Many consider forward planning to be a strength of Chelsea government. Economic development, open space, energy conservation and capital improvements are among the many facets of government that are projected out by the City in order to take advantage of opportunities and guard against trouble on the horizon. Perhaps the most significant annual planning initiative is the City’s Five-Year Financial Forecast. At a joint meeting of the City Council and School Committee earlier this month, City Manager Jay Ash presented the forecast and summarized the City’s financial health as “good.”
“Our finances are stable, improving but uncertain,” he said. “The uncertainty is because of outside influences beyond our control and potential large liabilities we have down the road. But, overall, I’m pleased to report that our financial health is good, as we project over the next five years that revenues will exist to meet expenses we anticipate.”
According to his estimates, Ash reported that hae expects the City to amass a combined five-year surplus of $115,000, a significant turnaround from the $6.3 million deficit Ash had estimated in his Five-Year Financial Forecast last year.
“We had several significant events since our last forecast, including construction beginning on the Marriott hotel, municipal health insurance reform leading to a $1 million annual savings, and modest increases in local aid,” he said. “Those combined with our usual prudent management have place us in the position of having a positive cash flow over the next five years, even though the next couple of years are still showing us small deficits.”
The Five-Year Financial Forecast is one of several financial requirements of the City Charter. Ash says it is a great exercise in that it forces City government to think critically about expenses and revenues over a longer period than government is used to doing.
“If one thinks of the City as an ocean liner, the forecast gives us plenty of advance notice as to the turns we must take ahead, instead of forcing us to make what would otherwise be an abrupt and perhaps impossible turn to avoid trouble or otherwise achieve a desired course,” Ash compared.
Ash reviewed his 33-page forecast with, and answered questions from, the City Council and School Committee about the City’s finances. Ash revealed both the good and bad news City government could expect from FY’13, which begins July 1, 2012, through the end of FY’17, which concludes on June 30, 2017.
“I’m generally an optimist, but I approach budgeting as a pessimist: better to be off to the good than to the bad, I figure,” revealed Ash. “There are clouds on the horizon which may not bother us, but we need to be aware that at anytime a major storm could be heading our way.”
Despite the current economy recovery, Ash reports the City’s budget faces threats from what he calls the “new normal” in municipal budgeting. Among those items of concern to Ash are the chronic State budget crisis and Federal spending cuts that continue to impact revenues; charter school costs threatening to take away millions annually from the City budget; non-school local aid remaining below 1987-levels and, adjusted for inflation, being the lowest in the Prop. 2 ½ era, and Chapter 70 school aid growing but at levels too low to sustain many school operations.
He added that employee overhead costs are projected to grow at twice to three times the rate of inflation, even after major health insurance reform has been achieved; cost-cutting measures are largely exhausted; regionalism initiatives are underway but not providing immediate or significant financial benefits; several local revenues are volatility; annual infrastructure spending needs may not be fully met, and the pressure is great to continue to deliver on economic development projects in order to derive the new funding necessary to fill in future budget gaps.
Asked as to how he could be so optimistic in the face of such a pessimistic perspective, Ash said the pessimism is more about fear than it is reality.
“I guard against those fears daily and need to be aware of and continually conscious of the impacts that any one or more of those threats could or will have in the future. That’s what a forecast is meant to do: make sure we’re thinking about and even anticipating future bad news far enough ahead of time for us to do something about a negative or two,” advised Ash.
“In general, I’ve often referred to this period of municipal finance as the worst since the Great Depression,” Ash continued. “Fortunately, if I can use that term, we never hit a depression and have started the recovery. We’ve been able to maintain an above adequate level of service during these down years. While there are areas that are showing wear, we are, in fact, in relatively good shape and have many more reasons to be optimistic about the future.”
Ash cites the City’s continually-shrinking, structural deficit as a major reason for optimism.
“We continue to start each year with smaller and smaller annual deficits and maintain enough reserves to fill in those gaps. By FY’16, I believe those deficits will disappear altogether. Helping that will be the achievement of a long-held goal of agreeing with labor on municipal health insurance savings; debt service levels that continue to decline, and economic development that continues to bring important projects and their associated tax revenues to help balance the City’s budget,” explained Ash.
Furthermore, Ash said that non-school local aid is not projected to decline and will actually see modest increases in FY’13; the State adoption of casinos should deliver more local aid in future years and reserves remain in place to guard against future budget shocks in both expenditures and revenues.
Council President Leo Robinson was most pleased that the projected budgets can all be balanced without the need for a Prop. 2 ½ override and that no positions will be reduced in the upcoming FY’13 budget because of fiscal pressures.
“That tells me we can continue to deliver good-to-great municipal services and not have to pass an override to raise property taxes to do so. There are many communities that wish they could say the same. We’re showing everyone how to be successful at managing our finances to assure positive outcomes. That’s a great story to tell and one that is becoming routine here in Chelsea,” concluded Robinson.