Town Manager’s Blog

Edition FY2025-2

TOPIC: Fixed Cost Impacts of FY25 Budget

Fixed costs are those costs that include employee benefits, utilities, insurance, solid waste, service contracts, regional dispatch, supplies, and other professional services including software and technology among others.  

Let’s review a few of them:

The Town will be entering into negotiations with the Public Employee Committee (PEC) to renew the Health Insurance Agreement.  We are currently with the Massachusetts Interlocal Insurance Association (MIIA) for employee and retiree health insurance.  Many years ago, the Town joined the Group Insurance Commission (GIC) for coverage but for the last 6 years the membership preferred to contract with MIIA.  Although MIIA does have many municipal clients, it does not surpass the GIC’s enrollment #’s and therefore the experience of many communities is spread further and results in lower rates in most cases.  Because PEC’s desire was to switch to MIIA, we have and most likely will see larger rate increases in the future.  Negotiations will begin shortly.

Utilities

The Town is a member of a Municipal Aggregation Program which provides discounted supply rates for electricity. The default rate for residential is ₵18.213 /kWh, the special rate is ₵15.781 /kWh which will be in play through November 2025.   This discounted rate is for all residents.  

With respect to Town buildings and other town assets, we are currently in a contract with Next Era Energy Services with a rate of ₵8.800, a significantly lower rate than the default and special rate.  This contract is set to expire in November 2024; we will be seeking new rates via our energy consultant.  

Regarding our gas rates, we are currently in a contract with Plymouth Rock Energy with a rate of ₵53.05/therm/CCF with an expiration date of June 30, 2025.   We regularly review these contracts; it is possible that the rates may be favorable to re-bid and see what comes in at the same time as the electric bids. The current default rate is ₵71.350, significantly higher than the contracted rate.  

 We hope to see favorable rates when we renew both commodities.  

Liability Insurance 

The town is not immune from rising costs relating to natural disasters and other unprecedented weather events.  In most cases the global market has a negative impact on our rates.  We have and always do verify all assets, their value, and their life expectancy.  This cost center is increasing approximately 14%.

Solid Waste

This cost center is up significantly, and we expect to see it increase even more in the coming years.  There was a time when we were able generate revenue from recycling to offset the cost of regular trash.  Us and many other communities recycling went to China, but China has banned it causing a ripple effect to the budget.  What was once free (3 years ago) now comes with a price tag of $400K on average.  We have extended our contract with Republic for one more year; we are currently preparing bid documents to be released in late fall or early winter 2024.  This line is up 10.1% from the previous year.

We are also beholden to mandates that continue to strain the budget.   Approximately 1.5 years ago the State mandated that mattresses and box springs cannot go into the trash stream and therefore we partnered with UTEC to pick up and dispose of them.  The Board of Selectmen voted to absorb the cost in the General Fund budget.  To date it has cost the Town approximately $60K to pick up and dispose of mattresses.  It is also rumored that we will no longer be able to dispose of any textiles in the regular stream, we are unsure as to how this will be managed.  The Town cannot continue to raise these types of expenses for the residents, it is simply unsustainable.  The residents will have to have their mattresses picked up by the store they bought it from, or we will no longer pay for the services of UTEC, that will be passed on to the residents as it is in most if not all communities.

As we do with multiple expense lines, the town does its best to participate in collaborations with other communities.  For example, we are included in a group pricing effort for disposal sites, and therefore we are recipients of a group rate that usually beats individual pricing.  

Service Contracts

Many Departments have service contracts for their day-to-day business.   For example, in the IT Department, they have endless memberships, licenses, etc. that continue to rise.  On average this line increases approximately 3-6% each year, somewhat manageable but it still weighs down the budget in some departments.  With mandated responsibilities, the Town has little flexibility in what we are charged for services for these types of expenses.  An example of that would be our financial software, we have a consolidated platform that serves the Board of Assessors, Tax Collector, Town Clerk, Accounting and Treasury departments.  We contract with Vadar, there are very few vendors, and the cost of those vendors is much higher.  

Dispatch Center

 We are a member of the North Middlesex Regional Emergency Communications Center (RECC). We have partnered with the Town of Tewksbury to create and commit to a regional emergency center.  Although the original analysis indicated savings for Dracut, that did not materialize.  The center was built from the ground up, the cost of which along with the first three years of operation were paid for by the State of Massachusetts.   We are now fully vested and are responsible for approximately 47% of its cost.  The benefit of this agency was to have a state-of-the-art facility with updated equipment and technology and had hoped Dracut dispatchers would transfer there; we did not have any dispatchers transfer there and we have struggled to staff completely but we are on the verge of accomplishing that. FY25 will be the first year we will be responsible for 100% of our shared cost.   We are also hopeful that another community will join, resulting in lower costs for both Dracut and Tewksbury.  We continue to look for grants to pick up some of the costs.

Supplies

Supplies is a very broad category and could include, office supplies, ammunition, vaccines, custodial supplies, recreation programming items, books, materials for roads, gasoline, tools, etc.  These expenses typically increase minimally from year to year, so we budget approximately 3%.  This category was cut if not eliminated in many departments as part of the FY25 budget cuts.

Education

Let’s talk a bit about Net School Spending (NSS) 

Clearly, education is a priority for many, including the current administration, as it should be.  Each year the Massachusetts Department of Education determines the individual community minimum level of spending for each school district needs to provide an adequate education.  Several factors are included but not limited to:  Foundation Budget; Minimum Aid; Inflation Adjustment; Enrollment Changes; Poverty Factors; English Language Learner Factors; Special Education Factors; Sparsity Factor; Local Effort and Equity Provisions.  

Due to the fact that the Department of Education instructs the Town what to pay via the formula, many of the costs associated with some of our fixed costs, are charged back to the school, I thought it prudent to include NSS with this document.  

Because the Town pays many expenses on behalf of the School Department, we charge them back for those services and it becomes a part of meeting NSS.   These are referred to as “chargebacks”.   The School Department is responsible for those costs associated with their staff and buildings.  Recently there have been assumptions that we are balancing our budget on school chargebacks.  That is simply untrue; we have an agreement in place that is used for those calculations.   The Town has always been as conservative as possible. We have attempted to negotiate a new up-to-date agreement but have been unsuccessful and have enlisted the Department of Education Commissioner to opine on our calculations.  We recently had an audit of our charges completed; it revealed that not only are we properly calculating each category, we are also not charging them in areas that we should.    

Dracut has always straddled the fence with respect to meeting Net School Spending.  It’s not because we don’t want to improve the commitment of funding, it’s that we simply can’t get there.  Most recently the Department of Education made significant changes (Student Opportunity Act) to the formula that benefited Dracut for FY22, FY23 and FY24.  For FY25, the Town will not benefit from these changes, we are slated to receive just a 0.42% increase ($114,990).  For FY22 funding increased by 4.4%, FY23 15.73% and FY24 is 11.73% The Superintendent of Schools is investigating the reasoning behind the minimal increase for FY25.  These inconsistencies are making it very difficult to project future years.  

Many assume that we are not prioritizing education, that could not be further from the truth.  We take every opportunity we have to improve the funding levels.  Below is a sample of where Dracut is in comparison to communities with similar enrollments, clearly we are amongst the lowest with respect to in-district spending per pupil:  

 When we compare this particular cost center, it is logical to use communities with similar enrollments.  

Greater Lowell Regional High School (GLTHS)

 For FY2025 we will recognize a 16% increase in our assessment for Net School Spending and 6% for Transportation.  The Town is obligated to provide funding for all of its student population.  The per pupil spending for GLTHS is in line with other regional school districts.  

Conclusion

On any given year the Town raises the tax rate by 2.5% plus new growth, which is typically in the area of $450K or less than 1% of our total tax levy.   On average the Town has approximately $1.4M in new revenue to absorb increased costs.  In most cases, other than contractual obligations, most expense accounts have a 0% increase for FY2025.  The Town is faced with a difficult decision; do we invest in our community, or do we reduce costs to a point that will paralyze community services?  For FY25 the average increase on all fixed costs is 6.6%, only ¼ of these increases will be absorbed by Proposition 2.5 and new growth; this is unsustainable and forces us to act.

We have a plan in place for FY25 which includes $1.5M in cuts and the use of $2.1M in reserves. FY26 is our focus at this point.  We will continue to make cuts, but it will be painful in many departments.  Without a new revenue source, the Town will be forced to consider the closure of some buildings and the elimination of some services.  We cannot continue to live off our reserves, it’s detrimental to our bond rating and is nearly impossible to re-establish.  

For the next edition I will focus on clarifying the use of federal grant funds known as CARES and ARPA.  I will also include an explanation of free cash, including its use and its importance to our future.

 Thank you for taking the time to review. I can be reached via email at avandal@dracutma.gov or by phone at 978-452-1227.  

Ann Vandal, Town Manager