Thursday night the Finance Committee by a vote of 4 to 3 rejected the Chatham operating budget proposed by Selectmen for the fiscal year beginning July 1.

Concern about the dangerous fiscal times seemed paramount.

As one member of the Finance Committee noted, this budget has been in process for such a long time, but the reality of how bad the world situation is really only began to sink in in October. She seemed to feel that drastic things would have to be done in FY11, but others felt the time was now.

Some core principles and concerns emerged during the discussion:

First, the desire to avoid placing additional financial burdens on the property taxpayer, with concern focusing mostly on those who live in Chatham, the many retired and seniors experiencing drops in assets and incomes and the modest working families among which unemployment is said to be already 11%, reportedly worse than the usual off-season situation.

Second, the wish to avoid layoffs if the economy continues to worsen coupled with the sense that compensation increases in all departments, including the schools, are far out of step with the times and would be using up revenues that might be needed later to avoid layoffs.

Third, the need to be cautious about expected revenues (other than the property tax) which support the budget, such as motor vehicle excise taxes and hotel/motel tax revenues and even water. (At a recent Selectmen’s meeting, for example, it was reported that water revenues surprisingly, for the most recent two months, were sharply below projections.) Generally, revenues for fiscal 2010 are projected to be at fiscal 2009 levels. Roughly speaking, only about $24 or $25 million of the $32 million budget comes from property taxes, so those other revenues are critical.

Fourth, the need to preserve funds that might be needed should the downturn deepen, such as free cash and monies in the Stabilization Fund and other funds.

During fiscal 2009 Town Manager Hinchey had instituted a hiring freeze and begun ferreting out savings to keep budget costs down. In the budget under discussion school spending increases over fiscal 2009 were by far the larger part of the increases. Town Manager Hinchey warned at recent public sessions that school spending increases had become a serious, recurring problem that had to be dealt with. School spending is increasing faster than normally allowable revenues and would lead each year beginning in fiscal 2011, even if fiscal 2010’s problem was somehow solved, to chronic override situations.

Town Manager Hinchey had done a masterful job in responding to the concerns of taxpayers, the Selectmen and the Finance Committee in reducing charges that would drive up the property tax levy but at the expense of taking ‘off-budget” money to be used in emergencies from sources such as the Stabilization Fund, free cash and the Overlay Reserve, That the free cash and reserves were able to be accumulated is a tribute to good management.

The basic problem remains that the operating budget of $32,356,835 developed over the better part of the past year is just too much.

By far the largest part of the budget increase from fiscal 2009 is compensation increases for personnel. Leaving aside pension and health care contributions the town (the taxpayer) makes, these amounts were approximately $351,000 on the school side and $380,000 for all other town departments, with increases in some cases reaching 6 and 7%.

There was a great deal of discussion about how to reduce those increases to levels that would not be a shock to the struggling taxpayer. While taxpayers wish to demonstrate that they value the service of all town employees – as they have shown repeatedly in better times – they feel there should be a recognition of the difficult times many of them are experiencing. As Finance Committee Vice Chairman Sprague said, "We're all in this together." It should be remembered that half of all resident households in Chatham have incomes that are less than the compensation packages of the great majority of town and school employees even before the proposed increases of up to 6 and 7%.

The Selectmen’s call for a voluntary freeze by all union and non-union employees weeks earlier failed because one large union rejected it. It was all or none. Finance Committee members recognized that, despite the Selectmen’s acquiescence to that rejection, they could make their own recommendations. In the last analysis, it is voting taxpayers at Town Meeting who will decide how to spend their money and how big or small the budget will be.

A good many suggestions for reductions in the operating budget were discussed, including how reductions in compensation increases could be accomplished by town meeting by votes dealing with the operating budget itself and the Article on Cost of Living Allowances in a time of zero inflation. (While a zero inflation environment currently prevails and did in December, the town used November CPI numbers which, while declining, were at 1.7%. This number provided the floor for the 2% and 3% increase COLA recommendations for all non-school units totaling $200,000. The balance of the raises incorporated into each non-school department’s compensation schedules is $180,000. The schools do not break out any cost of living adjustment; as noted above, their proposed raises total $351,000.)

It should be possible to keep the property tax levy for operations flat with FY09, refill the reserves and still provide some modest wage increases to show the town’s continuing appreciation of its personnel. Those refilled reserves may be needed in fiscal 2010 to avoid layoffs or cutback in services if other revenues needed to fund the budget fall off.

The town meeting can accomplish this or all parties in negotiation can work out a solution before that. For that to happen, it is essential that the school department for once cooperate with the Town Manager and the Selectmen.

The Finance Committee led by Chairman Colie Yeaw has set the stage for a reconciliation of the needs of the town with the economic and fiscal realities of the times and the taxpayers. The members worked long into the night, not adjourning until after 10 p.m. They deserve the thanks of all for showing a way forward.

Update: Members of the Finance Committee will appear before a special meeting of the Selectmen on Monday afternoon, March 23rd at 5:30, to explain why they voted to reject the budget.