The purpose of this budget message is to highlight and summarize the key information contained within this Proposed 2010 Budget document, to recommend supportable expenditures and revenue, to apprise the Board of Commissioners and the citizens of Lower Merion of our fiscal plans, and to explain the opportunities and challenges we face.
This budget recommends a +3.8% increase in the Township’s Real Estate Tax (RET) millage rate for 2010. This will add approximately $1.0 million of new revenue and equates to +0.14 mills, or approximately +$51 to our average single family detached home (assessed at approximately $365,000) tax bill in the Township. This would bring this typical home’s 2010 Township RET to $1,394. Also, it is recommended that the State’s Homestead Exemption provisions be reviewed in conjunction with setting the 2010 RET millage rate.
This recommended +3.8% RET millage rate increase, following +2% RET millage rate increases for 2007, 2008 and 2009, is recommended for various reasons.
First, it results in budgeting the 2010 ending General Fund (GF) fund balance to approximately 17% of 2010 expenditures (a little higher due to reserves for encumbrances). This fund balance is the same as had been sought for the 2009 budget and within the threshold goal of the Township’s GF fund balance policy of 15% to 18%. It will also provide some “cushion” in the event that our 2010 revenue projections fall below our forecast. In today’s uncertain and difficult financial environment, maintenance of sufficient fund balance is particularly prudent.
Second, I believe this 17% GF fund balance level is the preliminary preference of the majority of the Board of Commissioners, most of whom communicated directly with me during these past few weeks as I finalized the Proposed 2010 Budget. My ongoing managerial goal is to propose measures that appear to be the preliminary preference of most of the members of the Board of Commissioners so that I am recommending a budget that appears to be generally supportable by the Board. This approach is not intended to create a final position which is therefore a foregone conclusion, but rather a place for Board deliberations and the public process to commence.
Our financial condition has not materially changed since we reported our then-updated five year financial forecast to the BOC in June. Of course, there have been some changes, primarily to the positive, and change will continue to occur, but we face the same basic challenges we virtually always face in municipal government in Pennsylvania – revenue that will not grow without tax and fee rate increases, and expenses that grow based upon basic economic forces of inflation and employee costs and benefits.
A day does not go by these days when we do not hear about businesses and governments around our great nation as well as here in Pennsylvania with major budgetary challenges. The highly publicized budget crisis of Philadelphia occupied the front page most of this summer, and our State only recently adopted its 2009-2010 Budget, more than 100 days past the start of its fiscal year. Budget answers are not easy. There are no simple solutions, no absolutes that work for everyone or every situation.
By not filling vacancies this year, we have experienced some service delivery reductions, especially in our ability to conduct our Highway Division responsibilities, since we have operated virtually all this past year with five fewer highway workers, or about 1/3 of that Division’s staffing. We have been unable to complete scheduled projects on time, with the storms of August really setting us back in our workload.
Much recent discussion among the Board and the public has been related to the hope that there be no RET millage rate increase for 2010. While this is always our goal, it cannot usually be attained without making significant expenditure reduction decisions. While this proposed budget contains many expenditure savings and reductions throughout – and a proposed 2010 expenditure budget that is lower than the 2009 expenditure budget (aided by eliminating the GF subsidy to the Solid Waste Fund) – it does not propose a zero percent RET rate increase for 2010. To do so would have required greater reductions in service levels, inadvisable use of one-time funds, or budgeting to a lower GF fund balance. It will be up to the Board to determine which, if any, of these areas are acceptable to pursue in seeking to lower the recommended +3.8% RET rate increase for 2010.
In addition to this RET recommendation, as is our customary practice, proposals to increase the Township’s miscellaneous 2010 user fees and rates to maintain full-cost recovery will be submitted this fall.
After a year-long study, steps were taken by the Board on October 21st to finally return the Solid Waste (SW) Fund to a fully self-sustaining enterprise fund. The growing annual subsidy from the GF (19% for 2009) will now be virtually eliminated with the new SW Fee rates adopted for 2010, the first SW fee rate increases in eleven years. With the creation of a new volume-based SW fee rate structure, including a new Rear Yard Collection Fee (RYCF), approximately $1.7 million in GF subsidy for 2010 will be averted.
This relief of the growing SW Fund subsidy from the GF, unexpectedly strong current performance from a small number of our business taxpayers, and our plan to keep our staffing vacancies unfilled are the main reasons why we are able to propose a much smaller 2010 RET rate increase than the double-digit millage rate increase discussed earlier this year. This spiked business tax performance is not expected to continue in the future; therefore, our revenue projections for 2010 and beyond raise concerns regarding the delayed major structural GF budgetary imbalance that has been pushed back to 2011.
After 14 years of no increases in the Sanitary Sewer Rent rates, it was necessary to increase the rates +9% in 2008 and +6% in 2009. I anticipate that another fee rate increase in the range of +10% will likely be necessary for 2010 when the Board, via ordinance, sets the 2010 rates next May.
As stated, the Township’s 2010 expenditure budget is lower (by -1.1%) than the 2009 expenditure budget – and nearly equal to the 2009 estimated actual expenditures. Excluding the removal of the GF subsidy to the SW Fund, the “apples-to-apples” budget-to-budget rate of GF increase for 2010 is only +1.4%. The “apples-to-apples” 2010 Budget increase compared to the 2009 estimated actual is only +2.3%.
The 2010 spending plan contains many and various expenditure reductions and savings – with no expanded programs or service delivery levels. This continues a strong trend of restrained Township governmental spending, with the above-noted estimated increases of +2.3% for 2010 (over 2009) and +4.4% for 2009 (over 2008), and actual increases of +1.4% for 2008 (over 2007) and +3.5% for 2007 (over 2006). This spending pace represents a modest and contained compounded rate of increase for the four-year period (2007-2010 estimated) of less than +2.9% (even netting out the lack of a GF subsidy for 2010). I doubt that any other similar municipality in the region that is providing consistent, high quality services and investing in its infrastructure can boast such a recent performance of low spending.
Staffing is budgeted at 2009 budgeted levels, minus 4 employees (the Gardener at Appleford who retired, and three fewer Refuse workers as a result of the new SW fee rates and collection plans). There is currently one refuse worker vacancy, so two of the current refuse workers will need to be reassigned to fill vacancies in the Highway and/or Parks Divisions. Township staffing was also reduced last year by seven full-time positions and three part-time positions. Other than filling 5 police officer vacancies during 2009, no other full-time or regular part-time vacancies have been filled in the past 14 months. With the exception of the two transferred refuse workers, a full credit of the costs of wages and benefits for all of the current GF vacancies (12.2 Full-time Equivalent) is included in the Proposed 2010 Budget, thus assuming that none of these current vacancies will be filled by new hires throughout 2010. No layoffs are proposed.
Again for 2010, we have assumed an amount of GF budgetary savings and included this as a “negative expense” in our operating budget, comprised mostly of the vacancy credits of nearly $700,000 by not filling the existing GF vacancies. 2009 marked the first time we budgeted for anticipated GF budgetary savings, and we appear to be exceeding the 2009 budgeted savings of -$1.2 million, with an estimated/actual 2009 GF budgetary savings of about $1.7 million or an additional unbudgeted savings of nearly $0.5 million. For the 2010 Budget, we are again budgeting a negative expense of -$1.2 million in expected GF budgetary savings (shown in our Non-Departmental Budget), and will work diligently to attain and hopefully exceed this level.
We have not only carefully evaluated and implemented additional cost reduction and containment opportunities in our operating budget, but have also made major changes and delays in our spending strategies in our six-year capital improvement program, which will be enumerated later in this budget message. Over $8 million in capital spending that we would have otherwise most likely undertaken in 2008-2010 has been delayed until 2011 or beyond. Even with such significant postponements, we are budgeting to need an approximately $15 million new money bond issue in early 2010 to provide a source of funding for our CIP. Considering that nearly half of this bond issue will be spent on the planned major renovation and addition for our largest library ($7.3 million for the Ludington Library project), capital borrowing other than for libraries will be only about $7 million in both 2009 and 2010, significantly below our typical $10 million annual capital borrowing program. Also, significant outside grant funding continues to strategically leverage and supplement the Township’s capital spending plans.
Our major GF spending categories remain: (a) the cost of our employees and (b) debt service for our capital improvement program. Combined, personnel and debt payments represent nearly 82% of the 2010 GF expenditure budget. After a 20+% upward spike in 2009 for employee healthcare benefit premiums, we will experience mostly flat overall premium rates for 2010, due to excellent recent claims experience. This good news reminds us that employee healthcare costs are quite unpredictable, but can and must be managed with smart cost-containment strategies, cost-sharing with our employees, good claims management, strategic plan design, and active participation by our employees in our nationally-recognized wellness programs.
Since 2008, we have released our annual budget and CIP nearly two weeks earlier than our statutory requirement to publish the Township Manager’s proposed budget by November 15th each year. This earlier publication gives both the Board of Commissioners and the community additional time to discuss our fiscal needs, confident that the decisions we make can be evaluated and that proper fiscal planning can proceed in order to implement the decisions for our future. Especially during this past year when so much has been reviewed and discussed about our upcoming annual budget and CIP, it is important that we now actually have the updated, current financial information and plans upon which to react instead of relying upon now-outdated prior forecasts.
I am ever mindful of the need to propose a responsible and conservative budget to our community. Even with some current optimism by economists throughout the world and a recently-strengthened stock market, our unstable economy will continue to cast a shadow upon our fiscal and operating plans for the foreseeable future.
While proposed tax increases are never lightly considered, new revenue added in the 2010 Budget will partially close a significant GF operating deficit anticipated for 2010 and help to somewhat reduce an even more sizeable operating deficit forecasted for 2011. The 2010 Budget calls for a $1.6 million structural imbalance between our budgeted spending and income, resulting in a planned drawdown from our GF fund balance.
For the third year in a row, a Five Year Forecast is included later in this budget message. Our forecast shows that our current trend of planned GF deficit spending – enabled by the spending of one-time excess GF reserves accumulated from 2004-2008 – must cease by 2011 or possibly 2012. This means that our budgetary decisions are increasingly important as we must soon reestablish a structural balance of our annual expenditures and revenue.
This budget message is designed to provide the reader with the full array of information in order to understand our fiscal strategies, our operating plans and overall financial condition. We welcome a frank and civil discussion regarding the service delivery levels that are needed or desired and how to pay for them. All responsible ideas toward cost containment and revenue collection efficiencies are encouraged. It is with this spirit of outreach and open dialogue that I present my Proposed 2010 Budget.