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The School Committee and the City Council met jointly to discuss the financial issues facing the city on Tuesday.

Pittsfield Council, School Committee Hear Report On Financial Condition

By Andy McKeeveriBerkshires Staff
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PITTSFIELD, Mass. — A recent re-evaluation has given the city a chance to both preserve its reserves and raise its levy ceiling. But health insurance is threatening to take those funds in the coming years.
 
The City Council and School Committee gathered Tuesday night for the annual report on the financial condition of the city. Auditor Thomas Scanlon of Scanlon & Associates said the city's reserve total is in a "good" range but he'd still like to see more. Right now the city has $8.1 million in reserves — the same as 2017 — which is 6 percent of the total budget. 
 
"I'd like to see your reserves closer to 10 percent," Scanlon said, adding that there is a common link between communities with strong finances having strong reserves.
 
Scanlon says between 5 and 10 percent in reserves is good but above 10 percent is even better. To build those, the city has gotten away from using its free cash, which is a reserve, to offset the budget as much, something Scanlon has advised the city to do multiple times. That has allowed the city to keep the same total amount in reserves as last year.
 
"Your starting to wean yourself off of using free cash to offset the tax rate, which is good," Scanlon said.
 
Free cash is various funds that were not spent and additional revenues that the state certifies each year. Traditionally, the city used much of that to lower the tax rate. But that essentially builds a structural deficit. A city or town doesn't know exactly how much it will have from year to year so funding salaries or other reoccurring expenses is not advised. Instead, Scanlon suggests using those funds for one-time projects such as capital repairs or to bolster the stabilization accounts.
 
"It is a habit and like any habit, it is difficult to break," said Director of Finance Matthew Kerwood, who said he is hoping to craft a 2019 budget without using any free cash.
 
The use of free cash in this last year is a little more complicated. The city was butting up against the levy ceiling, a calculation limiting the amount a municipality can collect in taxes, and Mayor Linda Tyer put forth a budget that would have used $2.25 million in free cash to balance it. At the time, that was seen as the way to avoid further cuts to the budget by getting the amount the city pulls from the tax levy under the ceiling.
 
But there was also a re-evaluation. When the fall came, properties values showed a significant increase. Those higher values created a higher levy ceiling. Kerwood and Tyer returned to the council and dropped the free cash request down to $1 million.
 
The city, however, is still close to the ceiling. 
 
"You are dropping the ability to tax and that is going to hurt your budget flexibility," Scanlon said, calling the levy capacity is essentially a reserve as well and one that bond agencies will look at to determine rates.
 
Kerwood is estimating a levy ceiling of 88,002,830 for fiscal 2019, which assumes a 1.2 increase in total value. This year, the city used 85.4 million of its capacity.
 
Kerwood said he is looking to craft a budget that keeps the city $1.5 million under the ceiling. Kerwood said department heads have been asked work their individual budgets to show a 2.5 percent reduction in expenses while still keep the same level of personnel.
 
"FY19 budget will continue to present us with serious challenges that we must address with a number of strategies that control costs, foster growth, and encourage collaboration," Kerwood said.
 
Coming in with level service personnel may provide to be difficult. Kerwood is estimating an 11.1 percent increase in health insurance. That estimate is somewhat conservative at this point but estimates have given a range from 0 to 11.1 percent, varying per community. Kerwood said Pittsfield tends to have a higher increase than the average 4.6 percent. And that's why he penciled in the top amount. 
 
Employee benefits already account for 24 percent of the city's budget. The city budgeted for $24.5 million for health insurance and is currently on pace to spend it all. Kerwood said he is working with the Public Employees Committee, a group of various union representatives, at cost control measures. 
 
"We're working very very cooperatively with the PEC to address this issue. If we are successful, and I am confident we can be successful, we can move the needle on that number," Kerwood said.
 
The finance director isn't expecting much help from the state either. He said state aid over the last five years has been relatively flat. This year the governor's budget shows increases to Chapter 70 school aid and unrestricted government aid. But, at the same time, the city is seeing increases in the cost of school choice out and charter school tuition.
 
Kerwood said he is also going to budget based on the governor's numbers and hope the House and Senate raise the revenues up further.
 
"The governor's numbers are always the floor," Kerwood said.
 
Kerwood is also being conservative with his local receipts estimates. Last year the city took in $13.3 million in receipts while the budget was based on $11.7 million. Kerwood kept that estimate the same for 2018. Those additional funds are able to be rolled into free cash and could ultimately be used to build the city's stabilization.
 
"We are seeing an increase on our local receipts on an annual basis," Kerwood said, but he said those revenues can fluctuate so he'd rather estimate them too low. "I have a conservative approach to local receipts. I always have and always will."
 
Nonetheless, the city is still in a very precarious position when it comes to its financial well-being. For this year and the years to come, the city will be tiptoeing around that levy ceiling.
 
"It took us 10 years to get to this point and we are not going to get out of it in two or three," Kerwood said.
 
He also touched on the city's current debt. In all, the city owes $135,654,407 in long-term debt. Kerwood said for the upcoming year he is expecting $11.1 million will be spent on debt services. However, a number of debts will fall off in 2020.
 
The Taconic High School project is mostly part of that total figure already with $30 million of the city's share of the project bonded already. He said he's structured bonding in an effort to avoid peaks and valleys from year to year in the city's future debt service. The city has $5 million in bond anticipation notes for the project and Kerwood said it is likely that would be bonded long-term when the project is complete and the total number is known.
 
"You don't want to borrow more than you need. So you kind of really need to wait until the end of this," Kerwood said.

Tags: debt service,   fiscal 2019,   municipal finances,   pittsfield_budget,   

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