Town financial leaders presented a sobering fiscal forecast to the Select Board Wednesday night, projecting a $1.8 million deficit for fiscal year 2026 that could grow substantially in subsequent years.
Finance Director Aleesha Benjamin has hired a municipal finance specialist from the consulting firm CliftonLarsonAllen to work on what she called “long-term planning.” The consultant will present detailed override scenarios at the State of the Town address in January or February. Benjamin retained the consultant’s services for $25,000 until June 30, 2025, using money from the general fund.
“What Marblehead residents have asked for is transparency,” Benjamin said. “We need to show them we’re looking at every possible avenue before we ask for anything.”
The preliminary budget analysis, delivered to the Select Board on Dec. 11, incorporates the recently approved teachers’ contract, which will see its largest salary impacts begin in fiscal year 2026, Benjamin said.
The deficit projections remain fluid — last year, the town and schools used revolving funds and free cash to address shortfalls. Current estimates will shift once state aid figures and Group Insurance Commission health insurance rates are finalized. Multiple town union contracts also remain under negotiation.
Expenses outpacing revenue
The forecast shows expenses growing to $107.9 million in FY26, $112.9 million in FY2027 and $117.6 million in FY2028. Meanwhile, revenues are projected at $106.1 million, $108 million and $109.9 million respectively for those years. This creates projected deficits growing from $1.85 million in FY2026 to nearly $7.7 million by FY2028, barring intervention.
Major cost drivers consuming 77-78% of the budget include salaries, insurance benefits, pensions, utilities and waste management. With property taxes representing 72% of revenue but growing at 2.5% annually under Proposition 2½ constraints, expenses are outpacing income.
School out-of-district tuition costs are projected to jump 17% in fiscal year 2026, while health insurance costs are expected to rise 6% annually. GIC Medicare Plans alone are anticipated to increase 12-30%, Benjamin said. She added that a $1 million cushion remains in health insurance lines to account for enrollment changes, down from $3 million in previous years.
“Even if this was a perfect science, you see this crazy three-year deficit of $14 million,” said Finance Committee Chair Alec Goolsby. “I don’t think the solution is just to go for an override. There’s a number of ways you have to address that challenge.”
Throughout the night’s presentation, officials outlined approaches including maximizing revenue sources, timing borrowing around interest rates, reviewing departmental efficiencies and building stabilization funds.
The waste management dilemma
The town’s current waste management contract, a 10-year agreement ending in 2027, charges approximately $127 per household annually. Public Health Director Andrew Petty analyzed six comparable communities’ contracts to project future costs, estimating rates could rise to $203 per household. Currently, Marblehead pays nothing to dispose of its recycling. Under a new contract, the town would have to pay between $109-119 per ton to dispose of recyclables. With the town recycling about 3,000 tons annually, this new cost alone could add $327,000-357,000 to annual expenses.
“The current contractor is losing approximately $300,000 a year on our contract,” Petty said. “When you look at our current contract, the increase per year is 2.5%. When you shorten that down, you’re looking at 3 to 4% increase per year.”
Benjamin spoke to a plan to delay long-term borrowing until after anticipated Federal Reserve rate cuts in 2025. Infrastructure needs include $9.98 million for road repairs, $480,000 for the Mary Alley building roof and an estimated $7.4 million for school HVAC replacement.
“We don’t want to bond long-term before the rate cuts, so that we can get the best long-term rate for the ratepayers,” Benjamin said.
Personnel costs
Personnel costs remain the largest budget driver, accounting for 77-78% of spending. Town Administrator Thatcher Kezer emphasized the need to balance efficiency with service delivery.
“If you eliminate people, the other people remaining are less productive because now they’re having to cover more functions,” Kezer said. “The issue is finding more productive, effective ways to do it.”
Reliance on free cash
The town’s stabilization fund balance of $500,000 represents just 0.5% of the operating budget, which Finance Committee Vice Chair Molly Teets noted puts Marblehead among the lowest in Massachusetts. State guidelines recommend 5%.
“We have among the lowest reserve balances in the entire state. When you rank them, we’re near last,” Teets said.
Select Board member Moses Grader pointed to years of tight budgeting catching up with the town.
“We paid for that because we didn’t invest in technology,” Grader said. “It was extreme conservatism and it kind of hit a speed bump trying to get through COVID.”
The town’s free cash — unspent funds from previous years – has declined from a peak of $13 million (17% of the operating budget) in 2017 to about $8.7 million (8% of the budget) last year. Finance Committee Vice Chair Molly Teets explained that while the town has used free cash to support operating expenses, state guidelines recommend restricting it to one-time expenditures, capital projects, or replenishing reserves.
Grader noted this practice has affected budget transparency. “It kind of warps the budget process where there is this concerted effort to overestimate expenditures and underestimate revenues,” Grader said. “You should be getting to a point where your projections are dead on.”
The town has implemented new revenue sources to help offset deficits. A recently passed meals and rooms local excise tax is expected to generate at least $400,000 annually — a conservative estimate according to Benjamin, with the next payment due in December.
The preliminary forecast is just a starting point, Teets reminded the Select Board.
“This gives us a chance to see how this plays out, see what the big drivers are,” Teets said. “I’m 100% sure these will not be the actual numbers, but directionally it lets us plan.”
