Short-Term Versus Long-Term Budgeting

The key issue facing voters concerning the budget this year has to do with how we balance short-term and long-term needs.  The Select Board's budget places more emphasis on short-term operating expenses; the budget being developed by the Budget Committee will place more emphasis on long-term capital needs. 

The Select Board's budget for 2013 is $2,820,867, a $140,000 increase over 2012.  Most of the increase will go the the repair of the Fire Department roof.  In addition, they are currently submitting warrant articles totally approximately $308,000.  If voters approve all the warrant articles, the total increase in the budget will be $448,000 (not all in 2013).   This increase along with the increases in the school budget, county and state taxes will almost certainly cause another increase in taxes again next year and do nothing to help control taxes in the future.

The Budget Committee has agreed in principle to fund the budget at the 2012 level or  $2,680,000 including the cost proposed warrant articles.  This will mean that the town's operating budget will be reduced and the amount recommended for future capital expenses will be increased.  Taxes will still increase next year, but the increase will be more manageable, and we will be taking the first toward stabilizing tax rates and making Ashland more financially sound.

The difference in the budgets has to do with two different approaches to dealing with long-term debt.  The fact is that our anticipated long-term expenses are very high and are increasing for three reasons:

• We currently have only $125,000 in reserve repair and replace equipment, roads, and buildings.
• We have delayed making needed purchases and repairs for years so that we will have to spend several million dollars over the next 5-10 years.
• Instead of replacing and making repairs when they are most cost effective, we wait until there is an emergency situation.

While developing a budget is a complex process, the formula for doing so is simple:

Cost of running the town = short-term operating expenses + long-term capital improvements. 

This means that the actual cost of operating the town is equal to the amount of money it takes to operate the town annually plus the future replacement/repair costs of all our capital assets calculated on a yearly basis.    Our problem is that for years the town has operated without putting any money in reserve for long-term expenses. 

The way the town is currently operating is as follows:

Cost of running the town = short-term operating expenses + immediate/emergency needs

We have replaced some equipment and made some repairs, but there is a very large back log.  Estimates range from $2.3M (CIP estimate) to $16M (accumulated depreciation).

If we were to begin to save for these anticipated expenses, the minimum we should put away is $230,000 each year, so that we would have $2.3M in 10 years.  The board is requesting $125,000 for roads, and $1,500 for the town clock, but that leaves us short a little more than $100,000.  We could count the Fire Department roof and the bucket loader as a capital expenses, but neither of those expenses is included the CIP estimate, which means that we need $230,000 in addition to the roof and the loader.

The board's budget also assumes tax payers are willing and able to pay more taxes next year and for many years to come.

Taxes have increased over $1M since 2009, which means that the town, the school, the county, and the state have asked for more money each year during the worse economic conditions since 1929.   The assessed property value has remained fairly constant during that same period and there has been no significant change in the tax base (residents and businesses), which means that the same tax payers are bearing the burden of these increases.

The idea behind a level funded budget is that tax payers cannot afford to pay more than they are paying now and are willing to make some changes to begin to stabilize tax rates over the long term and help get the town on a solid financial footing.

A level funded budget budget will not provide an immediate solution to the town's financial problems.  Those problems have developed over a long period of time. Taxes will still increase, and we will still be subject to dealing with large long-term needs and emergency situations.  However, a level funded budget will help begin to stabilize tax rates and lessen the impact of financial emergencies and long term capital investments.

Does this mean a decrease in services?  Possibly.  However, the Select Board has a number of options to limit decreases in services including outsourcing services, reorganizing departments, establishing cooperative agreements with other towns, cutting non-essential services, limiting over-time, reducing hours, refinancing long-term debt, using volunteers, creating efficiencies, increasing revenues, looking for grant opportunities and promoting economic development.  Through these actions, we can limit cuts in services over the short term.  We can restore and even increase services when the town is on a more solid financial footing. 

An improving economy, economic development that is occurring now, and the reductions our in long-term debt over the next 5 years will help us in our efforts if we also reduce our spending and increase our savings.

Ultimately, voters must make the final decision:  More taxes, more long-term debt, more long-term financial risk - or more stable taxes and increased long-term financial stability.