During his State of Town Address Feb. 1, Marblehead Town Administrator Thatcher Kezer did not attach a dollar amount for a proposal of a general override of Proposition 2 1/2, which is expected to come before Town Meeting in May.
“The big question is an override, and it is purposefully put as a question,” Kezer told a standing-room-only crowd in the Select Board’s Meeting Room in Abbot Hall.
Kezer said he would be overseeing the development of a budget that would be balanced, in the absence of town support for an override.
“I cannot assume the will of the voters,” he said. “I have to have a real budget that we build with the revenues we have.”
Kezer outlined three possible scenarios:
- No override is passed, limiting revenue to that which can be raised under Proposition 2 1/2
- A general override is passed to plug only the budget’s structural deficit, an amount to be determined.
- A general override is passed to both repair the structural deficit and fund additional priority services.
The basic reason that Marblehead needs a general override is that the rise in the cost of providing town services is outpacing revenues. To this point, the town has managed to avoid requesting an override by identifying other sources of funding, most notably what is known as “free cash.”
Free cash is a revenue source that results from the calculation, as of July 1, of a community’s remaining unrestricted funds from its operations of the previous fiscal year based on the balance sheet as of June 30, a fact sheet from the Department of Revenue’s Division of Local Services explains.
It typically includes actual receipts of revenue that has exceeded estimates, along with unspent amounts in departmental budget line items for the year just ending, plus unexpended free cash from the previous year.
The DLS notes that free cash is offset by property tax receivables and certain deficits and, as a result, can be a negative number.
Free cash is not available for use until after a municipality’s accountant, auditor or comptroller submits a prior-year balance sheet to DLS and the director of accounts certifies the free cash, which protects communities from relying on free cash that might not materialize due to inaccurate local estimates.
“Free cash [in Marblehead] has been an upward trend for five, six, seven years,” Kezer said. “At some point in the near future, we will have a significant decrease in free cash flow.”
The town estimates free cash to come in at $8.5 million, a $2.1 million decrease over the $10.6 million used to balance the fiscal year 2023 budget.
Overall, the town anticipates capturing an estimated $105.2 million in revenue to fund services in fiscal year 2024, which is an increase of $1.3 million from fiscal year 2023.
According to Kezer, the town can reliably project the following source of revenue:
- $82 million from property taxes and new growth, the upper limit of what is allowed under Proposition 2 1/2, absent an override.
- $5.5 million in local receipts.
- $8.5 million in free cash.
- $8.2 million in state aid.
“Usually, the governor’s number [for state aid] is the first indication for municipalities as to whether it’s going in an upward or downward trend,” Kezer said. “My view is optimistic, given the commonwealth is flush with cash.”
He said he expects Gov. Maura Healey will release her state number in early March.
Regarding spending, Kezer said it is harder to project expenditures. He assembled three different budgets, premised on hypothetical increases of 3 percent, 4.5 percent and 6 percent in expenditures.
In each case, given projected revenues, a deficit would result:
- $1.3 million, if expenses increase by 3 percent
- $3.1 million, at a 4.5 percent increase
- $4.4 million, at a 6 percent increase
Breaking down the projections using the 4.5 percent middle ground, Kezer projected that $94.2 million would be needed to fund the combined budgets of the schools and the rest of town government and $10.7 million to service the town’s debts.
Kezer noted that there are still some unknowns, including how much the cost of insurance for town employees will increase, obligations of the town under its collective bargaining agreements, how much the town will receive in state aid and have to pay to dispose of recycling.
Under their collective bargaining agreements, town employees are due 2-percent raises in the upcoming fiscal year. The agreements with the police, fire and municipal employee unions are set to expire on June 30, 2024.
In the 2022 municipal election, the Marblehead Public Schools attempted to raise $3 million via a general override to address their portion of the structural deficit, plus fund a number of the district’s other needs. But the proposal failed to gain the support of town voters.
The projections Kezer offered incorporate the combined structural deficit of the town and school sides of government, but nothing beyond that.
Select Board member Alexa Singer expressed frustration that the town does not have a better grip on the impending deficit. She argued the town has known for a while that this day was coming.
“We keep talking about a balanced budget and what that means,” she said. “But we’ve known there was this shortfall coming.”
Kezer said another public meeting would be planned to discuss the budget, including the need for a general override.
However, former Select Board member Bret Murray noted, “Today is Feb. 1, and Town Meeting is May 1.”
He added, “We knew we were going to hit that free cash wall for years. Time is not on our side.”
Kezer and Select Board member Moses Grader pointed to the turnover in the leadership of Marblehead Finance Department, which had left critical positions open for months. The town is in a much better position today, they noted.
Marblehead’s incoming finance director, Aleesa Nunley-Benjamin, was on hand for the State of the Town, sitting in the front row. The Select Board hired Rachel Blaisdell as treasurer and tax collector in early December.
Kezer said Marblehead has received accolades for its financial reporting and retained its AAA bond rating, even with a likely deficit in the near future.