As we have reported, town officials skillfully led confused voters at the May 11th town meeting to narrowly approve -- with more than 340 objecting -- a $34.4 million spending plan for FY10 that is about $1.8 million in excess of revenues expected for the fiscal year.

The money to cover this deficit is to come from emergency and other reserves and free cash left over from FY08. The main emergency account the Stabilization Fund is now below the target level of $2 million set several years ago.

While property tax revenue is fairly predictable, state aid and local receipts are not. CCT and the Finance Committee were particularly concerned whether local receipts, projected to be almost $9 million, were holding up. Despite repeated requests for trend information from town officials, neither CCT nor the Finance Committee had received such information by the time of Town Meeting. It hasn't been provided yet.

However, at a Finance Committee meeting on June 18th and a Summer Residents board meeting on June 26th the Town Manager made passing references to “declining revenues.”

From figures we did obtain, through 11 months of FY09, estimated (not actual) local receipts were running about $700,000 behind the 11-month estimates of FY08. Whether the gap is closed at fiscal year-end when estimated receipts become actual receipts remains to be seen. But there does seem to be a downward trend, which is no surprise, since that is what other Cape towns are experiencing. CCT's present estimate is that local receipts will fall short of official estimates for FY10 by about $600,000. But we need much more information to be sure about this estimate.

Therefore, in FY10 the Town will be embarking upon a spending plan that is in deficit by at least $1.8 million and experiencing “declining revenues.” The Stabilization Fund is below target level and can't be tapped again. Free cash from FY09 has been estimated to be only about $400,000, about 25% of the prior year's; it could be more or less when figures are final.

With less free cash and no reserve funds to tap, it does appear as if the Town will not have the money to even spend at the FY10 level in FY11.

Chatham Concerned Taxpayers appeared before the Selectmen on June 23rd and recommended several steps to address the looming crisis:

Unless some new money magically materializes, there does not appear to us to be any onetime fix available for FY11. So-called free cash left over from FY09 is likely to be far less than in prior years and emergency funds are already below where they should be. Of course some money can be generated for FY11 in FY10 by curtailing various expenditures.

The challenge of FY11 is much more difficult since the reality of a changed world was not faced in FY10. Absent a miracle, FY11 spending will have to be cut substantially below FY10’s planned spending. Some combination of voluntary and mandatory freezes and cuts in town employee compensation and lay-offs are likely to be necessary parts of the solution. And that probably won’t be enough.

On top of the costs of running the Town, taxpayers will be faced in FY11 or FY12 with substantial increases in property taxes to begin paying for the way-too-expensive Annex Project and the massively expensive sewer project.

New union contracts cannot continue the rich promises of increases and benefits of the past. Cities and towns across the nation are looking for multi-year freezes in union contracts, merit increases based on performance instead of automatic income step increases, elimination of various benefits and shifting from pension plans to defined contribution plans. Chatham will have to do the same, the sooner the better.

In planning for FY11 we ask that the interests of the taxpayer be taken into account, as we had hoped would be done for FY10. Our advice, respectfully proffered, is this: Start making cuts in FY10 spending. For FY11, assume no increase in the core property tax levy; assume no overrides or capital exclusions. The aim should be to reduce spending to fit within realistically expected revenues.

We understand that this will be extraordinarily difficult because of the mushrooming of debt service costs on top of the need to make cuts in other expenses. No doubt some projects will have to be deferred, some programs will have to go and staffing will have to be slimmed.

We made it clear that CCT wanted to be helpful in solving the fiscal crisis, but not on the backs of the taxpayers of Chatham.

For years Chatham spending has grown about 6.5% each year, well more than double the 2 ½% most towns have tried to live with. The ability to get surplus revenues from second home owners has allowed the Town to spend rich. This overspending, continued into the FY10 spending plan, has now brought about this crisis, which will probably last longer than FY11.

However, is relief at hand? The state budget for FY10 which has just been approved provides a local option to cities and towns to adopt local taxes -- a 2% additional hotel/motel tax (the town already receives 4%) and a 0.75% new meals tax as the state meals tax is hiked 25% to 6.25%. Town meeting approval is necessary for these taxes to go into effect. Restaurant owners and lodging operators will have to be heard from. Adopting such taxes, even with their concurrence, makes sense only if property taxpayers get corresponding relief. Property taxes should not be increased.

CCT continues to ask that the Town Administration make monthly revenue reports publicly available, going back to July 1, 2008 and going forward on a monthly basis so trends can be tracked.

CCT has suggested to the Finance Committee that, with its new powers resulting from the recent Town Charter changes, it should take the lead in requiring of the Town Administration a dramatically more transparent budget development and review process. First and foremost, expected revenues for FY11 should be realistically estimated without assuming any increase in the core property tax, overrides or capital or debt service exclusions. (In considering the FY10 budget, expected revenues were not the beginning of the budget discussion.) That estimate should produce the number within which FY11 spending can be supported without imposing additional financial burdens on taxpayers. The Finance Committee should also explore with the Town Administration what savings can be generated now by cuts in FY10 spending.

The Town Administration has not been in the habit of presenting graphs and charts showing spending trends or providing aggregate information about such important items as personnel costs (e.g., average % increases, average compensation including overtime). When CCT created a chart in February showing Town spending soaring from $21 million to $31 million in just eight years, it created quite a stir With the FY10 budget, the increase is about 58% in nine years -- about 6.5% per year.) When all is said and done, it's taxpayer money that pays for such extravagant spending.

A senior town official at the meeting of the Summer Residents on June 26th accused “some taxpayers” of overreacting to the world financial crisis in seeking to restrain town spending. He said "they" (meaning CCT) were guilty of “hyperbole” and “misstatements (name one!),” particularly in saying the FY10 spending plan was projected to overspend expected FY10 revenues by $2 million.

At the end of the meeting CCT's Phil Dupont offered to appear before the Summer Residents and let them decide what's "hyperbole" and what's fact. (CCT has been invited to appear before the July 24th meeting. We'll be there.)

The senior town official did tell the Summer Residents that those same hyperbolic taxpayers apparently were going to stay involved, so he and the Selectmen would soon be unveiling major changes in the budget process for FY11. Good. If we have the Selectmen and the Finance Committee competing to get the real picture out in the open, taxpayers can only benefit. Transparency will be welcome.

Chatham’s problem can be stated simply: the Town is rich, resident taxpayers are not. The Town is rich because more than half of its property tax income comes from properties owned by non-residents; the cost to service those non-residents is a small fraction of the income they provide. This allows the Town to spend extravagantly.

The Town collects more taxes than it needs with Prop 2 1/2 (unlike the typical town, Chatham with its second home income bonanza didn’t “need” a 2 ½ % property tax increase every year), but somehow the Town seems to find a way to spend the money and push through Town meeting other spending proposals, too. For example, Chatham’s debt service per capita is number one on Cape Cod. Also, to many it seems whatever the choice is, Chatham selects the most expensive solution (e.g., $10 million for an oversized community center; $17 million for an even more oversized Annex Project on George Ryder Road). The same may even be said for the 100% townwide sewer project costing hundreds of millions of dollars. Is this the most cost-effective solution to the nitrates problem?

Overtaxing has led to overspending and in FY10 and FY11 overspending has now outstripped overtaxing, burdening taxpayers further.

Resident taxpayers are not rich. The median household income of Chatham resident taxpayers is modest. The compensation of the average full-time town employee is more than what half the households in town live on – even before the 6% to 7% salary increases of FY10 take effect. It is this reality that town officials have ignored.

Daniel Hannan, a remarkable British member of the European Parliament made an observation recently that applies perfectly to Chatham:

The recession is forcing everyone to make economies: every business, every household. Do we really need two cars? Is there a cheaper mobile phone package? Can we get a better deal on insurance? They can see that it is possible — necessary indeed — to cut spending, but that such cuts need not have too deleterious an impact on our quality of life. And they simply can’t understand why the same logic doesn’t apply to the government. It is outrageous to exempt the public sector from the shrinkage of the economy — i.e., to tax the wealth creators even more in order to cushion the rest.

Posted by Chatham Concerned Taxpayer on Wednesday, July 1, 2009 at 1:01 PM | Comments (0)
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