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Making up for two years of austerity: Deconstructing the fiscal 2023 budget

Following two years of pandemic restraint, Harvard’s spending plan for fiscal 2023 seems built to make up for lost time.

At Saturday’s Town Meeting, officials will ask attendees to approve significant boosts in spending for personnel, town and school operations, new vehicles and equipment, and projects that proponents say are needed to deliver the level of service Harvard residents expect.

If voters approve the fiscal 2023 omnibus budget and nine other financial articles recommended by the Select Board and Finance Committee, total spending will increase 4.5% next year to $31,817,567, the largest budget in Harvard’s history. In addition, voters will be asked to approve 12 capital expenditures totalling nearly $2 million, plus 12 Community Preservation Committee projects.

The surprise is that this spending can be accomplished without creating a deficit. Instead the budget is fully funded. Rather than the $211,191 fiscal 2023 deficit predicted last year, this year’s estimated fiscal 2023 budget forecasts a modest $10,267 surplus. How was that possible?

Understanding the math behind that number is not straightforward. The workings of municipal finance have a Rube Goldberg-like quality: In one end goes the money, out the other end come municipal goods and services. What happens in between is the work of municipal accounting.

The money funneled into Harvard’s municipal engine comes mostly from Harvard’s property owners. In fiscal 2023, Harvard taxpayers will provide 83% of the money needed to keep town government running, with 95% of that money coming from residential property taxes. This money is supplemented by income from sources that make up the other 17% ($5.5 million), largely state aid, excise taxes, and other forms of relief.

Omnibus budget, small warrant articles show how money is spent

Determining how that money is to be spent is the job of the Select Board, Finance Committee, and town administration, and their recommendations for fiscal 2023 are presented in the Annual Town Meeting warrant booklet on the pages of Article 6 (pages 32-36), also known as the omnibus budget, and in the requests of Articles 7-15 (pages 35 and 41-42), also known as small warrant articles.

The omnibus budget will tell you the ongoing cost of operating Harvard’s departments and committees, including the wages and benefits paid to the people who staff them. Cost-of-living increases and new Department of Public Works, police, and teacher contracts will substantially increase the personnel costs of every town department next fiscal year; the cost of benefits will drop, as explained later.

The small warrant articles, by contrast, are typically one-time requests for equipment or money for work that’s above and beyond the day-to-day responsibilities of a department, such as extra money for tree-trimming or new speed limit signs for Harvard’s newly designated densely populated areas. But small warrant articles can also be used to create or upgrade positions in town departments. Once approved, the positions become a permanent part of a department’s staff, their wages and benefits a permanent part of a department’s ongoing personnel expense. This year’s small warrant articles include requests for one new position and two upgrades: an assistant Council on Aging director, an administrative assistant for the land use boards, and an assistant accountant for the Finance Department.

Delving into the fiscal 2023 omnibus budget and small warrant articles will only get you so far, however. Unless there is money to pay for their appropriation, there’s no budget. State law requires that town budgets balance—that revenue equals or exceeds expenses. But the most important source of revenue, property taxes, is constrained by Massachusetts’ Proposition 2½, which allows only a 2.5% increase in the tax levy per year, plus any new tax dollars due to new housing and home improvements. To exceed that limit requires an override vote at Town Meeting and Town Election.

Recap forecasts income and expenses

To understand Harvard’s financial well-being, one must turn to the five-year budgeted revenue and expense projection, sometimes referred to as the “recap,” that appears on page 17 of this year’s warrant booklet.

That forecast, prepared each year by members of the Select Board, FinCom, and the Finance Department, sets forth their best-guess forecast of income and expenses for the coming fiscal year and the four years that follow. The top three-quarters of the document lists the town’s expected sources of income, divided between the levy—the amount charged to taxpayers—and other sources, such as state aid, local excise taxes, fees, and grants.

The bottom quarter summarizes anticipated expenditures, divided into three categories: town and school expense (the sum of all expense categories in the omnibus budget except debt service), debt expense (lines 58 through 61 of the omnibus budget), and the sum of the small warrant articles that round out total spending from the General Fund.

The Press has prepared its own representation of the fiscal 2023 budget that combines some of the expense detail found in the omnibus budget with a simplified rendering of the revenue sources shown in FinCom’s recap (see table on page 14). Like the official recap, the Press version shows how much income will come from taxpayers, and how much from the state and other sources. The bottom half of the Press recap shows how much money is budgeted for each of the nine major categories of the omnibus budget, as well the percent by which each will grow—or decline—next year.

Two lucky breaks

Which brings this story back to the fiscal 2023 budget. Following years of cost-cutting and a year of flat spending, next year’s budget, if approved, will allow an overall spending increase of 4.5%, while delivering a modest $10,627 surplus. Why? Town officials cite two financial breaks they say not only eliminated the approximately $200,000 deficit that had been forecast for fiscal 2023, but also provided enough extra cash to meet some of the pent-up needs of town departments and to double the amount spent on small warrant articles.

The first break was a change in insurance providers forced on the town by the withdrawal of Fallon from Harvard’s longtime provider network. The change engineered by Assistant Town Administrator Marie Sobalvarro ultimately saved the town $300,000, resulting in a 4.8% reduction in the fiscal 2023 cost of insurance and benefits.

The second break stemmed from the town’s austerity in fiscal 2022. Instead of raising the maximum amount allowed under Proposition 2½, the Select Board and FinCom chose to leave $225,000 of the permitted amount on the table, sparing taxpayers a small additional increase but depriving the town of income.

In fiscal 2023, the town will take the money back, as state law allows. The fiscal 2023 levy will grow not only by the 2.5% increase permitted by Proposition 2½, but also the levy amount left unused this year. The extra dollars raised can be added to the town’s coffers, providing more tax dollars for government spending, without an override. But it’s taxpayers who will pay it.

Where does the money go? A deeper dive.

Here’s a rundown of omnibus budget spending by major category.

Schools (See Total Education, Warrant page 38): The taxpayer cost of operating Harvard’s top-rated schools is the biggest chunk of town spending in any fiscal year, and the $14.8 million budgeted for fiscal 2023 is no exception. That amount is approximately 4.7% larger than last year’s request.

But that’s not the total cost of operating Harvard’s schools. That number is $18.9 million, according to the schools budget booklet, or $4.1 million more than the amount allocated by the omnibus budget. That larger number is 6.6% higher than the amount requested in fiscal 2022. The difference between the two is due to a variety of revenue offsets, notably the money the schools receive from MassDevelopment to pay the tuition of Devens students enrolled at Hildreth Elementary School and the Bromfield School. These additional sources of income reduce the total amount asked of taxpayers.

It’s worth noting that the $14.8 million allocated for education in the omnibus budget does not include the $4.3 million the town pays to provide benefits to school staff and teachers. Those costs are combined with those of town employees and consolidated in the “health insurance and other benefits” line of the omnibus budget (see chart). When the costs of providing benefits to school staff and teachers is added to the cost of operating the schools, the total is 60% of the omnibus budget.

The five lines devoted to education spending in the omnibus budget come nowhere close to capturing the complexity of the total schools budget. It’s a fiscal subsystem within the larger apparatus of the town budget, that requires a 32-page book of its own, copies of which will be available at town meeting on Saturday.

Town Meeting has authority to set the total amount appropriated to Harvard’s schools, but state law gives school administrators the authority to allocate those dollars as they see fit—and go beyond them by offsetting shortfalls with federal, state, and other sources of income.

Health insurance and other benefits for town and school employees (see “Total Insurance and Fringe Benefits,” Warrant page 40) will drop 4.8% to $5,590,024, thanks to a change in insurance providers engineered by Assistant Town Administrator Marie Sobalvarro, as well as a reduction in the amount the town contributes to premiums. This doesn’t mean insurance costs won’t continue to rise in coming years—the Finance Committee and Select Board have forecast an annual increase of 5% over the next five years—but this year’s savings helped balance the budget.

Benefit costs include the $525,000 the town plans to contribute to its other post-employment benefits (OPEB) fund as it plans for the cost of future retiree benefits. Over the next five years, the Finance Committee would like to see this amount increased by $25,000 per year.

Debt service (interest and principal on the town’s borrowed money) will rise slightly in fiscal 2023—from $3.6 million to $4 million—following a decline this year (see “Total Debt Service” on Warrant page 39). The 1.1% increase will pay for money borrowed to purchase and renovate the new senior center on Lancaster County Road, repair the roof of the old library, and purchase a new DPW truck, all of which were approved by Town Meeting last year.

Finance Committee policy says the town “will strive” to limit total debt service, including debt exclusions and self-supporting debt, to 10%-12% of expenditures, and “to limit annual increases in debt service to a level that will not materially jeopardize the town’s credit rating.” With the added debt, debt service as a percentage of expenditures will rise to 12.7% in fiscal 2023. In April, however, Standard & Poor’s reaffirmed the town’s AAA bond rating, the highest offered by the agency. This year’s warrant contains no requests for additional borrowing.

Other important categories within the omnibus budget include:

General government, which includes salaries for the town administrator and assistant town administrator, finance director, and town clerk, and pays for the operation of town buildings: $1.8 million, an 8.5% increase over fiscal 2022 (see “Total General Government,” on Warrant page 37). At least half the increase is an additional $50,000 to pay for heating, cooling, lighting, and maintaining Harvard’s nonschool public buildings.

Public safety includes budgets for police, fire, ambulance, and inspectional services: $2.1 million, a 4.5% increase, with significant jumps in police and Fire Department personnel expenses due to the new police contract and conversion of a part-time firefighter position to a full-time (see “Total Public Safety” on Warrant page 38).

Physical environment, most of which is for the Department of Public Works, but includes the Transfer Station, water department, and cemeteries: $1,797,987 million, a 12.9% increase (see “Total Physical Environment” on Warrant page 39). A new contract with the department’s municipal workers, along with doubling of overtime pay, accounts for more than $200,000 of the $206,000 increase in this line item.

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