Fiscal crisis: 2010 Archives

After the late 2008 economic collapse, Chatham Concerned Taxpayers was formed. We urged the Town Manager and selectmen, in light of the damage done to the savings of many of the town's taxpayers, to hold spending for the upcoming fiscal year (FY10) to no more than that of FY09. We also urged that all non-emergency capital projects be deferred until good economic times returned. Our urgings were rejected.

Spending for operations in FY10 went up substantially (including 6-7% salary increases for all town employees) and non-emergency capital projects were pushed forward, a town hall annex and a hugely expensive centralized sewer project that, in our view, was staggering overkill for whatever anyone might argue needed to be done for clean coastal waters.

Worst of all, the Big City Sewer was being pushed into implementation only weeks after the Comprehensive Wastewater Management Plan (Plan) was finished without a fully informed town meeting being given the chance to considere and vote on the entire Plan, even though it represented the single largest project by far in the history of Chatham.

As we have detailed elsewhere, CCT believes the vote for upgrading the main piping between the downtownexisting sewer system and the existing wastewater treatment facility (WWTF) and the upgrade of the WWTF itself was void. This is because the information in the Warrant on Article 14 prepared by the Town Manager misrepresented the costs of the Comprehensive Wastewater Management Plan (Plan) and failed to disclose critical facts, namely, that the Town Manager was planning to immediately enlarge the WWTF to its 20-year 100% capacity. In effect such an enlargement would force future town meetings to approve requests for additional sewer piping extensions, whether they wanted to or not. Any competent professional engineer will state that a plant will only operate efficiently at its design capacity. If the WWTF is enlarged all at once to its ultimate capacity instead of incrementally as sewer extentions are voted, voters will have no choice to consider alternatives that might be integrated into the wastewater system to save substantally on costs. In effect, a fraud was perpetrated on the voters at Town Meeting.

How right CCT was to urge caution in light of economic conditions, which have turned out to be worse and lasting longer than we had suspected. Present fears are that the what looked like a recovery may now collapse.

Knowledgeable observers are now saying the U.S is bankrupt. We don't know if state and local liabilities (acknowledged and off-budget, e.g. unfunded pensions) are in the staggering estimates of the "fiscal gap" -- $130 to $202 trillion. Probably not.

Spending at the national level has to be cut dramatically and taxes may have to be raised. Some, such as U.S. Congressman Paul Ryan (R-Wisconsin), have plans that will get federal liabilities down to a manageable percentage of GDP over a few decades without tax increases. Others want to impose a European-style value added tax which will not only "solve" the entitlement crisis, it will enable the federal government to hand out even more goodies. Such a tax will be destructive of private business and make us more like a European welfare state.

With the federal government bankrupt, what about Massachusetts? State finances are in crisis. Is it broke, too? In fact, right now Congress is approving a bill to bail out Massachusetts (and other states) with borrowed money to keep public employees on the state and local payrolls, thus adding to the national debt.

Massachusetts is running chronic deficits. Health care spending is escalating alarmingly. Unfunded liabilities for public employee benefits and other unaffordable entitlements will have to be dealt with. Will they do something meaningful? Tough decisions have been deferred for years, so spending cuts, however badly needed, may take second place to raising taxes.

That's the usual Massachusetts response. Whatever is done, state aid to cities and towns is likely to fall, not rise, in the years to come -- even if casinos are approved and built.

With dire consequences likely to befall all citizens as the national and state govenments grapple with their overspending, what about Chatham's spending? If, say, Social Security payments are going to be cut for current retirees as many are predicting, what about Chatham taxpayers' ability to pay taxes to support local spending with increased taxes levied by the federal and state governments being likely? Can they bear not only a continuation of overspending but an explosion of overspending?

What kind of shape is Chatham in to face as this fiscal crisis unfolds?

For fiscal 2010 Chatham used off-budget financing of between $1 million and $2 million to cover spending. Emergency funds were raided.

For fiscal 2011, spending cuts were minor if not miniscule. Instead, many FY11 costs were rolled into fiscal 2012, thus presenting a "doubled-up" cost challenge for FY12. Rather than realistic spending cuts to balance the budget in FY11 to avoid a FY12 crisis, the Town Manager proposed new taxes on hotels and meals, which the town meeting wisely rejected.

The Town of Chatham has been living rich for years on the property tax payments of second home owners, who pay over 60% of property taxes and receive relatively few services. This has enabled town officials to push spending up by about 6% each year for a decade through use of the deceptive device known as "debt drop-off" and annual "capital exclusions," half of which really were for ordinary maintenance that should have been subject to Proposition 2 1/2.

In fiscal 2011 overspending finally caught up to overtaxing, leading to the cost rollovers to fiscal 2012. As mentioned, the solution proposed by the Town Manager was more taxes. He also said an override to fund the FY12 budget is inevitable. It isn't.

Chatham already spends 30% more each year than our sister town of Orleans (about the same size geographically and in population). That's about $8-$9 million "extra" spending per year.

Are there other fiscal problems for Chatham besides the too rich and growing operating budget? There are.

Chatham's unfunded pension and health insurance liabilities for its public employees realistically estiimated are somewhere between $70 and $100 million compared to current annual town revenues of about $34 million. It's hard to say these are sustainable.

Add to those liabilities the more than $400 million for the unnecessary, hugely expensive Big City Sewer the Town Manager has chosen for the town, which he already has in the early stage of construction.

That's at least $500 million in liabilities that are likely to fall largely or solely on the property tax, which currently constitutes about 70% ($25 million) of the town's present revenues.

Only about $2.7 million is being charged this fiscal year to the property tax for debt service.

Annual debt service charges just for the Hinchey centralized sewer will balloon to $13-14 million over the next 20 years and stay at that high level for ten years.

In addition, there is debt service for past capital projects (currently $3 million a year) not being charged to the property tax yet that will have to be paid. Debt service charges for the "palatial" (so termed at the summer non-resident meeting this month) town hall annex ($17 million) and a fire station ($8-$10 million?) will be added soon. These debt service projections assume no other capital needs for the town for 50 years. How realistic is that? What we know is coming will depress spending on operations and other capital projects for decades, unless sanity prevails.

One can hardly think of a worse time for Chatham to be expanding its liabilities more than ten-fold.

The Town Manager has not produced a five-year forward fiscal forecast for the town such as other towns on the Cape have done (e.g., Sandwich). So townspeople are not aware of the disasters that lie ahead.

Chatham already has more debt per capita than any other town on Cape Cod. That it will be going up ten times is principally due to the Town Manager choosing a Big City Sewer for Chatham. Why is it needed? If it is to solve whatever "excess nitrogen" problem Chatham has in our coastal waters, it's massive overkill. And that's assuming there is a problem that needs to be solved and that town action can solve it.

In deciding what can be done to maintain Chatham's fiscal soundness, every expenditure item needs to be examined, including the elephant in the room -- the centralized sewer system.

We can stipulate that everyone wants healthy waters around Chatham.

All Cape towns but Provincetown are said to have excess nitrogen in their coastal embayments that is causing algae blooms, eutrophication, death of eel grass and so forth. The Department of Environmental Protection (DEP) commissioned scientists at the University of Massachusetts, Dartmouth (SMAST) for a project (Massachusetts Estuaries Project or MEP) to develop a model to determine "acceptable levels" of nitrogen in the 89 embayments of Cape Cod and what must be done to reduce excess nitrogen to those acceptable levels. Despite requests by Cape towns for years the DEP has refused to subject the DEP-funded methodology to an independent peer review.

In fact, those waters most recently tested are very healthy. Tests by Orleans scientists announced earlier this month found that Pleasant Bay and all the embayments at the Orleans end of Pleasant Bay surpass the standards set by the state and no change in wastewater infrastructure is needed. In addition, those scientists have discovered that nitrogen originating in septic systems from all four bordering towns (Orleans, Brewster, Harwich and Chatham) contribute less than 1% of the nitrogen in Pleasant Bay. Spending tens or hundreds of millions to sewer those septic sources therefore would have no appreciable effect on the nitrogen content of Pleasant Bay. Precipitation and storm water runoff contribute far more nitrogen to the bay.

It is understandable that towns want to know that the DEP/MEP science is good and that their recommendations will in fact make the projected (or hoped-for) improvements before they spend hundreds of millions of dollars.

Nine of the 14 Cape towns affected by DEP/MEP findings of excess nitrogen have now joined to seek a peer review of the DEP-funded methodology by an unimpeachable authority the National Academy of Sciences. State Representatives Sarah Peake (who represents Chatham and neighboring towns) and Matt Patrick (who represents his town of Falmouth and other nearby towns) have already expressed support for this initiative (which was organized by the Orleans selectmen).

Chatham Concerned Taxpayers wrote the Chatham selectmen urging them to join with the other towns.

CCT ChSel July 6 2010.pdf

Nonetheless, Chatham selectmen voted 3-2 against joining in the request for a peer review, Selectmen Summers and Roper being on the right side.

It is difficult to understand why Chatham rushing ahead to build a Big City Sewer at such a staggering cost without questioning the DEP/MEP methodology, which thus far is untested, unproven and not peer reviewed. In fact, Chatham is a half billion dollar guinea pig.

By what logic is a majority of Chatham selectmen refusing to join in the petition for a peer review? If they are confident of the science and what it will accomplish, they have nothing to fear from such a review. If the peer review determines the methodology is flawed and will not deliver what's projected, they would get credit for saving taxpayer dollars that otherwise would be wasted.

Not only that, there are far less expensive alternatives that are environmentally preferred by the federal EPA than a Big City Sewer. Chatham can save tens, probably hundreds, of millions of dollars by integrating such alternatives as cluster systems and permeable reactive barriers into any Chatham solution, assuming the DEP/MEP science is found by peer review to be good and that infrastructure to reduce septic nitrogen will yield the projected improvements.

As for the half billion sewer project itself, as structured by the Big City Sewer specialist Stearns & Wheler, improvements in water quality wouldn't appear (if at all) for at least 23 to 25 years when the system is fully operational. Instead, by proceeding incrementally with targeted "hot spots" such as Oyster Pond with environmentally preferred cluster systems and permeable reactive barriers, improvements may be obtained far sooner, for far less money and with far less disruption to the community life (e.g., without tearing up streets with 20-foot deep cuts). But taxpayers should be satisfied before huge expenditures are made that the science is sound and will accomplish the desired improvements

It's clear that Chatham has to rein in its overspending. The biggest project of all cannot be immune. The wastewater treatment facility should be scaled back as CCT outlined in its letter to the selectmen to accommodate just those 300 or so new properties being added to the existing sewer system. By doing this the town will retain the flexibility to incorporate through adaptive management the kinds of cost-saving strategies outlined here. Otherwise, town voters will be forced by the capacity enlargement the Town Manager has arranged to be completed by mid-2012 into spending about half a billion dollars on a centralized sewer system that is overkill for the job that needs to be done, assuming a peer review shows that there is a job for the town to do to eliminate man-originated septic nitrogen. Any competent professional engineer will say that a plant only operates efficiently at is design capacity. Unless the present WWTF enlargement is limited as described, taxpayers will be forced to vote to add sewer piping to provide the wastewater flow the WWTF needs, whether they want to or not.

CCT's estimate of approximate $450 million for the Big City Sewer is considerably higher than the $266 million the Town Manager asserts the project will cost. His numbers presented at the February 23rd selectmen's meeting and on the town website are vastly understated: He uses an interest rate that is 20% to 40% lower than what is available; he leaves out at least $30 million of operations and maintenance costs during the 20-year construction period and he does not take inflation into account (3% per year is usual) over the construction period. He also ignores the connection costs for property owners forced to connect to the sewer system. See our prior entry for more details.

There is still time to do the sensible thing. It is up to the selectmen. In their hands is the fiscal future of Chatham. They are answerable to the taxpayers. They have an obligation to spend their money wisely. In these demanding times, critical, difficult fiscal decisions cannot be left to the Town Manager.