Monday, August 29, 2022

Town of Franklin (MA): Five Year Fiscal Forecast - FY 2024 (part 3 of 5)

This continues to share the Five Year Fiscal Outlook for the Town of Franklin as published by the Town Administrator, Jamie Hellen:

FY24 Financial Outlook

FY24 will be the fiscal year to monitor the new impacts of inflation and/or a recession on the quantity of town services that can be delivered. FY24 will also be the year to monitor the overall condition of the economy, consumer spending and trends on residential households and their ability to withstand the cost increases that we know will be going into effect: stormwater and the Beaver Street Interceptor. A year from now, all town officials should keep a close eye on the ability of residents to afford the increases that are coming from these mandatory projects. These projects could have an effect on other town services.
As written above, rising costs will likely set up a sustainability imbalance with what the purchasing power was in FY22 versus FY24. The Town will begin its FY24 budget process later this fall where we will look at our local summer and fall revenue trends, as well as take a cautiously optimistic gaze toward how the global economy modifies over the next six months. Keep your fingers crossed!

I would expect a Joint Budget Subcommittee meeting sometime in October to check in on FY23 revenues and early prospects for FY24.

Areas of expected operational increases due to inflation include: roads, snow and ice removal, construction supplies, all basic goods and services, and personnel and labor costs. The DPW and Facilities Departments will see the greatest impacts from rising inflation on expenses.
Most departments will feel this increase as both of their departments supply basic services such as fuel, gas, electricity, water to other departments. All departments will see an increase in personnel costs due to the competitive labor market and the successful performance of our current staff.

The stormwater utility fee goes into effect townwide for all property owners on July 1, 2023. The average fee per household on a half-acre lot will be about $56. As a result, stormwater expenditures from the DPW will be transferred to the utility. A significant reduction in the DPW budget will show in FY24. This dynamic will be deceiving given the cost increases coming from goods, services, and labor/personnel throughout the entire organization, but most notably the DPW. Also, additional funds will be needed for roads and infrastructure due to rising costs. Most of the reduction of stormwater will likely give way to overall cost increases from inflation.

Lastly, FY24 is when the effects of interest rates will possibly alter town services. As I have pointed out in every budget narrative in recent years, the ratio of debt and interest as a percentage of the town budget has been slowly shrinking as old debt and interest are paid off. Of all seven major budget categories, Debt & Interest was the only category to decrease in the FY23 budget. As a result, other services are taking up a larger percentage of the budget pie, leaving less room for capital projects that require borrowing. With rising interest rates and rising project costs, future capital projects may be in jeopardy if they require borrowing. For more information, please read the Budget Narratives on Debt & Interest from previous fiscal years.

FY23 debt levels are currently at about 2.5% of recurring general fund revenues. These line items support both school and municipal projects.

The town will have some difficult decisions to possibly postpone projects. These projects will undoubtedly become much more complicated, expensive and difficult to fund based on rising interest rates and costs. The following projects will require some borrowing authority, which will increase interest in the operating budget or enterprise funds:
Beaver Street Interceptor;
The future of Davis-Thayer;
A future decision on a new or renovated police station;
A future decision on the Remington-Jefferson School renovation; and
A future decision on a new recycling center.

Those are just the large projects that have been in the pipeline for years. This list is obviously not exhaustive and this is even before we tackle the issues of infrastructure, roads, sidewalks, parks, open space plans, staffing investments, among many other things the community has on its wishlist.

The Town recently received a 3.38% interest rate with the AAA bond rating. I suspect those rates will climb closer to five percent (at best) in FY23 and FY24.

In short, FY24 will likely begin a harsh reality in the community. There will likely be choices to postpone capital projects or move forward with those projects and operating services may need to be adjusted to reflect the costs of services. Unless the economy can hit a rhythmic state, some difficult financial decisions will have to be made.

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