MARBLEHEAD — Town officials reviewed projections for Fiscal Year 2027, highlighting rising costs, slowing revenue growth, and the growing pressure to reduce dependence on free cash to balance the operating budget.
Chief Financial Officer Aleesha Benjamin opened her presentation, noting that property taxes continue to account for roughly 80% of the Town’s total revenue.
“We’re showing our Fiscal Year 25 actual, our Fiscal Year 26 budget, and our Fiscal Year 27 projected revenues based on a proposition two and a half cap on property taxes,” she said. “We bring in approximately $2.2 million year over year.”
Benjamin projects only a 1% increase in state aid for FY27, with most of that tied to school funding.
“For Fiscal 27, state aid is expected to increase 1%, not keeping pace with inflation or increasing budget costs,” Benjamin said.
Local receipts, covering excise taxes, fees, and interest income, show a decline from recent years.
“It depends on the economy, and it depends on what’s happening,” she said. “Motor vehicle (excise) is volatile depending on how many vehicles people buy at the time. Interest income is volatile based on what the interest rates are.”
Town Administrator Thatcher Kezer said that receipts had been historically underestimated to generate free cash, but that approach has shifted.
“One of the changes we made, sort of truth in numbers, is to do a legitimate estimate,” he explained, using 95% of the three-year average for projections.
Benjamin explained that vehicle excise taxes and interest earnings are particularly sensitive to economic shifts.
“Vehicle excise taxes are very susceptible to the economy. We get maximum revenues when people are buying new, brand-new cars,” she said, noting that rising interest rates and fewer vehicle purchases are dampening collections.
Interest income has also fallen sharply.
“We had two and a half million. That has declined to 1.5,” she said, citing rate cuts from 5% to 3.75% and the depletion of federal ARPA funds.
“We’re on target right now, $800,000 to $900,000,” she said.
While revenues tighten, expenses continue to grow. Benjamin summarized the situation: “Fiscal Year 27 revenue has declined by $514,000. Budget pressures (include) inflation above 3%, which continues to outpace our two-and-a-half percent property tax cap. Expenses have been growing faster than revenue since 2020.”
The largest cost drivers are:
- Health insurance premiums, projected to rise 14%, driven by high-cost prescription drugs and an aging population.
- Trash contracts, increasing by up to $1 million.
- Pension obligations, by about 9% since 2020.
- Personnel costs, which represent 80% of the Town’s budget, growing about 3% annually.
Benjamin cautioned: “Our free cash warning — we keep using it to balance the budget, which is unstable, and the state has said… do not use free cash to balance your budgets. It’s a one-time source, and we really should use it for capital needs.”
Finance Committee Chair Alec Goolsby emphasized that the forecast “is the first step to the general fund budget every year.”
“We haven’t detailed out the expenses… but the FinCom’s going to be working with Benjamin to take this revenue number out another two years and then bucketize the very large buckets of townwide expenses,” he said.
He noted that revenue available for the operating budget is expected to decline by about half a million dollars compared to last year, while wage, insurance, and pension costs will keep rising.
“We have less revenue to fund this year, and all of those major expense categories are going to put a lot of pressure on this budget season,” Goolsby warned.
Select Board member Erin Noonan echoed concern about over-reliance on free cash.
“We’re really getting to dangerously uncomfortable places,” she said. “We need to get off this free cash carousel that we’ve been on.”
Several speakers stressed the need to rebuild reserves and prepare for a potential general override.
“We need money in that stabilization for a rainy day fund,” Benjamin said. “The fact we keep using our reserves to balance the budget is not the way we should be using them at all.”
Select Board member Moses Grader said, “We’re moving toward weaning ourselves off of free cash… I think that prepares a better case for a likely override.”
Despite the challenges, Benjamin noted that the Town’s AAA bond rating remains intact — thanks to careful management of debt exclusions and capital investments. But she warned that “we’re not funding our operations and maintenance, and that’s a serious issue.”
Parker Elmore, president and CEO of Odyssey Advisory, presented updated data on the Town’s Other Post-Employment Benefits (OPEB) liability.
“In terms of what happened — years of $151 million last year for a liability, and $147 million today,” he said. “That’s good news.”
He added, however, that the Town’s funded rate of 3.37% places it “on the 25th percentile of the state,” noting that “only in this kind of world can 3.37% put you at that level.” Elmore warned that “these are the glory days — they’re not going to get any better from here,” citing demographics and slowing growth.
The finance team plans to finalize free cash certification and develop a three-year financial forecast before December. With inflation, rising benefits costs, and federal funding declines all tightening the fiscal outlook, the Town faces difficult choices.
As Benjamin concluded, “We still have to stay conservative because otherwise you’d have a revenue shortfall.”
