CHATHAM – The first payment by Harwich under the intermunicipal agreement for access to the town's wastewater treatment plant is in the bank. How should it be spent?
To lower the tax rate? Pay for capital projects? Or pay down debt?
Those and other options are being considered by town officials for the $2,265,000 initial payment under the agreement, which will bring in another $4.5 million in three more payments over the next six years. At Monday night's annual budget summit, members of the board of selectmen and finance committee considered options for the money, which Town Manager Jill Goldsmith said goes into the town's free cash account and can be spent on whatever officials desire. However, like any expenditure from free cash, it will require approval by town meeting.
Paying down debt appeared to be the consensus among most officials, but there wasn't agreement on exactly which debt.
The town has approximately $89.3 million in debt, which covers building projects like the fire station, land purchases, wastewater and water department infrastructure. Some of the debt is covered by specific revenue streams, such as the land bank tax surcharge or water revenue. Interests rates also differ. Most of the wastewater debt, for instance, was covered by a state revolving fund and has interest rates ranging from zero to 2.75 percent. Wastewater accounts for the largest share of debt, totaling $51.8 million, with building debt at $34.6 million, land bank debt of $1.9 million and “other” debt – mostly roads and sidewalks – at $890,500. About 17 percent of the town's annual budget, or just over around $7 million, was spent on debt service costs this year; that figure is forecast to dip slightly to $6.2 million in next year's budget.
It makes sense to pay off the debt with the highest interest first, said Finance Committee Chairman Stephen Daniel.
Selectman Cory Metters agreed. “That makes a whole lot of sense from a financial perspective,” he said.
While that's certainly the most conservative approach, Selectmen Jeffrey Dykens said he'd be in favor of putting some of the money aside for a “rainy day.” While officials know about some large expenses likely to come up in the near future – like a new council on aging building, which selectmen are slated to discuss Oct. 29 – other unanticipated expenditures are possible as well, he said.
“We have many issues out there. I don't want to rush to pay down debt,” said Dykens. Selectman Peter Cocolis pointed out the board is looking at issues like keeping young families in town and coastal resiliency, which could have financial impacts, such as higher education spending or major shoreline nourishment projects.
While the $2,265,000 may seem like a lot of money, Finance Committee member Norma Avellar said when it's divided up for different purposes “it doesn't amount to much.” Officials need to determine whether to use most of the money to lower debt or dole it out “in dribs and drabs” for other purposes.
Officials weren't ready to make a final determination Monday. Finance Director Alix Heilala said she will investigate the interest rates on town debt as well as whether there are any pre-payment penalties or refinancing costs. Once that information is available, both the finance committee and selectmen will recommend how the IMA funds should be used.
Heilala said the total amount of free cash available next year is expected to be $4 million, although the figure has not yet been certified by the state department of revenue.
During the two-and-a-half-hour budget summit, officials heard an overview of the town's financial situation going into planning for the fiscal 2020 budget. With a total taxable evaluation of more than $7 billion and a $4.85 tax rate, one of the lowest in the state, the town's finances are in good shape going into the process, said Heilala. Budget projects show modest increases within Proposition 2½, along with anticipated new growth; overall town spending for fiscal 2020 is forecast at $41,694,864, a 1.6 percent increase over the $41,008,625 voted in last May's annual town meeting.
Heilala and Goldsmith set out several decisions that selectmen will be asked to make in the coming weeks in order to guide department heads as they put together budgets, including recommendations on staffing and service levels, new revenues and opportunities for savings.
Officials also heard an overview of a new capital improvement plan put together under a state Best Practices Grant by the Edward Collins Center for Public Management. Rob Rooney reviewed the data-driven process that will be used to rank capital spending which incorporates best practices from other communities as well as factors that are Chatham specific, such as the community's seasonality and coastal issues. The process is designed to look at projects on their merit, not on cost.
“A lot of times money gets in the way,” Rooney said. The evaluation method developed for the town ranks the value of a project to the community. “Whether it's a $15,000 or $150,000 project, is it what the community needs?” he said.
The fiscal 2020 budget move about $115,000 in routine expenditures from the capital plan into the regular department budgets, Heilala said. Capital spending in the fiscal 2020 budget is anticipated at $2.75 million, she said, about 9 percent of overall town spending.
Keeping control of capital spending is a chief concern of the finance committee, Daniel said, and he advised that the new capital planning process be applied to large projects such as the anticipated COA building.
The finance committee is also recommending that more be done for “the quiet parts of town, the less visible, more needful” aspects of the community, such as assisting with child care and other services for working residents.
Goldsmith noted that the town's financial policies are being revised and will be presented to selectmen in January. Department budgets must be submitted to the town manager by Nov. 8, with the Monomoy Regional School District budget due Jan. 15. The town manager's operating and capital budgets will be presented to selectmen on Jan. 7. Voters will act on the spending plan at the May 13 annual town meeting.