Call it the elephant in the room, a 900-pound gorilla or the Sword of Damocles. Whatever your dread metaphor of choice, the specter of $300-400 million in school construction obligations is clearly weighing heavily over the town’s long-term budget planning.
Finance Committee (FinCom) Chair John Connelly addressed the issue at the outset of last month’s Town Meeting, offering a 15-minute report on the town’s long-term capital planning and its impact on the town’s debt management policies.
“We felt that given the town’s current capital plan, we need to provide Town Meeting with information on the town’s current debt position, and to present Town Meeting with the financial challenges that lie ahead as we undertake planning for upcoming major capital projects,” he began.
The FinCom report assessed the impact on the budget if all of the town’s currently authorized and proposed capital projects were to take place as planned and conform to projected budgets.
The current authorized projects approved by Town Meeting, such as the Emery Grover renovation and water distribution system improvements, require borrowing approximately $31.5 million. They are all already underway, and that debt is essentially irrevocable.
The proposed investments in the town’s five-year capital plan are not underway. They include projects approved at this year’s Town Meeting and others yet to be approved and would add $40.7 million of debt. Included in the plan are Quiet Zone design and construction, multiple sewer main projects, two new fire engines and a long overdue update of DPW infrastructure.
“The tendency has been to look at these projects in a silo,” Connelly told the Observer. “They also fit into a bigger picture. There has been a lack of putting all that together. That was the genesis that led us to put together the presentation that we made.”
Connelly does not have a quarrel with the merits of the long-term capital projects on the list. He does see a problem in fitting them in while keeping to the town’s budget guidelines on debt.
The FinCom’s report emphasized that compliance with the town’s longstanding policy on debt management needs to be strictly followed. Those guidelines emphasize allocating no more than 3% of general fund revenue to debt service “within the levy,” while simultaneously limiting total debt service to 10% of the town’s gross revenue.
The looming school spending, which includes multiple projects that would occur at the Pollard, Mitchell and High Rock schools over an estimated 12-year span from design through construction, will place an enormous stress on those guidelines.
That bucket of school-related debt — the $334.2 million projected for the school department’s preferred construction schedule of roughly 10 years — dwarfs the potential debt associated with the current planned capital spending items.
Connolly closed the presentation with a chart that projected how the possible school borrowing would impact the town’s average single-family home (ASFH) tax bill. Currently $14,984, the ASFH tax bill could double by fiscal year2037 to $29,375.
It required the same number of years, 14, for the town’s ASFH tax bill to double between 2009 and 2023, a period when Needham voters approved Prop. 2 ½ overrides for the Sunita Williams School and the Public Safety facilities projects.
“Let’s know that,” Connolly said. “Let’s start talking about that in terms of what we can do as far as, maybe, not doing all those things. Or doing them over a longer period of time.
“Getting the dialogue going is what we believe is the important thing for all of us to start doing. It’s not that these projects aren’t valuable in and of themselves; but can we afford them?”
Staying on track
David Davison, assistant town manager and director of finance, said he was consulted by FinCom in the preparation of the projections. He characterized the report’s analysis as “plausible, but not assured.”
“The timeline/cost assumptions for any of the major projects could result in a different tax impact, and if there was to be a recession of a long duration, I anticipate the funding timeline would be altered,” he said.
The town is currently in compliance with both the 3% and 10% guidelines, a condition Select Board Chair Marianne Cooley describes as a goal the Select Board shares with the FinCom.
“John (Connolly) is correct that, if we do everything (in the capital plan), we’re outside of those guidelines,” she said.
“The town brings projects to the taxpayers when they’re able to be afforded within our guidelines. It is likely that there will be some period of time, as there has been in the past, when for a time we will be above the guideline. The question is: For what period?”
“None of us have, in fact, enough information to be able to say exactly what that looks like yet,” Cooley said. “It’s going to roll and change as the information comes out over time.”