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2020 Financial Summit

December 15, 2020Danvers Select BoardDanvers School CommitteePeabody Institute Library Board of TrusteesDanvers Finance CommitteeDanvers Planning Board

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2020 Financial Summit Agenda

I. IntroductionII. Financial Indicators & BenchmarkingIII. Utilities (new)IV. Wrap Up

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Introduction

• Financial Summit launched in 2016• Opportunity to step back / focus on trends• Chance for staff & major boards to deliberate • Provides some insight into what is on the horizon

• Financial Highlights from the past year• Maintained AAA credit rating from Standard & Poor’s• Added $1m to Gen. Stab. Fund & $900k to OPEB Trust at June ATM• Saved $540k in future debt costs through refunding existing debt• Completed two-year process to design health insurance program,

resulting in $1m in shared cost avoidance/budget savings• Closed out of FY 2020 during the pandemic without being forced to

draw down reserves or reduce services


I. IntroductionII. Financial Indicators & BenchmarkingIII. UtilitiesIV. Wrap Up

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Source: Census.gov

Year Source Figure2011 2007-2011 ACS Survey 26,3032012 2008-2012 ACS Survey 26,5682013 2009-2013 ACS Survey 26,8992014 2010-2014 ACS Survey 27,0752015 2011-2015 ACS Survey 27,4002016 2012-2016 ACS Survey 27,5582017 2013-2017 ACS Survey 27,5272018 2014-2018 ACS Survey 27,6312019 2019 ACS Supplemental Estimate 27,5462020 5 Year AVG Increase = .35% 27,642

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2020 Financial Summit – Population Estimates

Financial Condition Analysis

Cash Solvency Budgetary Solvency

Long-Run Solvency

Service-Level Solvency

Measures of Financial Condition

2020 Financial Summit

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2020 Financial Summit – ICMA “Constant Dollar” Calculation

Source: U.S. Bureau of Labor Statistics7

2011 2020

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020Operating Revenue 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 102,570,572 CPI-U (1982-84=100) 244.26 246.33 251.07 255.30 257.00 260.80 266.43 275.40 280.94 283.18 CPI-U, 2020 Base Year adj. factor 1.1593 1.1496 1.1279 1.1092 1.1019 1.0858 1.0629 1.0282 1.0079 1.0000CPI-U, 2020 Base, % adj. constant dollars 115.93% 114.96% 112.79% 110.92% 110.19% 108.58% 106.29% 102.82% 100.79% 100.00%Op. Revenue, adj. constant dollars 86,895,980 91,344,207 92,188,785 94,431,170 97,692,935 100,394,478 101,384,248 100,962,919 102,507,804 102,570,572

2020 Financial Summit – Financial Indicators & Benchmarks

Financial Indicators (13 areas)

• Measure trends across key areas using credit rating agency terminology

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Revenue (5) Expenditures (3) Reserves (2) Liabilities (3)

Property Tax Expenditures per Capita Reserves & Free Cash Pension

State Aid Salaries & Wages Unassigned Fund Balance OPEB

Local Receipts Benefits Debt Service

Economic Growth

Uncollected Prop. Tax


Benchmarks (10 muni’s + MA)• Proximity to Danvers (and Boston),• Community Population,• Grand List Composition, and/or• Form of Government.

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REVENUE

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Financial Indicator 1 – Property Tax Revenues

Background: The property tax levy is the revenue category that directly impacts every residential and commercial property in Town and is therefore shown with its own indicator.

Trend/Analysis: The long-standing practice of Danvers has been to provide level or expanded services without the use of a Proposition 2 ½ override or debt exclusion. As shown, when factoring for constant dollar, the actual increase in tax revenue is often less than 2.5%.

Source: Danvers Tax Recap / MA DLS Databank

Outlook

• Stable

Takeaway: Much like overall revenue, it will be crucial to the long-term fiscal health of Danvers to manage expenditures within the constraints of Prop 2 ½. This becomes difficult when fixed costs increases exceed 2.5%.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Prior Year Levy Limit 56,077,728 58,288,759 60,355,458 62,546,370 65,016,430 67,839,074 70,394,408 72,783,734 75,516,164 78,198,964 2.5% (Proposition 2 1/2) 1,401,943 1,457,219 1,508,886 1,563,659 1,625,411 1,695,977 1,759,860 1,819,593 1,887,904 1,954,974 New Growth 809,088 609,480 682,026 906,401 1,197,233 859,357 629,466 912,837 794,896 840,083 Property Tax Levy Limit 58,288,759 60,355,458 62,546,370 65,016,430 67,839,074 70,394,408 72,783,734 75,516,164 78,198,965 80,994,021 Actual Tax Levy 58,243,194 60,347,100 62,526,780 64,756,756 67,349,955 70,286,547 72,654,228 75,354,881 78,154,410 80,988,716 Unused Levy Capacity 45,565 8,358 19,590 259,674 489,119 107,861 129,506 161,283 44,555 5,305 Constant Dollar Factor 1.159 1.150 1.128 1.109 1.102 1.086 1.063 1.028 1.008 1.000 Property Tax Revenue (Constant $) 67,523,486 69,374,691 70,523,091 71,828,365 74,209,719 76,316,691 77,220,802 77,481,712 78,775,321 80,988,716 Percent Increase over Prior Year (Constant $) 0.5% 2.7% 1.7% 1.9% 3.3% 2.8% 1.2% 0.3% 1.7% 2.8%

Benchmark – Property Tax Revenues

Source: MA DLS Databank12

Benchmark – Average Single Family Tax Bill

Source: MA DLS Databank13

Source: MA DLS Databank

Benchmark – Assessed Values By Class

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Financial Indicator 2 – State Aid

Background: State Aid is made up of several categories, most predominantly being Chapter 70 (Education) and Unrestricted General Government Aid. Bond rating agencies view state revenue as a more volatile funding source.

Trend/Analysis: This indicator proves that the bond rating agencies are right to have concern about a community’s reliance on State Aid. As seen in the table, state aid decreased during the Great Recession and has been level or slightly decreasing as a % of overall revenue in each of the past five years.

Source: Danvers Tax Recap / MA DLS Databank

Outlook

• Weak

Takeaway: As we enter year two of the pandemic, this revenue source is unpredictable and as such should be conservatively estimated when building next year’s budget.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Net Operating Revenue 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 103,995,351 State Aid (Cherry Sheet) Revenue 7,755,124 7,587,770 9,305,380 9,707,273 10,013,551 10,220,626 10,587,904 10,603,363 10,483,842 10,552,016 Less: MSBA Reimbursements (694,026) (694,026) (694,026) (694,024) (694,024) (694,024) (694,024) (462,221) (212,709) - Net State Aid Revenue 7,061,098 6,893,744 8,611,354 9,013,249 9,319,527 9,526,602 9,893,880 10,141,142 10,271,133 10,552,016

State Aid as % of Operating Revenue 9.4% 8.7% 10.5% 10.6% 10.5% 10.3% 10.4% 10.3% 10.1% 10.1%


Benchmark – State Aid as % of Total Revenue

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Financial Indicator 3 – Local Receipts

Background: Local Receipts represent the other major revenue category and include revenue such as motor vehicle excise, building permits, and hotels and meals taxes.

Trend/Analysis: Danvers has historically been ultra conservative in estimating these receipts when setting the tax rate. The result is above average free cash in strong economic times and safety against negative results when the economy downturns. The FY20 drop will likely continue in FY21.

Source: Danvers Tax Recap / MA DLS Databank / Town Financials

Outlook

• Weak

Takeaway: The pandemic has severely impacted this revenue source. While it has not been detrimental to the operating budget, it will lead to a reduction in Free Cash which will put pressure on capital and other long-term expenses.

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Revenue Source 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Net Operating Revenue 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 103,995,351 Local Receipts 9,648,880 12,216,923 10,597,760 11,364,276 11,992,959 12,648,685 12,840,623 12,695,519 13,274,290 12,454,619 Local Receipts as a % of Operating Revenue 12.9% 15.4% 13.0% 13.3% 13.5% 13.7% 13.5% 12.9% 13.1% 12.0%

Financial Indicator 4 – Economic Growth

Background: ICMA and GFOA consider Building Permit Fees and New Growth as being indicative of economic growth.

Trend/Analysis: There is not a direct correlation of building permits and new growth, however, one (1) year after a significant increase in building permits we generally see an increase in new growth. Both are key revenue sources that can add to the Town’s financial flexibility but overreliance can prove costly when the economy turns.

Source: Danvers Tax Recap / MA DLS Databank / Town Financials

Outlook

• Stable

Takeaway: Building permit fee revenue and new growth have both been reliable funding sources, including thus far in FY21. However, they must continue to be estimated conservatively as they can change rapidly.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Net Operating Revenue 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 103,995,351 New Growth 809,088 609,480 682,026 906,401 1,197,233 859,357 629,466 912,837 794,896 840,083 Building Permit Fees 306,480 430,775 471,338 494,546 663,871 712,980 768,629 599,799 682,451 513,087 Total Economic Growth Revenue 1,115,568 1,040,255 1,153,364 1,400,947 1,861,104 1,572,337 1,398,095 1,512,636 1,477,347 1,353,170 New Growth % 1.08% 0.77% 0.83% 1.06% 1.35% 0.93% 0.66% 0.93% 0.78% 0.81%Building Permit Fees % 0.41% 0.54% 0.58% 0.58% 0.75% 0.77% 0.81% 0.61% 0.67% 0.49%Economic Growth as % of Operating Revenue 1.49% 1.31% 1.41% 1.65% 2.10% 1.70% 1.47% 1.54% 1.45% 1.30%


Benchmark – New Growth as % of Prior Year Levy Limit

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Financial Indicator 5 – Uncollected Property Tax

Background: Uncollected property taxes are the amount of the levy yet to be paid by the taxpayers. A high figure could show an issue with the residents’ ability to pay, as well as challenges with tax collection efforts.

Trend/Analysis: The steady increase from 2011 to 2014 was addressed by the Treasurer/Collector and Town Counsel and recent years have showed a declining uncollected percentage prior to COVID. Part of the FY20 increase was related to Town-instituted delays in due dates and penalties as part of relief measures.

Source: Danvers Tax Recap / MA DLS Databank / Town Treasurer/Collector

Outlook

• Strong

Takeaway: The affordability of property taxes coupled with the effectiveness of the Treasurer/Collector’s Office combine for a solid outlook for this indicator moving forward despite the increase in FY20.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Property Tax Levy 58,243,194 60,347,100 62,526,780 64,756,756 67,349,955 70,286,547 72,654,228 75,354,881 78,154,410 80,988,716Overlay Reserve for Abatements and Exemptions (704,514) (690,940) (676,495) (761,632) (865,802) (850,555) (792,715) (897,376) (843,260) (676,726) Net Property Tax Levy, less Overlay Reserve 57,538,680 59,656,160 61,850,285 63,995,124 66,484,153 69,435,992 71,861,513 74,457,505 77,311,150 80,311,990Uncollected Taxes as of June 30 1,507,856 1,578,738 1,957,784 2,412,524 1,765,335 1,982,707 1,699,714 1,741,212 1,428,508 2,381,479 Uncollected Taxes as % of Net Property Tax Levy 2.6% 2.6% 3.2% 3.8% 2.7% 2.9% 2.4% 2.3% 1.8% 3.0%


EXPENDITURES

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Financial Indicator 6 – Expenditures per Capita

Background: Expenditures are being converted to constant dollars, similar to “Revenue. They are then calculated per capita to determine the costs incurred per resident.

Trend/Analysis: The largest dollar increases are generally found in the school budget, but categories that outpace Proposition 2 ½ have generally been the Retirement Contribution and Benefits & Insurance.

Source: Town Financials / Census (ACS 5-Year)

Outlook

• Stable

Takeaway: Several categories, mostly fixed costs, are increasing at a rate higher than 2.5%. The issue will need to be addressed on an ongoing basis through either increased revenue, cuts elsewhere in the budget, or innovative approaches to the fixed costs.

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Category 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*General Government 2,698,261 2,719,061 2,842,413 2,909,901 3,303,550 3,207,512 3,337,272 3,430,652 3,467,543 3,663,316 Education (including Essex) 32,483,473 33,782,787 35,459,478 35,825,212 37,977,094 39,247,140 40,459,335 41,809,730 43,265,032 45,446,124 Public Safety 10,185,237 10,182,459 10,536,264 10,473,264 10,841,753 10,843,317 11,264,696 11,925,470 11,882,793 11,992,074 DPW (Tax Supported) 10,168,240 9,239,665 9,935,284 10,562,422 11,145,259 10,036,037 11,052,933 10,771,168 10,917,790 9,878,179 Land Use & Community Services (including Recreation) 1,451,494 1,459,753 1,471,841 1,566,494 1,617,997 1,842,783 1,666,642 1,767,308 1,950,048 2,017,883 Peabody Institute Library 1,178,425 1,186,617 1,190,589 1,220,062 1,247,858 1,281,331 1,282,971 1,297,956 1,381,617 1,333,495 Retirement Contribution (Tax) 3,680,583 3,859,140 4,030,812 4,444,222 4,605,919 4,977,259 5,354,574 5,762,422 6,186,175 6,644,945 Debt Service 4,120,841 4,790,222 5,669,824 5,454,769 5,415,417 5,505,055 5,568,456 5,162,351 6,002,641 5,981,826 Benefits & Insurance 9,603,384 10,029,973 10,753,164 10,863,017 11,258,516 11,577,433 12,150,525 12,958,226 13,547,052 13,765,135 Net Operating Expenditures 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 100,722,977 Constant Dollar Factor 1.159 1.150 1.128 1.109 1.102 1.086 1.063 1.028 1.008 1.000 Expenditures in Constant $ 87,611,019 88,805,799 92,362,225 92,418,058 96,316,635 96,112,143 97,928,564 97,563,344 99,384,041 100,722,977 Population 26,303 26,568 26,899 27,075 27,400 27,558 27,527 27,631 27,546 27,642 Expenditures per Capita 3,331 3,343 3,434 3,413 3,515 3,488 3,558 3,531 3,608 3,644 *Pending completion of the FY2020 independent audit

Financial Indicator 6 – Expenditures per Capita

Source: Town Financials / Census (ACS 5-Year)23


Benchmark – Total Expenditures per Capita

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Financial Indicator 7 – Salaries & Wages

Background: Since it comprises more than 50% of the total budget, Salaries & Wages costs increasing as a percentage of operating expenditures could show an unsustainable trend and lead to higher pension and other post-employment costs in the future.

Trend/Analysis: The percentage of these costs as part of overall operating expenditures has remained remarkably consistent over the past several years.

Source: Town Financials / Danvers Public Schools

Outlook

• Strong

Takeaway: Monitoring this indicator is critical when contemplating collective bargaining options and additional positions in the budget. Personnel also drives two other major expenditure categories: pension and benefits.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*Net Operating Expenditures 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 100,722,977 School Salaries (less grants) 25,323,962 25,658,613 26,675,051 28,013,432 29,328,550 30,651,608 31,452,264 32,748,296 33,831,791 34,890,728 General Government Salaries 17,533,713 17,342,997 17,971,221 18,063,868 18,935,411 19,043,959 19,789,218 20,714,373 20,758,473 21,205,823 Salaries & Wages as % of Expenditures 56.71% 55.67% 54.52% 55.30% 55.21% 56.14% 55.61% 56.34% 55.36% 55.69%

Financial Indicator 8 - Benefits

Background: Heath care benefits represent a significant share of the Town’s operating costs, and this analysis understates the true cost because it does not include the OPEB liability.

Trend/Analysis: Benefits continues to be a volatile area of the budget in terms of outpacing Proposition 2 ½. While the Town was able to make notable changes and “reset” for FY21, this area long-term will likely continue to put pressure on the operating budget.

Source: Town Financials / Danvers Public Schools

Outlook

• Stable

Takeaway: Based on the Town’s success in making changes for FY21, we’ve been able to slow the rate of growth temporarily. It will continue to be a category of focus.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*Employee Benefits 9,151,653 9,537,043 10,594,590 10,346,615 10,728,684 11,041,202 11,329,241 12,089,925 12,613,549 12,756,017 Net Operating Expenditures 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 100,722,977 Benefits as % of Expenditures 12.11% 12.35% 12.94% 12.42% 12.27% 12.47% 12.30% 12.74% 12.79% 12.66%


Benchmark – Health Care Costs as % of Total Expenditures

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RESERVES

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Financial Indicator 9 – Reserves & Free Cash

Background: Stabilization Funds and Free Cash are widely-accepted indicators of a community’s ability to plan long-term and face unforeseen fiscal challenges.

Trend/Analysis: Free cash has been used effectively to pay for capital projects on an annual basis, mitigating the need to borrow. The pandemic will likely hamper the Town’s ability to generate free cash in FY1.

Source: Danvers Tax Recap / MA DLS Databank / Town Financials / Town CAFR

Outlook

• Stable

Takeaway: The pandemic will likely reduce free cash short-term and limit what we are able to add to reserves. At this point, the Town hasn’t had to use these major reserves to sustain services.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*Certified Free Cash (DOR) ** 3,860,866 3,083,190 2,408,514 2,924,780 2,554,469 5,162,836 6,147,819 6,574,983 7,180,539 5,202,418 Amount Appropriated (2,862,756) (1,904,700) (1,241,125) (1,996,900) (2,149,673) (2,458,284) (3,291,228) (3,968,876) (4,955,953) (4,044,000) Net of Free Cash after Appropriation 998,110 1,178,490 1,167,389 927,880 404,796 2,704,552 2,856,591 2,606,107 2,224,586 1,158,418 General Stabilization Fund 1,118,592 1,141,970 718,192 729,791 720,097 728,724 1,034,221 1,048,317 1,571,770 3,099,203 Education Stabilization Fund 100,045 366 395 25,457 50,558 75,711 76,698 77,751 79,494 - Debt Stabilization Fund 6,500,176 6,106,404 5,404,587 4,840,310 4,475,174 4,109,879 4,264,587 4,886,642 5,980,319 4,457,829 Total Stabilization Funds 7,718,813 7,248,740 6,123,174 5,595,558 5,245,829 4,914,314 5,375,506 6,012,710 7,631,583 7,557,033 Net Operating Expenditures 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 100,722,977 Free Cash & Stabilization Funds as % of Net Operating Expenditures

11.5% 10.9% 8.9% 7.8% 6.5% 8.6% 8.9% 9.1% 10.0% 8.7%

*Stabilization Funds are pending completion of the FY2020 independent audit.**Due to timing of when Free Cash is certified, Free Cash certified as of 7/1/18 was used to appropriate for FY2020.

Financial Indicator 10 – Unassigned Fund Balance

Background: Unassigned Fund Balance (UFB) is calculated by our independent auditors on an annual basis. UFB includes the General Stabilization Fund, but not the Debt Stabilization Fund, which is included in the “committed” fund balance. The Town has a policy to maintain UFB between 8-12% each year.

Trend/Analysis: The Town has maintained UFB in the desired range in relation to Total General Fund Expenditures for seven consecutive fiscal years, a positive indicator for bond rating agencies.

Source: Town Financials / Town CAFR

Outlook

• Strong

Takeaway: The Town will aim to maintain UFB in this range. The long-term plan would be to increase General Stabilization to a point where it alone accounts for the minimum target number of 8%.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*Unassigned Fund Balance 2,271,697 3,572,172 5,511,075 7,965,218 8,982,083 10,182,856 11,336,407 8,805,525 10,948,773 11,115,991 Total General Fund Expenditures 84,864,857 87,003,125 92,730,151 94,324,010 88,730,227 90,717,865 102,872,396 103,789,401 103,537,261 103,776,977 Unassigned Fund Balance as % of Total General Fund Expenditures

2.7% 4.1% 5.9% 8.4% 10.1% 11.2% 11.0% 8.5% 10.6% 10.7%

*Pending completion of the FY2020 independent audit


LIABILITIES

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Financial Indicator 11 – Pension Liability

Background: Retirement benefits are administered by the Danvers Retirement Board. Danvers is currently using a schedule that will have the pension liability met by 2035. The most common way to measure a Town’s pension liability is the “funded ratio” of pension assets divided by pension liability.

Trend/Analysis: The Town has remained in the 55% to 65% funded range in the past 10 years. PERAC considers 60% funded to be a warning indicator. For systems that under 60% , PERAC tracks performance against the State system (PRIT) and could potentially force underperforming systems to invest through PRIT.

Source: Danvers Retirement Actuarial Studies

Outlook

• Stable

Takeaway: The Town anticipates annual increases to the pension assessment of approximately 8% for the next several years.

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2010 2012 2014 2016 2018 2020Pension Assets 84,017,923 83,875,130 89,955,182 102,550,595 113,315,313 125,251,330 Pension Liability 130,372,380 143,155,432 162,199,777 175,743,235 193,531,449 207,786,722 Percent Funded 64.4% 58.6% 55.5% 58.4% 58.6% 60.3%

Source: PERAC (10/1/2019)

Benchmark – Pension % Funded

* Member of Essex Regional Retirement System

** Member of Middlesex Retirement System

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Town Pension % Funded Valuation DateInvestment Return

AssumptionFiscal Year Amortization

CompletedReading 75.0% 1/1/2019 7.50% 2029Stoneham 74.7% 1/1/2018 7.25% 2024Wakefield 65.3% 1/1/2018 7.50% 2036Beverly 61.0% 1/1/2020 7.15% 2033Danvers 60.3% 1/1/2020 7.50% 2035Salem 57.4% 1/1/2018 7.38% 2031Lynnfield* 53.8% 1/1/2020 7.30% 2035Peabody 49.3% 1/1/2020 7.75% 2036Burlington** 47.9% 1/1/2018 7.50% 2035North Reading** 47.9% 1/1/2018 7.50% 2035Andover 47.3% 1/1/2020 6.25% 2037Average 58.2% N/A 7.33% 2033

Financial Indicator 12 – OPEB Liability (Other Post-Employment Benefits)

Background: Providing health care benefits to retirees has a long-term cost, which GASB requires to be accounted for similarly to pension liabilities. The Town has an independent actuarial study performed every two years to determine the liability and prepare a schedule for how to pay down the liability.

Trend/Analysis: While under no legal requirement to establish an OPEB trust fund and begin growing this reserve, it is considered a best practice and an important indicator for ratings agencies. The graph illustrates the progress the Town has made in increasing the annual funding amount to the OPEB Trust. It measures the percentage of the existing year’s ADEC covered by the Trust and the actual contributions for that year. The number has declined the past two years based mostly on the “discount rate”.

Source: Town OPEB Actuarial Studies / Town Financials

Outlook

• Weak

Takeaway: Despite the Town’s efforts to address this liability, it is still significant. Efforts must continue to be made to reduce the OPEB liability through additional, sustainable funding sources and other factors.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020OPEB Trust Balance (Formerly OPEB Reserve) 1,445,769 1,755,217 2,170,986 2,648,772 3,151,537 3,758,041 4,572,294 5,534,965 6,648,458 7,899,716 OPEB Trust Increase 334,004 309,448 415,769 477,786 502,765 606,504 814,253 962,672 1,113,492 1,251,258 Pay As You Go - Total Contributions 4,909,728 5,354,000 5,727,000 4,416,414 4,606,106 4,963,794 5,667,829 5,709,970 6,271,587 6,114,966 Annual Determined Employer Contribution (Formerly ARC) 13,595,000 14,548,000 14,954,000 13,202,899 13,805,307 12,415,120 13,153,123 12,013,271 14,558,889 16,060,161 Percent of Single Year ADEC Funded 47% 49% 53% 54% 56% 70% 78% 94% 89% 87%

Financial Indicator 13 – Debt Service

Background: Properly managed debt can enhance financial flexibility in current and future operating budgets, allowing the Town to acquire long-term assets without requiring overrides of Proposition 2 ½. Conversely, debt establishes fixed obligations for subsequent years which may impact the ability of the Town to address future needs through the operating budget.

Trend/Analysis: The Town’s debt policy establishes that the annual general fund debt service will not exceed 10% of the Town’s annual net Operating Budget. The Town has consistently stayed well below this figure, which is a positive indicator for ratings agencies.

Source: Town Financials

Outlook

• Strong

Outlook: The Town will continue to examine borrowing capacity in the short and long-term. It will be critical to continue to be able to utilize Free Cash and potentially the operating budget, for funding capital outlay.

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*Debt Service 4,120,841 4,790,222 5,669,824 5,454,769 5,415,417 5,505,055 5,568,456 5,162,351 6,002,641 5,981,826 Less: MSBA Reimbursements (694,026) (694,026) (694,026) (694,024) (694,024) (694,024) (694,024) (462,221) (212,709) - Total Debt Service 3,426,815 4,096,196 4,975,798 4,760,745 4,721,393 4,811,031 4,874,432 4,700,130 5,789,932 5,981,826 Net Operating Expenditures 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 100,722,977 Debt Policy Ceiling 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%Debt Service as % of Expenditures 4.53% 5.30% 6.08% 5.71% 5.40% 5.44% 5.29% 4.95% 5.87% 5.94%


Benchmark – Debt as % of Operating Budget

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Source: MA DLS Databank / Town Financials

Water & Sewer Revenue Versus Total Sales Trend

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Ongoing Operating Budget Pressures (Expenditure Side)

Expenditure Category FY21 Approp. Trend Impact

Retirement Contribution $7.2m Roughly 8% per year $515k

Health Care * $11.9m +4.96% = FY 18-20 avg. -$565K

Danvers Public Schools $43.5m +2.9% = 3 year avg. $1.2m

Essex Tech $3.0m +13% = 3 year avg. $475k

This table highlights several operating budget costs that are, have been, and/or will continue to increase at a rate higher than 2.5%, which in turn creates pressure points that must be relieved by either increased revenue or reductions to other spending areas.

For the upcoming budget (FY 2022), tax levy capacity ($2.1m) + projected new growth ($600k) = $2.7m, which are the funds available to maintain service levels across the Town, Schools, and Library.

* FY 21 Healthcare Impact anticipated to be one-year reduction due to redesign/carrier change; this remains one of the most unpredictable cost drivers in the Operating Budget (p. 71 in FY21 budget).

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Ongoing Operating Budget Pressures (Revenue Side)

The chart below highlights the impact the pandemic has had on some of our major local receipt categories. Fiscal Year 2021 estimates have been revised down significantly since March totaling $1.3 million in potential lost revenue. FY2022 will present similar challenges on the revenue side.

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COVID-19 Expenses by Category

Expense Category Total YTD

School Social Distance Learning 217,354

Social Distancing Measures 197,624

PPE & Supplies 194,532

Telework 143,232

Contractual Cleaning 34,427

Food Program 31,873

Misc. Charges & Supplies 14,266

Election Expenses - Postage 8,446

Overtime & Other Wages 42,325

Legal Fees 4,699

Total $ 888,778 -

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

COVID Testing – Cost TBD

Current & Future Capital Projects

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New Public Works Yard

• DPW @ Hobart, Burroughs, N. Putnam, Sylvan, Canal

• W/S at 7 Canal Street is a temporary solution

• BOS adopted as FY 2021 priority (feasibility)

• CIP placeholder from 10 years ago was $25m

School Renovations

• Smith School - $31m; set to open in 2021

• Highlands Roof - $2.9m; completed in 2019

• Riverside Roof – TBD• Three elementary schools

last renovated early 1990s• HRMS (2005) / DHS (2013)

Quality of Life

• Lebel’s Grove Development• Sandy Beach Enhancement• Hay Barn Renovation• Rail Trail Expansion• Open Space Acquisition• Dredging & Bank

Stabilization• Ongoing maint./replace.

Looking Back: 2019 Goals

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“Dig the well before you are thirsty.”- Chinese Proverb

• Finalize healthcare changes for FY 2021 • Update Electric PILOT for first time since 1995 • Conduct hours of operation analysis • Begin moving OPEB / Capital from Free Cash to Levy • Continue to grow General Stab. Fund as primary reserve • Maintain compliance with all Town financial policies • Strengthen the Town’s long-range capital planning • Maintain the Town’s AAA Credit Rating!

Looking Ahead

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“And I say to myself, a moon will rise from my darkness.”- Mahmoud Darwish, Palestinian poet & author

• What will the economic recovery look like? • Will there be secondary impacts (as in 2009)?• How will 2020 change future service delivery/demand?• Can we ensure that pandemic support is equitable/just? • When can we begin moving OPEB / Capital into the Levy?• Can we preserve General Stab. Fund as primary reserve?• Can we maintain compliance with adopted financial policies?• Can we maintain the Town’s AAA Credit Rating?

Q & A

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“Who has questions for my answers?- Henry Kissinger

Documents

2019 Financial Summit - storage.googleapis.com