Quick version: the Committee supports the Undesignated Fund Policy, opposes the Debt Management Policy and 1% sales tax, has mixed feelings about Police and Fire Upgrades, and feels that these should be policies, not guidelines.
Read on for the full report:
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Brattleboro Town Finance Committee
Report to Special Representative Town Meeting
October 20, 2012
The Brattleboro Town Finance Committee wishes to thank the Selectboard for seeking our advice on the forthcoming matters. This is typical of the work we do for Representative Town Meeting as delineated in our Charter. We are pleased to share our conclusions with the Selectboard, the town administration and all Brattleboro citizens.
Finance Policies
We would like to begin by referencing two financial policies currently under consideration by the Selectboard. They are relevant to the issues on hand. However at this point, to maintain clarity in today?s discussion, we will be very brief. At the conclusion of these opinions and recommendations we will expand upon them.
The two policies concern the establishment of an Undesignated Fund (our emergency reserves) and debt management. On the former, the Administration has proposed a lower level for this reserve than has been recommended by the Finance Committee (FC). The proposal is for an amount equal to about five weeks operational expenses or 10% of the municipal budget. This would maintain our Undesignated Fund at roughly $1.4 million. The FC, in concurrence with professional standards that advocate a more solid cushion, seeks to maintain a fund that would cover eight weeks of operations or about $2.2 million. For now the FC conditionally accepts and supports the Administration?s recommendation. This should place the Selectboard, the Administration and the FC into alignment and we hope that a policy will be soon enacted. We also advise Representative Town Meeting to respect this proposal as a guideline until a formal policy is in place.
The second policy concerns debt management. This is a more complicated affair and only recently placed on the table by the Administration. The proposal allows for a much higher level of municipal debt than, at first glance, we believe judicious. The FC needs to do more investigation and analysis. A debt service to expenditure ratio of 12.5% (that is, 12.5% of the town budget would be used to pay off debt, primarily the principal and interest on our loans) and a $1,500 debt per capita ratio is high but must be set in a broader context to have meaning. That context is composed of a wider variety of indicators that draws a more complete and balanced picture. It has not yet been produced. Current town debt service is low at about 5.5%. The national average for municipalities is about 8.3%. We do know that the proposed 12.5% level happens to be what a $14.1 million bond would bring us to. This cannot avoid suggesting that a policy is being proposed to legitimize an existing situation. This is generally ill-advised ground for setting policy. Good policies can be written to allow for some flexibility by stipulating corrective actions.
The FC does not at this time support the proposed debt management policy.
The Sales Tax
A strong (5-1) majority of the Finance Committee does not support a one percent increase in the sales tax at this time.
First, it must be recognized that a sales tax is imposed indefinitely. We of course have the power to rescind as well establish but in practical terms it is permanent. It must be considered, properly, as an addition to our revenue stream and not as a funding source for a particular purpose. That said, the FC is in informal agreement that increasing the town?s revenue is probably a good thing. However, in its brief history and limited resources the FC hasn?t yet tackled revenue problems and potential. The sales tax is handy. It?s relatively quick and easy to put in place. We don?t know for sure if it should be included in our formula for financial health.
We do accept the viewpoint that Brattleboro?s retail position is quite fragile as it stands. We have read the position paper produced by BaBB and note that higher sales taxes have a negative effect on retail sales. Although we give weight to this assertion we also acknowledge that we don?t know the extent of this impact in Brattleboro. There are reasons that suggest the loss of sales would be much less than predicted.
As stated in the FC?s last Annual Report a sales tax is a regressive tax. It is the same for all regardless of means. Thus it is more of a burden on consumers with lower incomes. The FC is aware that some essential goods are outside the purview of the tax.
As some will notice, our position has changed since the aforementioned report written eight months ago. New information and further deliberations led us to a different conclusion.
Police/Fire Facilities Project
A 4-2 majority of the Finance Committee supports the Police/Fire Facilities project as proposed. Although there are many reasons to be cautious the benefits appear stronger.
The project is proposed at a time when interest rates are at historic lows. Borrowing costs are greatly reduced. A single percentage point can add a hundred thousand dollars in cost per year over the life of a bond this large. There should be some stimulus to the local economy from construction expenditures but this is short term. We do not see sufficient benefit to phasing the project in over many years. Additional ?soft? costs of planning, design, oversight etc plus the continuing escalation of the cost of materials, not to mention the risk of higher interest rates strongly suggest that most if not all the project be built in one shot.
Income sensitivity programs on homesteads and rentals, through the rental rebate program, will greatly relieve most of the residents of some or all of the tax burden that will be incurred specifically from this project. 71.3% of Brattleboro residents are benefiting from these programs. Incomes as high as $97,000 may qualify although at that level the dollar reductions are tiny. At $47,000 a household may find that its tax burden is capped and an increase in the tax rate has no effect at all. This is a significant factor in determining the affordability of the project.
The project will significantly improve working conditions for department employees. This is accepted as an important morale builder. Improved conditions will not only add to worker safety but public safety in two areas. The public will be safer in the physical environment of these facilities and the improvements will enhance the level of service throughout the broader community. We believe we accurately reflect the desire among the community for the highest level of service within our means.
On the negative side the FC recognizes that this project is proposed without complete and reassuring financial analysis. A 4 or 5% (10 to 12 or 13 cents) jump in the tax rate might have been relatively easily absorbed in years gone by. Now we should be closely examining per capita and household incomes, unemployment rates, valuations and Grand List trends. There is also no reliable analysis and estimate of the impact of a higher property tax on commercial activity. Much more must be known about current economic trends in Brattleboro.
Another serious omission is the lack of a long range capital plan. The bond under consideration will require payments on the average of a million dollars per year for the next 20 years. It is very important to anticipate what other indebtedness may be incurred during this period. Advocates of a bond are quick to illustrate how it diminishes over time but reluctant to chart new debt that will be added. It is also often overlooked, and this is a serious omission that is particularly relevant to most in Brattleboro, that there is another cost to living here that is increasing greatly and occurring simultaneously. Namely, water and sewer rates. We must be mindful that along with a tax increase the average residence on town water and sewer will see bills rise $80 to $85 dollars per year for the next 8 years.
Lastly, there is regret that the Police/Fire project is not being done as part of a master plan. Brattleboro continues its tradition of reacting only when it is up against the wall and thus far more limited in its options. It is ironic that the Administration argues that a piecemeal project is more costly, which of course it is. The irony is that as an entirety our infrastructure costs are higher than need be because, in the absence of a plan, we attend to it in just that way: piecemeal.
This concludes the core of our report.
Addendum on Policies
An issue surrounding the financial policies currently proposed involves the Selectboard?s choice to label them as guidelines rather than policies. The Finance Committee strongly recommends that these standards be categorized as policies.
The Finance Committee (FC) has been looking at policies for the better part of two years. Regardless of where we have gone, what we have read or whom we have spoken with, including foremost professional organizations such as the Government Finance Officers Assn,, the International City/County Management Assn. as well as the Vermont League of Cities and Towns, the Director of the Vermont State Bond Bank and down to our former finance director John Leisenring the policies under discussion have never been referred to as anything other than just that: policies. To frame them as guidelines is unique indeed. If the town were ever to get as deep into financial trouble as it was six and seven years ago such language would be a red flag to a professional assessing our condition. This is not an exercise in mere semantics.
The label of ?policy? carries a well-understood weight of intent. A policy denotes an act of an official nature that has not been created, presumably, without careful thought, research and discussion. Policies may of course be changed by an agreement among the members of the same body than created them. They may in modest measure be temporarily stretched or even ignored. However a policy implies that to change it or deviate significantly requires substantial justification. Policies can be written to allow for extraordinary circumstances and may include remedial actions that would restore their integrity. Quoting from the FC?s last Annual Report:
??policies reflect and record our best thinking. They provide guidance for municipal administrators and, importantly, elected officials who may have no financial background. Policies help avoid repeated debates and discussions on the same subjects. Policies foster public confidence by increasing transparency, accountability and consistency.?
A ?guideline? carries no such common understanding. We often hear during discussion or debate that a guideline is ?only that.? By inference it is meant that the reason for its existence is not of great concern and can be violated without undue debate or deeper justification. A policy need not be inflexible but it calls for respect. It is ignored at some risk and often not without impunity. That is the very intent and meaning of accountability, a primary purpose of policies.
We thank Town Meeting Members for this opportunity to serve them and all the citizens of our town.
Michael Bosworth
Tim Cuthbertson
Bob Rottenberg
John Wilmerding
Kathryn Turnas
Spoon Agave (Chair)
Source: http://www.ibrattleboro.com/article.php/20121016102556543
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