On Monday, March 28, the Board of Finance held a public hearing on the Board of Education‘s proposed budget, and on Tuesday, March 29, the BOF held a public hearing on the Board of Selectmen‘s proposed budget. This is the prepared presentation delivered by Jeffrey Rutishauser, chairman of the Board of Finance. He supplied his prepared remarks at GOOD Morning Wilton’s request.
Good evening and welcome to the Board of Finance Hearings on the Board of Selectmen Budget and Capital Bonding projects.
My Name is Jeff Rutishauser, Chairman of the Board of Finance. First, I would like to introduce our Board. We have:
- Warren Serenbetz – Vice Chairman
- Richard Creeth – Clerk of the Board
- Peter Balderston
- John Kalamarides
- Walter Kress
All of these men serve as volunteers and deserve your respect and gratitude for their contributions to the Town.
Tonight, you will hear two presentations. The first will be a short overview of the Town’s financial position and the projected mill rate. Next, First Selectman Lynne Vanderslice, will present the Board of Selectmen budget and Capital Bonding Projects.
The remainder of the meeting will be devoted to hearing your comments and opinions on the Board of Selectmen budget and the Capital Projects. That’s the main purpose of this meeting so at that time, please come up to the mikes and let your opinion be heard.
Let’s look at the Budget Highlights for this year.
First bullet: On the revenue side, the Grand List is up only 19 basis points over last year, an unexpectedly low increase after last year’s 82 basis point increase. What this means is that we only have an additional $220,000 of tax revenue from the Grand List growth this year to offset the rise in projected budget expenses whereas we had an increase of $923,000 of tax revenue from Grand List growth last year. This is a $700,000 reduction of additional tax revenue coming from Grand List growth relative to last year. That is a huge and disappointing drop.
It is important to understand the role an expanded Grand List plays in offsetting budgetary expense growth and how important it is as a Town to be more accommodating to developers building new residential and commercial property in town that add wealth to the Grand List. Adding new development, and wealth, to the Town’s Grand List eases the tax burden on the rest of us. So this anemic growth of the Grand List is something we as a Town need to focus on in the future. We will talk a little later on this point.
Second bullet: The Board of Selectmen’s budget is actually a small decrease from last year’s budget, a truly extraordinary effort to rein in costs. Typically, the Board of Selectmen budget increases about 2-2 ½ % annually. This one-year flat budget sets the Board of Selectmen on a lower cost baseline going forward so that it becomes a perpetual 2% lower baseline for future Board of Selectmen budgets. Even if the Board of Selectmen returns to the more typical 2-2 ½ % increase next year, it will be growing off of this year’s lower baseline.
We recognize the extraordinary budget performance by the Board of Selectmen to contribute to fiscal restraint this year.
Third bullet: Not to be outdone, the Board of Education has presented one of the lowest budget increases in its history as well. Their increase is only 1.27% over last year. This is significantly below the much larger Board of Ed increases of recent years and for that we commend the Board of Ed and Dr. Kevin Smith, Superintendent of Wilton Public Schools.
This year’s Board of Ed budget also demonstrates a turning of the corner as the enrollment starts an expected multi-year decline as the last children of the Baby Boomers– basically the Millennials – finally pass through the school system and a smaller generation follows them.
Adapting to a continually decreasing number of students will be a major challenge for the Board of Ed in the coming years while they continue to provide high quality education the parents and the Town of Wilton expect – while at the same time managing the gradual consolidation, or reduction of the school organization necessitated by smaller enrollments in the future.
Fourth Bullet: Debt Service is up 8.1% from last year, or about $850,000. This is primarily the result of Bonding for the Miller Driscoll Redevelopment and Comstock Projects.
Fifth bullet: The General Fund Balance, essentially an accumulation of past budgetary savings and one-time or unbudgeted revenues – will be set at 11.2% of the Operating Budget. Ten percent of the 11.2% is a mandatory reserve required by Moody’s for the Town to maintain its AAA rating, enabling the Town to borrow money at the lowest possible cost.
The remaining 1.2% (or $1.5 million) is a discretionary reserve intended for contingencies. The surplus amount of Fund Balance in excess of the 11.2% reserves, will be used to offset FY17 budget expenditure increases.
Sixth bullet: When you add all this up, prior to the Board of Finance deliberations next week, there is a projected $2.82 million increase in Total Funding Required – 2.4% over last year.
Seventh Bullet: After factoring in the small incremental contribution from the increase in the Grand List of $220,000 , this still leaves a budget shortfall or deficit of $2.6 million, or 2.27% of the budget. This is a much larger deficit than in past years, primarily due to a much smaller than anticipated Grand List growth, lower surplus reserves available than last year to apply to this year’s budget and the increase in debt service.
It is important to note that most of this year’s deficit was due to negative conditions elsewhere, NOT in the operating budgets of the Board of Selectmen or Board of Ed.
Nevertheless, we will need to re-visit these two operating budgets to find potential reductions in the effort to close the deficit this year so it doesn’t all get rolled into a big tax increase.
Other highlights include a strong performance of the Pension Fund investments so that the Pension Plan is approximately 96.5% funded as of last July 1.
Other Non-Tax Revenues are down slightly from last year. However, some of these revenues come from Hartford, which has significant fiscal problems of its own so we are being conservative in recognizing any revenue coming from Hartford.
Tax Relief for Elderly and Disabled remains unchanged at $1.1 million.
And Moody’s, a major bond rating agency, rated Wilton AAA on the most recent bond offering last March.
The role of the Board of Finance in the Town Budget process is carefully laid out in the Town Charter.
The Charter requires the Board of Finance to hold public hearings on the Board of Ed Budget and the Board of Selectmen Budget.
That first required meeting is here tonight. The next one will be held tomorrow night on the Board of Selectmen budget and capital projects. We hope you come tomorrow night as well.
In our process of determining the Mill Rate, the Board of Finance must consider the following:
- The views of voters expressed at these town hearings and in direct communication.
- The Financial resources of the town
- Whether the Board of Ed and Board of Selectmen can find savings in their respective budgets
- The appropriateness of revenue, debt service and General Fund balance amounts
The Board of Finance assesses both the financial resources and financial condition of the Town.
The first area of evaluation is Revenue Sustainability, In other words, what is the current and future strength of the revenue sources funding the Town’s budgetary expenses.
This includes assessing Grand List growth, which has been slowing recently. Part of this is due to Wilton maturing with fewer development opportunities and less available land for development. Part of this is a historical reluctance to embrace developers trying to build in Wilton.
What Wilton needs is more sensible, appropriately located commercial development. Commercial properties generally pay higher taxes than residential while lightly using municipal services and contributing no children, and educational expense, to the school system. Currently Commercial Property is only 14% of the Grand List compared to Residential Property at 75% of the Grand List.
With a revaluation coming next year, it would benefit the Town if some of the commercial vacancies, particularly retail spaces, were leased up since income-producing property valuations are based on net cash flow and empty tenant spaces obviously generate no cash flow. This lease-up would increase commercial property values and, in turn, help grow the Grand List.
Finally, we are concerned at the increasing unreliability of the state government in Hartford in providing the revenue-sharing grants that have historically come to Wilton.
Last year, for example, the $96,000 PILOT grant promised to Wilton was unexpectedly cut to $90,000. Later, it was eliminated entirely, leaving a $96,000 hole in our budget for us to fill.
Going forward, we anticipate that Hartford will cut back more state grants as they try balance their books on our backs. Any amount of grant money cut by Hartford must be made up by Wilton’s residents being taxed more.
As to assessing the debt levels, we need to recognize the significant increase in debt service, primarily due to the Miller-Driscoll redevelopment project. Next year we anticipate another increase in debt service as we issue more bonds this April to finance more of the construction. After two years, we anticipate debt service will level off and start to decline gradually as previously issued bonds are scheduled to be paid off.
As mentioned before, maintaining a AAA rating from Moody’s is a top priority of the Town. To achieve that, we are required to maintain at least 10% of annual operating expenses in the General Fund Balance. This reserve amount is $12.6 million, generally invested in interest bearing bank accounts and investment grade short and intermediate term securities.
Finally we monitor the unfunded pension liability. After a few years of strong investment performance, the pension plan is 96.5% funded as of last July, leaving a manageable $3.6 million underfunded.
As to Operating Expenses, we have started to evaluate budget requests based on current year actuals as the Board of Selectmen did this year. And we have been focusing heavily on staffing efficiency and headcount control, particularly in organizations that are changing in size like the school system.
These next two pages tell the whole 2017 Fiscal Year financial story. At the top, you can see the major components of the Town’s operating budget, totaling $127.3 million, a 1.49% increase over last year.
Offsetting these budget expenditures are two items:
- $5.8 million of Non-Tax Revenue and
- A $4.0 million drawdown of the Fund Balance in excess of the 11.2% required reserve level.
Please note that the Surplus Fund Balance Drawdown was $4.8 million last year but only projected to be $4.0 million this year, a drop of $800,000 to fund this year’s deficit.
So the combination of a decline in Non-Tax Revenue of $166,000 and reduced distribution from the General Fund of $800,000 means that revenue and savings offsets are projected to be lower by nearly $1 million as compared to last year.
After these reductions, there remains a Funding Requirement of $117.3 million, which is an increase of $2.82 million , or 2.4% over last year. This is essentially $1.8 million higher spending coupled with nearly $1 million less other revenue and General Fund distribution.
At the top of this Table, we see the figures carrying over from the prior page. Here’s the $117.3 million Funding Requirement, up $2.88 million and 2.4 % over last year.
Next we can see the impact of this year’s modest increase in the Grand List that provides an additional $220,000 using the current mill rate. So if we DIDN’T change the mill rate, we would be $2.6 million short between our Funding Requirements and Available Financial Resources.
So that is how we end up with the $2.6 million deficit. At this point, there are only two ways to close this gap – (1) budget cuts or (2) tax increases, essentially raising the mill rate. Or we could do some combination of these two.
This Table assumes no budget cuts so that the entire deficit is rolled into a large tax increase.
It is important to understand that this large deficit is a result of a Perfect Storm of several large negative factors that collectively caused the deficit problem, despite the excellent operating budget effort by both Board of Selectmen and Board of Ed.
Nevertheless, this is the financial challenge we at the Board of Finance face. There will probably be some disappointment all around as we work to close this large gap.
Last night, Bruce Likely, Chairman of the Board of Ed, gave an example of what the tax impact for the approximately $1 million BOE budget increase would be for an owner of a $1.3 million dollar house. He said that the incremental tax would be about $250 per year, which is about correct.
However, we cannot pick and choose what portions of the budget we would like to have. This slide shows a more realistic portrayal of the tax increase for that $1.3 million homeowner.
If we roll the entire $2.6 million deficit into a large tax increase, the Mill Rate would go up from today’s 26.83 to 27.43 next year. The $1.3 million homeowner paying taxes of $24,415 this year would be paying $24,968 next year. So the homeowner’s actual property tax would increase $553 over last year.
And, of course, anyone owning a $1.3 million dollar house will need some nice cars to tool around town so this assumes $80,000 of Personal Property owned. The tax increase on this property would be $53.
So if you total it up, for the $1.3 million dollar homeowner with a couple cars, the tax increase is more than $600 over last year’s tax bill. While some in Town can absorb this tax hit, many cannot, especially those on modest incomes or retired. They are residents and citizens, too.
And it doesn’t end there. That $600 higher taxes this year, will be another $600 more taxes again next year. And another $600 more the following year. And every year after that. So it’s not “less than a dollar a day” as Bruce cheerfully says. It’s a lot more. A whole lot more if you plan to live in Wilton for awhile.
Finally, here is the Budget Schedule going forward.
Reading this from top down, we are having the Board of Finance Public Hearings last night and tonight.
On April 4th and 5th the Board of Finance will meet for the deliberations on the budget and the setting of the mill rate.
[Editor’s Note: The slides shown by Rutishauser and the information provided was incorrect. The deliberations were originally scheduled for April 5 & 6, while the slide read April 4 & 5. Since then the deliberation meeting on April 5 has been cancelled. The only scheduled meeting is Wednesday, April 6, and it will continue on to Thursday, April 7 if needed.]
Finally, we will hold the Annual Town Meeting on Tuesday May 3rd where the unified operating budget and bonded capital projects are presented to the Citizens of Wilton for their vote. There is an additional voting day on Saturday May 7th for those who could not or did not attend the Town Meeting.
That concludes our presentation.
And now I’d like to introduce First Selectman, Lynne Vanderslice who will present the Board of Selectmen Budget and Bonded Capital Projects for the coming year.