If you were looking forward to Town Administrator Kezer’s State of the Town address on Feb. 5 to understand the state of the ENTIRE town of Marblehead, you would be truly disappointed:
- It wasn’t a State of the Town of Marblehead address. It was the State of Marblehead’s Municipal Service Operations, not including the schools.
- It was operating budget focused, with no discussion of planned and looming capital projects and their financial implications.
Here is the good, the unknown and the ugly news, including some additional information from the School Committee’s operating budget hearing on Feb. 27.
The good: FY24 operating budget performance
This presentation was the first public reveal of FY24 operating budget performance. Note that this was seven months after the close of FY24 on June 30. The good news is the town had a $9.5 million budget surplus. But there was no slide that crisply presented the reasons for the surplus. After digging into FY24 financials on ClearGov, here are the reasons:
- $9.5M surplus resulted from $3.8M in higher revenue and $5.7M in lower expenses relative to budget.
- $3.8M higher revenue driven by $4.7M increase in local receipts. The major components include $2.3M in interest income and $1.3 M in licenses, permits and service charges.
- $2.3M above budget interest income assuming 5% interest rate implies $46M was not expected to be invested. Some/much of this was ARPA funds? Was it sitting in an office file cabinet drawer?
- $5.7M lower expenses driven by $4.8M in lower expenses in the MSO operating budgets. Kezer claimed this was from “controlling spending.” The reality was over budgeting in general government areas. Of this $4.8M, $2.3M was lower-than-budgeted health insurance, Medex and Medicare expenses, $0.8M was unused or lower Finance, Select Board and Fincom expenses; and $0.6M in lower street lighting and reserves for energy and utilities.
All major departments, including police, fire, DPW and even the schools spent close to budget.
The FY24 Annual Comprehensive Financial Report, the audited financial statements, are still not available. The Finance Director now forecasts April availability.
The unknown: FY25, H1 budget performance
One would expect that a mid-year State of The Town address should include an assessment of current FY25 budget performance. After all, all public companies provide quarterly financial reports. Not the town of Marblehead.
According to Finance Director Benjamin, Marblehead does not currently have the staff or systems to do this. Benjamin is planning to implement this capability in FY26 using the new Munis Financial System coming online July 1. Until then, this is a major hole in understanding how Marblehead is performing financially.
The good: FY26 operating budget
Prior to this address there had been much hand wringing relative to the need for overrides to fund the FY26 MSO and school operating budgets. Negotiation with the teachers union threatened the possibility of school-driven overrides and/or layoffs. One wonders how much the School Committee negotiating team, including Kezer, knew about the sizable FY24 surplus?
The $9.5M operating budget surplus converts to free cash that can be used to help fund the FY26 operating budget. This surplus brought the free cash balance to $12M. $7M of this will be used to fund the town’s FY26 operating budgets to eliminate the need for any operating budget overrides. This is an increase from $5.5M used in FY25.
The School Committee at their budget hearing on Feb. 27 confirmed that their operating expense budget allocation by the Select Board of $49.1M is sufficient to fund a “level services” plan. No override will be requested by the School Committee. They appear to have given up on their quest last year for an “fully funded” plan. They also no longer talk about their vision of being a “model school district” since they can’t muster the energy to define what that means qualitatively, quantitatively in terms of student performance, teacher satisfaction, etc., and financially.
Additional free cash allocations will include $2M to the town’s stabilization fund and $2M to FY26 capital projects. Ending free cash balance will be $1M, down from $2.5M after allocations to the FY25 budget.
The unknown: FY26 capital budget
As noted above, the presentation did not address planned and looming capital projects and their financial implications, including additional taxes required. There is a list being developed that includes MHS roof repair/replacement, the Mary Alley municipal building renovations and perhaps some other capital projects. The specifics of these requests may not be known until the Town Warrant hearing scheduled for April 10.
The ugly: FY27 through FY30
The operating budgets for these four years are forecasted to produce a cumulative budget deficit of $35.4M: $3.7M in FY27, $7.2M in FY28, $10.5M in FY29 and $14M in FY30. They include free cash consumption of $23.5M. What if there are no budget surpluses of this magnitude?
These forecasts reflect the revenue limitations imposed by Proposition 2 1/2 and ever-increasing operational costs. Revenue will increase each year from 0.5% to 1.9% over this time period. Expenses will increase each year from 4.1% to 4.8%. These forecasts clearly need scrubbing. The forecasted revenue increases are likely low. But without significant new revenue sources or expense reductions, we will be facing major override requests each year.
The presentation did not include any list of capital projects that may require funding during this time period. I am sure the Capital Planning Committee has a long list of projects, such as the $13.6M Municipal Shipyard Resiliency Improvements Project, that the town will need to execute.
Town Administrator Kezer continues to beat the drum for capturing “new recurring revenue streams.” But what are they? $1M annually from the local meals and room tax won’t make a dent in these deficit numbers. New Airbnb taxes will help. Home renovations added to taxable base as “new growth”? Traffic congestion tolls? A local income tax? Sorry, but I am proclaiming “Emperor Kaiser Kezer is wearing no clothes” relative to the availability and viability of significant new recurring revenue streams any time soon.
Other observations
- No summary or conclusion slide: At the end of the presentation, the Select Board and audience was left wondering. Select Boarder Dan Fox had to confirm that an FY26 MSO operating budget override would not be required: “It should have been in neon lights.” There was no summary of the FY24 good news, nor the ugly FY27-30 operating budget forecast and its implications.
- Difficulty explaining terms and concepts: A varying combination of the town administrator, finance director and Select Board had difficulty explaining in simple terms a ”debt exclusion,” how the property tax levy and property taxes are calculated, and “grant deficits.” They should practice with simple examples before they attend any future budget forums or meetings.
- Missing numbers, inconsistent column placement, inconsistent numbers: On the “Multi-Year Expense Projections” slide, the FY27 expense column was missing. (This was fixed in v.2 of the presentation.) On the “Revenue Projections” and “Expense Projections” slides, the ordering of the “FY24 Budget” and” FY24 Actual” columns were not consistent. On the two “Expense Projections” slides, the FY26 revenue and expense totals were off by $10K.
At Town Meeting, there will be no operating budget override requests from the schools or the MSO. What we don’t know is the magnitude of debt exclusion requests for the MHS roof replacement, the Mary Alley municipal building renovations and other capital projects.
The requestors better have more than one estimate to validate the request. Taxpayers like Sam Altreuter, who works in commercial real estate and has experience with rubber roofs, has some serious concerns about the additional $8.6M “required” to fix the MHS roof. Why can’t the School Committee tap into his expertise and others in the town who have relevant experience?
Relative to the ugly future, after this Town Meeting and elections, it’s time to determine if the town of Marblehead is “right-sized.”
James (Seamus) Hourihan was born in Marblehead and is a MHS graduate. For 35 years, he worked in finance, marketing and executive management roles at high-tech companies. He has lived here full-time since 2009. He currently sits on the Town Charter Committee.
