Southbridge’s Fiscal Cliff

Ken O’Brien

I have to start with a slight explanation here. The town of Southbridge operates on a July 1 to June 30 Fiscal Year. The state operates on a January 1 to December 31 Fiscal Year. Thus, the state aid numbers in the FY 2013 town budget are derived from the FY 2012 state budget.

That having been said, with the inclusion of the increase of $100,000 in the FY 2013 town budget at last night’s town council meeting it is still $31,001 less than the FY 2012 budget.

Over that period state aid for unrestricted general government uses declined by $215,123. However, Chapter 70 funds to the school portion of the budget, increased by $1,516,393. That’s a net increase in the major components of state aid of $1,301,270. The big difference is that in FY 2012 the town received $1,245,730 in Massachusetts School Building Authority Payments. In the FY 2013 budget, this amount is zero. Are there no more payments forthcoming in this regard? Do they account for the substantial reduction in debt service year to year? Were they related to construction expenses of the new school that were not capital items? Are all of those expenses now liquidated? Whatever the case, they should not have been used to finance town operations, unless of course there was some interesting allocated costs chicanery.

Note: Does not include the addition of $100,000 in expenses at the town council meeting 

           of December 3, 2012.

In the course of last night’s meeting Mr. Cournoyer was asked by how much the budget would have to be decreased to maintain the current tax rate. He declined to answer, saying it would be irresponsible to throw out a number.

Well, let me jump in here. The newly adopted tax levy is $16,905,379. The tax rate is a 3.6% increase over the prior year. Thus, to preserve the current tax rate we would reduce the proposed tax levy by 3.6%. That amounts to a reduction of $608,594. Was that really that hard?

In response to that question, Town Manager Clark raised another objection.

He pointed out that we were already halfway through the FY 2013 budget. To apply the total reduction to the remaining six months would be devastating.

Well, that may be more than a little misleading. The first half of the FY 2013 budget has been financed through the tax rate set in December 2011. Disregarding any unpaid expenses that carry over beyond January 1, 2013, the current budget would only have to be reduced by half the above amount – i.e. $304,297. That’s a pro-rated reduction of 1.3%.  The remaining reduction of another $304,297 would come into consideration in preparation of the 2014 budget. The first half year of that budget will be paid by the tax rate set now.*

If we wanted to maintain the current tax rate, the council should have mandated a reduction in the current budget by $$304,297 and directed the town manager to come back with the line item allocation of those cuts in two weeks.

I can hear the blood curdling cries of outrage now. Well, it’s too bad. I was a manager for corporate budgets and controls for Paine Webber during the market crash of 1987 and we had to rapidly and drastically revise budgets for a 25,000 member broker network and worldwide operations. You do what you have to do when you must live within your means. If Mr. Clark doesn’t want to do what the council mandates, assuming they have the intestinal fortitude to do it, then I’m sure that there is someone out there who can and will.

Realizing the obvious, however, the current council will never exercise this kind of policy leadership.

Such willful blindness is made apparent by Mr. Cournoyer’s reference to the difficulties in setting a tax rate when assessing property values. A lack of a meaningful number of home sales has made this difficult in the recent past because they are used as a basis for determining fair market value during reassessment. It certainly hasn’t been a result of a lack of people trying to sell their homes – just drive around and look at the for sale signs.

Another way to illustrate what is happening to the town is to look at the trend of the town’s excess levy capacity.

Fiscal                Maximum                  Actual                       Excess
Year              Allowable Levy           Tax Levy               Levy Capacity

2007                $13,574,309             $12,920,748                $653,661

2008                14,041,680                 13,313,002                 728,678

2009                14,632,367                 14,005,310                 627,057

2010                15,243,912                 14,787,527                 456,385

2011                15,785,204                 15,605,008                 180,196

2012                16,391,899                 16,185,023                 206,876

2013                17,070,177                 16,905,379                 164,798

The downward trend is a clear indication of a declining ability of the tax base to continue to finance the growth of town government.

The fact is noboby wants to buy or invest here. And, increasing tax rates are only going to further depress property values extending and deepening the death spiral in which we are already immersed. If we don’t begin to act now to stem the drain on the tax-paying population when will we? When the $1,000,000 plus per year from the landfill stops?

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* This assumes an approximate level spending pattern over 12 months as well as a corresponding level allocation of funding sources. Otherwise, some expenses for the second half of FY 2013 have been "backloaded" to be financed entirely by an increase in the tax rate. In this case there would, indeed, be a need for an overall reduction of 2.6% in the balance of the 2013 budget in order to maintain the current tax rate of $17.83 per thousand.