $281, 300 /2. 4% • General Local Revenues – $11. 49 M: 4. 5% / $494, 872 increase • Water & Sewer Enterprises – $14. 3 M: 3% /$427, 861 increase /2. 5% water rate increase /2. 5% sewer rate increase • Offset Dept. Revenues – $2. 1 M: +78 k increase to reflect FY 18 proposed programming • Other Available Funds – $1. 4 M: From Water & Sewer Reserves, Bond Premium Stabilization Fund, Cable Fees, AYS Gift, Parking Fund, etc. • Free Cash – $500, 000 from estimated $4 M available balance February 27, 2017 13

Use of Free Cash Estimated at $4 M ◦ Ballardvale Fire Station Design - $300 K ◦ High Plain/Wood Hill Accessibility Project – $200 K ◦ FY 17 Supplemental Appropriations – ? : Unknown at this time; probable Snow & Ice deficit appropriation and/or transfers February 27, 2017 14

Expanding Capital Capacity Prior Non. Exempt Debt Service + New Non. Exempt Debt Service + General Fund Revenue = Total Non. Exempt Plan • Establish Annual Spending Target for “non-exempt” Capital Investment • Composition of Target includes appropriations from Taxation and Non-Exempt Debt – Funding within the Limitations of Proposition 2 ½ • Does not include Free Cash, Other Designated Funds or Water & Sewer Enterprise Funds • Goal – Provide the Town with the capacity to fund major capital projects within the tax levy and avoid debt exclusion votes February 27, 2017 15

Establishing A “Target” Prior Non. Exempt Debt Service + New Non. Exempt Debt Service + General Fund Revenue = Total Non. Exempt Plan • Non-exempt target has been set at 5. 72% • FY 2018 recommended CIP is balanced and supports investments in all functions of Town government • FY 2018 Recommended CIP 5. 52% of the 5. 72% target • The following four years of the CIP fluctuate for a five year average of 5. 64% • Provides for future non-exempt flexibility within the plan February 27, 2017 16

Revised Capital Improvement Program for FY 2018 General Fund Revenue General Fund Borrowing Use of Free Cash $3, 678, 875 $21, 460, 000 $500, 000 General Fund Exempt Borrowing Special Dedicated Funds $1, 914, 288 Water and Sewer Enterprise Funds $ 5, 375, 000 Total Recommendation $32, 928, 163 February 27, 2017 17

Municipal Services Facility Project 2016 Town Meeting 1. Appropriated $2, 250, 000 from Free Cash to purchase 5 Campanelli Drive. 2. Established Municipal Services Facility Mitigation Fund to mitigate the financial impact of constructing a new facility at 5 Campanelli Drive. 3. Appropriated $900, 000 from General Fund Taxation to fund the design and engineering phase of the Municipal Services Facility Project. 2017 Town Meeting 1. Consider voting to authorize borrowing $17, 500, 000 to construct the proposed new Municipal Services Facility February 27, 2017 18

Projected Deficit Based on Assumptions $0 -$1, 000 $0 $0 2017 2018 2019 2020 2021 2022 -$1, 187, 568 -$2, 000, 000 -$3, 445, 915 -$4, 000 -$4, 811, 449 -$5, 000, 000 -$6, 964, 840 -$7, 000 -$8, 000 Revenues Appropriations Deficit FY 2017 $162, 915, 552 $0 February 27, 2017 FY 2018 $165, 952, 579 $0 FY 2019 $170, 901, 908 $172, 089, 476 -$1, 187, 568 FY 2020 $176, 560, 749 $180, 006, 664 -$3, 445, 915 FY 2021 $182, 147, 642 $186, 959, 091 -$4, 811, 449 FY 2022 $187, 591, 893 $194, 556, 733 -$6, 964, 840 19

FY 18 Budget Process February 2017 • Fri. 10 th • Mon. 27 th March 2017 • Sat. 4 th • Wed. 8 th • Mon. 20 th • Mon. 27 th • Wed. 29 th Town Manager’s Recommended FY 18 Budget Released High Level Overview Presentation of Town Manager’s Recommended FY 18 Budget All Town Department Budgets (MHL – 9: 00 am to 3: 30 pm) Tri-Board Meeting – School FY 18 Operating Budget Presentation Final Votes on Water & Sewer Budgets & Rates Final Operating & Warrant Article Votes Final Votes (If Needed) & Chair Letters to Finance Committee April 2017 • Fri. 21 st Finance Committee Report due to Residents May 2017 • May 1 st 2017 Annual Town Meeting (1 st night) February 27, 2017 20

2017 Annual Town Meeting Monday May 1 st at 7: 00 PM continues Tuesday May 2 nd (if needed) Monday May 8 th(if needed) Tuesday May 9 th (if needed) J. Everett Collins Center, Andover High School February 27, 2017 21

The Town Manager’s Recommended FY 18 Budget is available on-line in its entirety at www. andoverma. gov February 27, 2017 22