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03/20/2018 12:00 AMWith both the Board of Education (BOE) and town budget in hand, the Board of Finance (BOF) recently voted to move the two budgets forward to a second public hearing on April 26 with no additional reductions or additions to the base budget. However, in the midst of reviewing the budget, BOF members found themselves in heated debates over capital funding levels in the coming fiscal year.
Together the town and BOE budget is $83,067,202, an increase of $1,181,588 or 1.44 percent from last year’s spending. The BOE budget is $58,103,711, representing a $1,184,506 or 2.08 percent increase in spending. The town budget is $24,963,491, a decrease in spending of $2,948 or 0.01 percent compared to last year.
The Capital Improvement Program (CIP) is a five-year planning tool, though at each budget referendum, voters only approve the current fiscal year’s capital expenditures at the ballot box. For this 2018-’19 year, the CIP is $3,211,906, keeping funding completely flat from the prior year.
The proposed budget, if adopted, is anticipated to lead to an estimated 0.76 rise in the mill rate, from 27.30 to 28.06, a 2.78 percent rise; that preliminary figure is based on early assumptions on state funding and other variables.
The Board of Selectmen (BOS) has also recommended to the BOF that the tax collection rate stay at 98.75 percent and that the BOF use $400,000 from the undesignated fund balance to offset the mill rate increase.
The town budget, as it stands now, carries a $300,000 cut to the library operating budget; that cut has been a source of some contention between parties, boards, and library officials. The cut was proposed as a reduction in operation for the duration of the time the library is in a temporary space during construction, but library officials said the cut will have an adverse affect on their ability to deliver services to residents.
The budget the BOF has sent to a second public hearing keeps the library cut at $300,000. The BOF voted unanimously to send the budget on to a second public hearing.
The Capital Contention
The BOS decision to hold capital funding flat this year by eliminating $97,217 from the CIP budget caused a split between Democrats and Republicans on the BOF and resulted in lengthy and heated arguments over how to proceed with capital funding.
The budget number voters consider for the CIP at referendum each year does not represent how much capital spending will occur in that year, it is for how much money will be put into the capital reserve. When the CIP was created three years ago, the initial plan was to increase the capital by three percent each year to try to build up a healthy reserve for out-year projects in the plan.
Members of the BOF all seemed to agree to want to find a way to put the $97,217 back in the CIP for this year, but there were very strong differences as to the best course of action.
Former CIP chair and current BOF Chair Jean Fitzgerald (R) said she would like to use a special appropriation from the unassigned fund balance for this one year and infuse $97,217 into the CIP line to keep the CIP whole without having to tax residents for that amount.
The Town of Madison holds the equivalent of 10 percent of its operating budget as fund balance. The 10 percent reserve ensures the financial health of the town and can be used in case of an emergency like a hurricane; it also provides evidence of good fiscal management that results in receiving premium bond rates when the town goes out to borrow. As of June 2017, the fund balance total was $10,585,680. The town also holds some money above that 10 percent, referred to as the unassigned fund balance, which is money that can be used for things like offsetting the mill rate. As of June 2017, the unassigned fund balance total was $2,171,920.
The unassigned fund balance has grown over the years and remained largely untouched because officials have built up the balance to help the town in case the state came down with a massive cut late in the budget planning process. As Madison has reduced its dependence on state aid, Fitzgerald has said it’s time to start giving that money back to the taxpayers.
BOF and CIP member Bennett Pudlin (D) was strongly opposed to the structure of that idea.
“I thought there was very strong sentiment on this board as well as the previous board that we would maintain the increases in the CIP as a matter of the highest priority except in the matter of extreme circumstances,” he said.
Pudlin said that by not including the three percent (or $97,217) increase in this year’s CIP budget, the CIP loses the advantage of the compounding interest on the three percent year over year, even if the funds come in this year through other means.
“It takes it out of the base, so it’s not just a three percent loss this year, but the compounding three percent over three percent to the end of time,” he said.
One suggestion made by Pudlin was to put the $97,217 back in the CIP operating budget and add an additional $97,217 to the amount the BOF plans to use from the unassigned fund balance to write down the mill rate. Pudlin said this way the money stays in the CIP base and is still a wash for taxpayers, but Fitzgerald said that would basically be taxing the taxpayers twice.
Fitzgerald said the BOF is trying to work off its dependence on state aid and using any amount of money to write down the mill rate, so adding $97,217 to that number is moving in the wrong direction.
“As we move forward, every time we use [undesignated funds to underwrite the mill rate increase] we are running the risk of it not being there at some point and then we can’t offset it and then the taxpayers are going to see a huge spike in that year that it’s not there,” she said.
However, Pudlin said this isn’t about the state or the mill rate, but about how another board views the capital line.
“Let’s be honest about what’s going on here,” he said. “This is not a random effort to find money to reduce the tax base. This is part of a year-over-year suggestion by the BOS that we not increase the funding to the CIP… This cut was pulled out of thin air. There is no rationale for it. It was a number that they backed into because they wanted to cut the three percent…This is a sham. This is part of what we faced over the last couple of years from some folks who don’t want to see this reserve built up.”
CIP Chair Mark Casparino said while he isn’t thrilled about holding capital flat, he said if this is a one year hiatus from funding to help the town move away from state aid, he can handle it.
“I would not say that I am a proponent of it this go-around, but if it does, this one year, put the state in the rear view mirror, I would be willing to understand and accept that aspect of it,” he said.
Pudlin said he was going to hold firm on putting the $97,217 back in the base budget before voting the total budget forward to public hearing, but came back when the offer was put on the table to infuse the CIP with the $97,217 plus two years of compounded interest from the unassigned fund balance.
The BOF did not vote on the $97,217 CIP appropriation from the undesignated fund balance as it would be considered a special appropriation and therefore outside the normal budget process. The BOF did however vote forward the total town budget, which holds capital funding flat.