After a long run of relatively flush years, the town is facing the double whammy of escalating fixed costs and static revenues that have combined to create a challenging FY26 town budget process.
“We haven’t yet identified sufficient revenue to support all the budgetary requests submitted by town departments and the Needham Public Schools,” Town Manager Kate Fitzpatrick reported when asked about the status of the budget process in its early phase of review.
“The growth in townwide expenses is higher than in the past few years, and we are feeling the impacts of inflation,” she said of the pressures on the expenses side.
As for revenues, a dropoff in teardowns and large construction projects at both residential and commercial properties — all of which create revenue for the town — is having a negative impact on the town’s top line.
“We do not anticipate that new growth revenue will continue at the level it has been for the past few years,” Fitzpatrick said. “This is due to several factors which contributed to the higher new growth revenue in the past.
“There has been a slowdown in large building construction projects which is also reflected in the drop in building permit income. The major investments the utilities have done in Needham over the past few years is beginning to wind down, so new revenue from the utilities is also expected to decline.”
She said the town has just under $8 million in new revenue for FY26, well short of the $15 million town departments sought for new spending in their initial budget requests to Fitzpatrick. The town’s overall budget in the current FY25 is in the vicinity of $244 million.
A 10% increase in health care premiums will add a large expense. Fitzpatrick said that bump added $1.9 million to the town’s share of expenses related to health insurance for 1,700 participants in the plan, which includes retirees.
“That’s a big number,” Fitzpatrick said when she reported on that aspect of the budget process at the Jan. 14 School Committee meeting. “When that goes up by 10% it has a big impact.”
The tip of the spear in the budget struggles has been the school department, where Superintendent Dan Gutekanst and his staff are struggling to satisfy Fitzpatrick’s request to lop $2.5 million from the department’s $104.3 million request.
Speaking during the meeting, Gutekanst said it’s been difficult to find items to cut to reduce the bottom line to $101.8 million. “As of today, we have about $1.4 million in reductions identified. We still have about a million-dollar shortfall in getting to the target.”
Gutekanst explained that the schools have to absorb increases in multiple budget categories where they don’t have control over the cost, such as transportation services and out-of-district tuition for special education students.
“You can’t negotiate the prices. The state sets the prices for tuition,” he said. The cost for these highly specialized schools attended by between 70 and 100 Needham students per year increased nearly 20% last year.
The School Committee and the school administration have held budget meetings with members of the Finance Committee, the appointed board that ultimately sets the overall town budget that gets voted on at Annual Town Meeting and holds sessions with every town entity that receives funding.
“This is the most sobering discussion of the budget in many, many, many years,” Gutekanst said at the Jan. 7 meeting with the FinCom members. It came one day after he had met with the town manager and been asked to limit the school budget request to an increase of between 4.5% and 5%.
At that time, Gutekanst suggested that he may defer making those cuts and let the budget process play out. “It’s possible I may recommend the School Committee not try to (make the cuts),” he said. “There could be an unbalanced budget.”
“I may say, ‘Kate, I can’t recommend the School Committee make $2 million in cuts.’ She’ll balance it, but the School Committee will then have a different budget than the town manager.”
One week later, at the Jan. 14 meeting, Gutekanst notified FinCom that the schools remained about $1 million short of the town manager’s target.
“We’re still not done,” he said. “This level of reduction is going to impact some of the services we provide in our schools.”
Later that same day, when he spoke at the School Committee’s public hearing on the budget, he offered a glimpse of what those cuts might bring about.
“We were able to identify up to 10 positions that we could reduce,” Gutekanst said. “Some of these positions are due to attrition, retirement. Some will be programs we’ll have to curtail or defer. Some will be positions that we just can’t hire.
“Because most of our costs are people and most of our people are teachers … we have to look at programs to base our decisions on further reductions.
“There will be some higher class sizes and there will be some reduced program offerings, and some reduced staff and administrative support.”
Meanwhile, the town has yet to be informed of what it will receive via the state’s two main local aid funding sources: Chapter 70 funds for aid to public elementary and secondary schools; and Chapter 90 funds, which support transportation spending.
Increases in the town’s Chapter 70 funding have trended down the past two fiscal years. After receiving a 10.5% increase in FY23, the next two years yielded increases of 7% and 4.4%.
Dave Davison, the town’s deputy town manager for finance, said preliminary estimates are that the town will receive an increase of between 1.9% and 3% in FY26. The town’s preliminary budget assumes the 3% increase.
The actual number won’t be known until Gov. Maura Healey releases her budget request Jan. 22.
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