CITY OF NEWTON OVERRIDE 2023

Name: NPS FY24 Budget and Override Discussion
Start: 2023-02-09T00:00+00:00
End: 2023-02-09T02:00+00:00
Location: Newton North High School

Three Ballot Questions for Newton's Future

What's on the ballot?

Academic Excellence and Educational Equity

Streets and Sidewalks

Parks, Fields, Courts and Playgrounds

Programs and Services for Older Residents

Sustainability and Climate Resilience

Trees

OVERRIDE CALCULATOR

TAX ASSISTANCE PROGRAMS

I know that for some in our community, this additional investment will be difficult. Since becoming Mayor, I have worked together with the City Council, to expand our tax assistance programs. I am requesting that the State allow us to double our tax relief assistance in our six programs for eligible residents who are disabled, older, or veterans and another to increase access to our seventh one, Newton’s tax deferral program. Read more about these proposed enhancements to our Tax Assistance Programs here.

To review our tax assistance programs, and check your eligibility, please visit our Assessing Department here.

PUBLIC MEETING CALENDAR

MEETING AND INFORMATIONAL MATERIALS

General Override Materials

Academic Excellence and Educational Equity

Streets and Sidewalks

Parks, Fields, Courts and Playgrounds

Programs and Services for Older Residents

Sustainability and Climate Resiliency

Trees

Informational Videos

Meeting Presentations

Meeting Recordings

FREQUENTLY ASKED QUESTIONS

Overrides and Newton's Budget

What is Proposition 2 ½ and What are Overrides?

Proposition 2 ½ refers to a Massachusetts law enacted in 1980 that strictly limits the amount of property tax revenue a community can raise through real and personal property taxes. This revenue is technically called the Tax Levy ̶ or usually simply the Levy. Prop 2 ½ limits how much the levy can be increased from year-to-year. The maximum amount a community can levy in any given year is called the Levy Limit.

Under Proposition 2 ½, a community’s levy limit increases automatically by two factors:

1) an incremental increase of 2.5% of the prior year’s levy limit (hence the law’s nickname), and

2) a dollar amount derived from the value of new construction and other growth in the local tax base since the previous year, called New Growth.

The 2.5% increase and the new growth number are both added to the prior year’s levy limit to reach the current year’s levy limit.

Notably, the 2.5% increase limitation applies only to the Levy Limit, and not to any individual property owner’s tax bill. A common misconception is that Prop 2 ½ restricts the amount your property tax bill can increase to 2.5%. Increases in New Growth will also impact your property tax bill.

A community can exceed its levy limit with voter approval. Prop 2 ½ gives communities flexibility to support local spending for schools and municipal operations. Communities can levy above its levy limit permanently or temporarily by passing by majority vote in an election an override or a debt exclusion override. (There also is a third type of override called a capital outlay exclusion override.)

By passing an Override a community can assess taxes in excess of the automatic annual 2.5% increase and any increase due to new growth or its Levy Limit. An override results in a permanent increase in the levy limit of a community. These funds can be used for both operating and capital expenses. For example, override funds could be used for things like educating students, paving roads, making park improvements, or building a new school or fire station.

Newton voters have approved overrides twice. In 2002 voters approved an override of $11.5 million. In 2013 they approved an override of $8.4 million which included funds for the new Zervas Elementary School building, and the Fire Headquarters and Fire Station 3 buildings. It also included funding for street paving and police personnel, cruisers and equipment. (At the same special election in 2013, Newton’s voters approved two debt exclusion overrides, described below.)

An Override, General Override, Proposition 2½ Override, or an Operating Override

are all different names for the same thing, an override.

By passing a Debt Exclusion (commonly referred to as a Debt Exclusion Override) a community can assess additional taxes to pay the debt service from bonding (principal and interest costs) for a specific capital project. These funds are used for capital projects such as a new or renovated school. The additional amount is added to the Levy Limit for the life of the debt only. Thus, unlike overrides, debt exclusion overrides do not become part of the base used to calculate future years’ levy limits. The increase is temporary and only for the life of the bonds (which typically are 30 years).

Newton voters approved two debt exclusion overrides in 2013 (in addition to a general operating override). The two debt exclusion overrides were for the construction of new elementary school buildings, Angier ($1.3 million) and Cabot ($1.7 million).

A majority vote by the Newton City Council with approval of the Mayor allows an override or debt exclusion override question to be placed on the ballot.

The Massachusetts Department of Revenue has published an excellent, easy to understand publication entitled Levy Limits: A Primer on Proposition 2 ½. This publication can be found here.

Apart from property taxes, what other revenue sources are there for the City of Newton?

Newton’s 2023 Override Proposal

What are we voting for?

You are voting whether to approve 3 ballot measures at a special election tentatively scheduled for March 2023.

This Newton City election is asking voters for permission to raise property taxes above the 2.5% ceiling imposed by Massachusetts’ Proposition 2 ½. By law, increases above the 2.5% cap must be approved by a majority of voters. The funding from the two debt exclusion overrides would go to the rebuilding of Countryside Elementary School and Franklin Elementary School. The general operating override would result in a substantial addition to the Horace Mann Elementary School. It would also provide funding to support the needs of Newton Public School students, fix roads & sidewalks and improve street and sidewalk safety, allow the City to advance sustainability measures, climate resiliency and electrify buildings, care for our parks, athletic fields, courts and playgrounds, plant and care for our trees, and support our older residents. For more details on each of these components, please click here.

In the override proposal, why is the cost of the Franklin School renovation ($3.5M) so much higher than the one for Countryside ($2.3M) which in turn is also so much higher than for Horace Mann?

Franklin and Countryside Schools both have the same total project budgets of $61M, but they have different financing mechanisms which result in different financial support needed from the community in the override.

Both the Franklin and Countryside Schools were submitted to the Massachusetts School Building Authority, MSBA, for consideration to be included in their Core grant program which provides significant financial assistance to communities who need to rebuild or replace schools.

MSBA selected the Countryside School for the Core grant program, and as such they will be providing substantial financial support, which will cover approximately 25%-30% of the cost. In addition, the special permit from the Northland development requires them to provide $1.5M to the Countryside project and Mayor Fuller allocated $1.25M of ARPA funds for the feasibility study.

The Horace Mann School has a total project budget of $23M. This is in addition to and complements the close to $15M in investments in the school over the past ten years. Every building system was replaced and upgraded in 2013, so the existing building is in great physical condition. However, the upgrades in 2013 were to prepare the building for use as a temporary swing space and did not make the long-term space investments needed to make the building a permanent home for Horace Mann.

The funding for the $23M total project budget will come from two sources: the override and Free Cash ($7.5M). Mayor Fuller will docket with the City Council the use of the Free Cash for this purpose pending the outcome of the special election.

The Horace Mann School is lacking appropriately sized classrooms, special education and student service spaces, a single space where the school can gather for assemblies, a functional cafeteria or performance space, a media center or library, and programmatic adjacencies that promote collaboration and educational clustering. Due to the hard work of the staff, the Horace Mann School is incredible. However, their success is a result of overcoming the daily facility challenges which is not a model we should continue to support.

When is the election?

Why is an override needed?

The City of Newton continuously implements efficiency measures so we deliver our services and programs at the least cost possible. Nonetheless, the City faces financial challenges. Sometimes this takes the form of price spikes and inflationary pressures. For example, the cost of recycling increased dramatically when China changed its policies. Healthcare, utilities, and energy have also experienced spikes in the past and the prices of many products and services are increasing currently. Other times Newton’s residents want the City to expand its services or renew its capital infrastructure on a schedule faster than the 2.5% increase permitted by the Proposition 2 ½ tax levy limit. In addition, the significant cost of rebuilding schools and other large capital projects often outstrip our debt capacity. Newton has turned to overrides once every ten years to complete our large capital projects, to sustain our core programs and services, and to move forward with important initiatives.

How much will the override increase my taxes?

We have put a tax calculator on the City of Newton website. The calculator shows that for owners of a home valued at Newton’s median of $1.2 million, the impact would be $290 next year, growing by another $183 in 6 years’ time when all the bonding is in place for the Countryside and Franklin school buildings. An owner of a home valued at $1.2 million currently pays as of their 2022 tax bill $12,624.

For perspective, for the owner of a residence valued at $750,000, the impact is $173 next year and an additional $110 by FY30. An owner of a home valued at $750,000 currently pays as of their 2022 tax bill $7,890. To see the estimated impact for your address, please use the City’s Override Calculator here.

Why are School Building projects so important?

From Newton's Public Buildings Commissioner, Josh Morse:

It’s a simple question, but the answer is a little deeper than some may think.

A 2002 study took a look at school facility investments in the District of Columbia and Chicago to determine the correlation between new school buildings and educator retention, which one can assume carries over to attracting top talent as well. Nearly 80 percent of teachers responding to a survey in Chicago and the District of Columbia reported that school facility conditions were an important factor in teaching quality. Almost half who graded their facilities “C” or below would consider leaving. A 2017 study by the California Policy Lab found that “students who attended newly constructed schools showed significant improvements in standardized test scores, attendance rates, and teacher-reported measures of student effort.” The study went on to say, “Our findings indicate that 4 years of attending a newly constructed school leads to an increase of 5% of a standard deviation in English test scores, and an increase of 10% of a standard deviation in math scores.”

Every time we start a new school building project, I explain to the community that the incredible educators are providing an amazing educational experience despite the challenging facility they’re in. The resolve and passion of our teachers shines through every time. However, this is not how it’s supposed to be. School buildings are supposed to foster, comfort, nature, and nurture educational, social, and emotional growth. They should complement the incredible work of the educators. They should not contain barriers, but rather embrace everyone using universally accessible and welcoming design. They should create a sense of community within them. Adjacencies of programs and spaces really matter for both student learning and professional development. The flow of a building means a great deal, and lacking spaces or the correct sizes of spaces, can mean a world of difference in the daily life of our students. Heating, cooling, operable windows, leaky roofs, and other building issues should not be something that our staff and students should have to frequently contend with. Students shouldn’t have to learn in a hallway or basement area simply because the building was constructed half a century or more before things like student services and special education existed.

I often am asked; can’t this all be corrected with more or better maintenance? We have certainly expanded our maintenance efforts and funding significantly over the past decade or so. However; building maintenance is something you typically do to sustain and prolong the life of the building or system within it. When the vast majority of the building systems have reached the end of their useful life, you are no longer maintaining those systems, but rather trying to squeeze just a little more life out of them. I am a huge supporter of a robust preventative maintenance program, but to do so you must start from a sustainable baseline.

If we maintained the heating systems, installed air conditioning, and replaced the other building systems, wouldn’t we be all set? Maintenance cannot fix a building that was built too low on a site and is now prone to flooding. It cannot fix a building that has had several additions constructed before accessibility was considered yielding a myriad of elevation changes and physical barriers. It cannot fix a school that has no special education or student support spaces. It cannot fix rooms that are a fifth of the size that they should be based on state educational standards.

Educators make great schools. Period. However, great school buildings help attract and retain great educators. Students perform better when they are not distracted by noisy heating equipment, sporadic building temperatures, or the many other challenges of learning in a building that was designed for a totally different educational model. (In many cases our schools were designed during the great depression almost a century ago.)

School buildings should not be something that must be overcome. They should be something that welcome, embrace, and inspire our children and the future generations of this great city.

What will happen if the override does not pass?

What guarantee is there that funds raised through the override will be used as proposed in the future?

As Mayor I will always follow the will of the voters and distribute funds as they are allocated in the override.

My administration has used the funds approved in the 2013 operating override for exactly the purposes Mayor Warren’s administration presented to the community a decade ago. (This can be seen in our annual budgets process and documents which are posted to the City website.)

By State law there is no guarantee past the first year that funds in the operating override must be allocated as they were presented to voters. But, that is why we have checks and balances. The City Council will hold future Mayors accountable through the annual budget approval process.

Why is the Horace Mann project in the operating override, rather than a separate debt exclusion like Countryside and Franklin?

Municipalities across the Commonwealth build into operating overrides the capacity to build out future financial resources to address future capital projects. Cities and towns need permanent funding to rejuvenate capital assets such as buildings.

In Newton, the 2013 operating override included three capital projects: the Zervas Elementary School, Fire Station 3 and Fire Headquarters, and the Fire Wires Division buildings.

The Countryside Elementary School building project has been invited into the Massachusetts School Building Authority (MSBA) process and the City of Newton will receive approximately $20 million from the state. Because of this MSBA funding, the additional $40 million is a debt exclusion question on the ballot.

We anticipate that the Franklin Elementary School project at a cost of $61 million will not receive any state funding. As this is another complete rebuild at a significant cost, it too is a standalone debt exclusion question.

We intend to bond a lower amount ($13 million) for the work at Horace Mann Elementary School, so we felt an appropriate project to include in the operating override.

Notably, similar to the 2013 overrides a decade ago, there are three override ballot questions, two debt exclusions questions and one operating override question which includes building projects.

I can’t afford to pay more taxes. How can the City help?

Newton has nine tax assistance programs for eligible residents. Mayor Fuller has proposed doubling our tax relief assistance (technically known as exemptions) for the seven programs for eligible residents who are disabled, older, or veterans (which will require approval of both the City Council and the State legislators). She has also proposed expanding access to both our tax deferral and water/sewer discount programs, both of which require City Council approval. Read more about these proposed enhancements to our Tax Assistance Programs here. Please review the current programs and your eligibility here.

Newton’s Budget

What is the City’s budget?

What has the City done to make sure they are stretching every tax dollar as far as possible?

Every year the City of Newton “zero bases” the budget. This is a process by which every department builds their budget from the ground up every single year. Every line item within the budget is scrutinized annually to ensure that every penny is necessary, data-driven, and is tied to the goals and objectives for the city and the department. The Executive Office then balances the budget requests for each department with the available financial resources of the City.

Why are Newton’s expenses growing faster than 2.5% annually?

Across all City departments, inflation rates for costs have repeatedly exceeded 2.5% per year. Construction materials, equipment, healthcare, internal and external labor costs, are all examples of cost centers which have historically risen at a rate far greater than 2.5%. Each year, we zero-base every budget in the city which is a budgeting approach that involves developing a new budget from scratch every time (i.e., starting from “zero”), versus starting with the previous year's budget and adjusting it as needed. This process means that our annual revenue is utilized in the most efficient means possible. Therefore, there are only two methods of addressing this issue: increased revenue, or a reduction in expenses in the form of cuts to programs and/or services.

What is the City's Long-Range Financial Planning Strategy, and how does funding Pensions fit into that?

The Purpose of Long-Range Planning

The City of Newton annually provides a Long-Range Financial Strategy and a Five-Year Financial Forecast. The Fuller Administration does long-range financial planning in order to help the City make informed budgetary and operational decisions in the short term by anticipating long term future revenues and expenditures. The forecasting process also allows us to highlight and consider the City’s financial strengths and challenges as well as potential risks, opportunities, and uncertainties.

By developing a forecast of revenues and expenditures under known conditions and budgeting appropriately for the unknowns, we move forward more thoughtfully with strategies for providing consistent and appropriate levels of service to our residents, educating our children well, compensating our employees fairly, investing sufficiently in roads, buildings and other capital assets, addressing long-term obligations and liabilities (e.g., pensions, retiree health care, and debt service), and developing sustainable budgets for the next year, the coming five years and over the long-term. `

We need a sound financial forecast in order to be financially healthy and to spend wisely so we can achieve our overarching goals of:

Ensuring academic excellence and educational equity
Keeping Newton safe
Making Newton more “all age” friendly with a focus on seniors
Improving streets, sidewalks, and mobility & public buildings and infrastructure
Preserving neighborhoods, increasing affordable housing, and diversifying housing options
Promoting vibrant, walkable and financially robust village centers & commercial corridors
Addressing climate change and sustaining our environment
Protecting woods and open spaces & caring for our parks and recreation spaces
Fostering art, culture & community life
Facilitating a healthy, accessible and supportive Newton
Providing excellent and responsive City services
Meeting COVID-19 needs

Philosophy

The Fuller Administration is committed to a balanced and sustainable budget. While each annual budget must be balanced by state law, beyond that we believe deeply in avoiding a sudden need to cut services and expenses, which often translates into layoffs as personnel costs are such a large percentage of our budget.

Therefore, to ensure a balanced budget, we consciously project revenues conservatively (i.e., we are extremely careful not to overestimate revenues). As per our Financial Management Guidelines, General Fund revenue financial forecast estimates are expected to capture 99% of total expected revenue for the year. We project expenditures in full (i.e., we are extremely careful not to underestimate costs). General Fund expenditure financial forecast estimates are expected to address not less than 100% of projected operating requirements of the various departments for the next fiscal year.

Throughout the past decade, the City has focused on developing conservative financial forecasts, improving financial reserves, reducing the utilization of non-recurring funding sources to balance the annual budget, making appropriate investments in the City’s capital infrastructure, and funding aggressively our significant liabilities for retiree benefits.

The City had been moving methodically toward implementing expenditure budgets sufficient to address not less than 100% of projected operating requirements of the various departments. Although we have made significant progress in this endeavor, much remains to be done. The City utilized ARPA funds ($4.6 million in FY2022 and $3.0 million in FY2023) to augment our projected revenue, impacted by COVID 19, so that we could continue our commitment to the funding necessary for NPS to deliver welcoming, inclusive, equitable, challenging , and engaging learning environments to our school children, provide for unparalleled public safety, support the vulnerable, and improve both our hardscape and softscape infrastructure while we reopen, recover, and rebuild after what we hope is the worst of the pandemic.

We have given much attention over many years to the City’s significant long-term retirement liabilities. As of January 1, 2022, the Newton Contributory Retirement System (i.e., the pension system) actuarial value of assets totals $472 million reflecting a funded percentage of 61.05%. Conversely, the unfunded actuarial accrued liability on the actuarial value of assets totals $301 million, or 38.95%. As the City continues to implement its long-term strategy for addressing these liabilities and moves closer to projected full funding in 2030, we have refined several assumptions to take a more conservative approach. These changes in assumptions include the following:

The investment return assumption was lowered from 7.25% to 6.9%;
The allowance for net 3(8)(c) payments (payments to other communities from which employees have retired, but have earned some of their creditable service in Newton) was lowered from $200,000 for FY21 to $145,000 for FY22;
The mortality improvement scale was updated from MP-2017 to MP-2021.

The Fuller Administration’s strategy is to invest in the pension system liabities through FY2030 until full funding. Then the City of Newton will begin significant investments in the retiree health care or OPEB liability so all of the City’s retiree costs will be fully funded by FY2045.

We continue to need significant additional investments in many buildings, including schools, parks and recreation facilities, the Senior Center, and City Hall. We need to invest more in maintenance, including our roads, playgrounds, fields, and trees. We have not yet fully incorporated the entire likely costs of snow removal or complete streets repairs into the operating budget. In each of these areas, we are committed to increasing the funding in part with the funding from the override and in part gradually in each fiscal year budget in line with the economy’s recovery.

Pensions

In 2015, the City of Newton implemented a 30 year financial strategy to fund our considerable liabilities for pensions and other post-employment benefits (OPEB), also known as retiree health insurance. The City is now in its eighth year following this financial strategy.

Funding these significant liabilities is one critical piece of being a financially sound City. We need to have an annual operating budget that allows us to provide top-notch teaching & learning and city services, debt capacity to address infrastructure needs, fully fund pension and retiree health care over time, and have appropriate level of reserves for exceptional economic downcycles, dramatic weather events and other unpredictable events.

The City of Newton Contributory Retirement Plan is our pension plan. It includes more than 3,460 people - active employees, retired employees and beneficiaries, and inactive participants (people who no longer work for us but have left their contributions on deposit in the plan to take at a later date).

As of January 1, 2022, the City’s Unfunded Actuarial Accrued Liability for pensions is $301.2 million, down $11.2 million from the January 1, 2021 unfunded actuarial accrued liability of $312.4 million.

The teachers of the Newton Public Schools are not a part of the City of Newton Retirement plan. Rather, they are part of the Massachusetts Teachers Retirement System, and the City is not “responsible” for their pensions. However, other school employees (e.g., aides, custodians, secretaries, and principals) are part of the City’s plan. School employees make up 42% of the active employees in the City’s pension plan and account for 20% of the unfunded liability.

Prior to the 2008 economic downturn, the total unfunded actuarial accrued pension liability was approximately 33%. (In other words, the pension liability was 67% funded.) However, as a result of the difficult economic pressures in the years of the “Great Recession” combined with the increased life expectancy of Americans and more conservative net long-term investment returns, the total unfunded actuarial accrued liability reached a high of 49.2% but has now finally begun to decrease and was 38.95% as of January 1, 2022. In other words, the pension liability is currently 61.05% funded. Although the increase in the unfunded pension liability after the Great Recession is not unique to Newton, Newton lags many of the surrounding communities in percent funded for this significant liability. In our peer benchmark communities, only Arlington, Brookline, and Quincy have lower funded ratios.

This funding liability matters. Newton’s employees, like all Massachusetts public employees, do not pay into, nor do they receive, Social Security in their retirement. Newton employees depend on their pensions for income in their retirement. The funding gaps also matter because as a greater portion of Newton’s budget is needed to fund commitments to retirees that were made years ago, funds available for current services may be impacted. The challenge lies in strategically and carefully managing tax revenues, operating expenditures, capital investments and retiree benefit expenses while maintaining a Aaa credit rating. The magnitude of the pension and retiree healthcare liabilities and the complexity of the issue as well as changes in accounting requirements require the City of Newton to focus on long term financial sustainability by creating a financial strategy that extends through the next twenty-plus years.

As a result of the negative impact to funding ratios for pension plans in most communities in 2008, the Massachusetts State Legislature passed legislation enabling cities and towns to have until the year 2040 to “fully fund” pension retirement plans. Although the City of Newton had been willing to extend the time period to fully fund its retirement fund to 2038 when leaders were dealing with the financial crisis of the structural deficit after the Great Recession, financial sustainability requires funding the $300 million dollar plus pension liability which in turn allows the City to address the even larger retiree health care OPEB unfunded liability. (The City’s current health care OPEB unfunded liability stands at $667 million.) Therefore, the City of Newton Contributory Retirement Board, with full support from the previous Warren Administration and current Fuller Administration, voted to implement a funding schedule which will fully fund the Newton retirement pension fund by the year 2030.

Importantly, a funding schedule is only as good as the assumptions within it. Over the past few years, the Newton Retirement Board – with the support of the Mayor’s Office – has taken several steps to implement more conservative assumptions. The funding schedule includes updated mortality information (our retirees are living longer), adjusted salary increases and a reduced assumed rate of return on investment from 8.00% down to 6.9%.

The investment return assumption of 6.9% is lower than the 7.25% used during the past few years and the 8.0% before that. The 6.9% rate of return assumption also strikes a balance between our 10-year, 15-year, and 15-year net of highest and lowest years, (7.63%, 6.03%, and 6.69% respectively). That assumption will continue to be reviewed annually by the Newton Contributory Retirement Board.

Some people have suggested changing the funding schedule, concerned that the 9.6% annual increase in this appropriation means that other important services and programs grow too slowly, and they suggest the annual increase should be adjusted downward. Doing so would extend when the City reaches full funding for pensions.

Notably, the Newton Retirement Board of Trustees, not the Mayor, and not the City Council, has the sole authority for adopting the funding schedule for our pension system.

Prior to making any decisions regarding the Pension Funding Schedule, there are several factors that must be considered, including any negative impact that this decision could have on our Aaa bond rating and any negative impact on achieving full funding of the even larger OPEB liability.

In November 2022, Moody’s Investors Service issued conservative adjustments to their rating methodology. The new methodology has decreased the emphasis on institutional framework/financial management (decreased from 20% to 10%) and increased emphasis on leverage/long-term liability and fixed costs ratios (increased from 20% to 30%). The City does not score as well in the leverage category and any unintended consequences resulting from a lengthened funding schedule need to be considered.

Any downgrade of the City of Newton Aaa bond rating would impact future interest rates. To put this in perspective, if the three override questions pass on March 14, 2023, the City will bond approximately $200 million by 2030. If our bond rating were to be lowered because of new extended pension and OPEB funding schedules, and if our intertest rates were to be increased by 1%, the City would incur more than $40 million in additional interest costs.

Once again, to be clear, the Newton Retirement Board of Trustees is responsible for adopting the funding schedule for our pension system. We look forward to working with the Board as they review this information annually.

Once the City has fully funded its pension obligations, it will then be able to reduce its pension appropriation to the “normal cost” for current employees. The “normal cost” is the annual cost of setting aside in advance pension benefits for the current employees. Much of the costs we are facing currently are for the pensions of former employees who have retired; the City of Newton did not set aside sufficient funds in the past for their pensions.

Once we have fully funded our pension liability, we will be in a position to tackle our other, even larger, unfunded long-term retiree obligation – retiree health insurance or OPEB by the mid 2040s.

The City has ARPA, free cash, rainy-day stabilization and tax overlay funds. Why not use these funds to pay for the projects and initiatives?

Click here to watch Newton's Chief Financial Officer Maureen Lemieux answer this question.

Rainy Day Stabilization Fund

The City of Newton established in 2010 a Rainy Day Stabilization Fund to serve as a reserve for years when the City faces a multiple year economic recession or a rare, catastrophic event requiring a significant expenditure. More specifically, the City’s financial management guidelines state that these funds may be utilized to assist in addressing extraordinary cyclical declines in operating revenues, generally resulting from economic factors outside the City’s control, or an unusually large expenditure resulting from such things as catastrophic weather events. The funds remain segregated to prevent the reserves from being depleted for other city needs, and to demonstrate that resources are being set aside for extraordinary and unforeseen revenue disruption or catastrophic expenditure.

Through collaboration with the City Council’s Finance Committee, the Comptroller, members of the City Council, and the Warren and Fuller Administration, the fund has reached its goal of 5% of the total operating budget. The current fund balance totals slightly over $24 million. While $24 million may seem like a tremendous amount of money, and it is, it is only 5% of the City of Newton Annual Budget, and is a lower percentage than many other Aaa communities.

We have maintained this fund so that we can absorb a deeper and protracted crisis, significant reductions in state aid and other revenues, or a catastrophic weather event.

We chose to address the “known unknown” revenue decreases due to the Coronavirus Pandemic in the FY2021 and FY2022 budgets by reducing expenditures and using carefully tapering levels of American Rescue Plan Act funds.

Notably, when a government entity dips into a Rainy Day Stabilization Fund, it subsequently must replenish those funds. Also, as the City of Newton operating budget increases, the City must add monies into the Rainy Day Stabilization Fund to maintain the 5% funding level. Having an adequately funded Rainy Day Stabilization Fund is important to help the City through a crisis and to ratings from bond rating agencies, which in turn impacts borrowing costs for the City of Newton.

Free Cash

Free Cash is technically the accumulated difference of unrestricted funds between General Fund revenues and expenditures on a cash basis of accounting.

In less technical terms, free cash is the remaining, unrestricted funds from operations from the previous fiscal year. Free Cash comes from unanticipated actual revenues in excess of revenue estimates (including overlay surplus), unexpected unspent funds in operating budget line items, and/or unanticipated unexpended free cash from the previous year.

The Massachusetts State Bureau of Accounts certifies free cash, and it is not available for appropriation until certified. On Wednesday, October 5, 2022, the City of Newton received notification from the Department of Revenue that our Certified Free Cash as of June 30, 2022 totaled $28,860,460. The $28.8 million includes a large one-time infusion of funds in unexpected revenue from a contested property value case involving Eversource ($8M) and early payment of a “Payment in Lieu of Taxes” from a non-profit organization ($2.2M).

The City pays close attention to the amount and uses of Free Cash. The City consciously and transparently integrates the use of free cash into our budget and financial strategy.

Free cash in the Fuller Administration is used in a prioritized manner in keeping with the City’s Financial Management Guidelines.

First, a maximum of $1.5 million will be used as a general revenue source for the ensuing year’s operating budget.
Second, Free Cash may be used to replenish Reserve Funds depleted in the previous year.
Third, a minimum of forty percent (40%) of the remaining certified Free Cash will be put in the Rainy Day Stabilization Fund until the Rainy Day Stabilization Fund reaches its target level. (The City reached its target level several years ago, but as the operating budget increases, the City must add monies into the Rainy Day Fund to maintain the 5% funding level if interest earned on this fund is not sufficient to do so.)
Fourth, any additional Free Cash will be used for one-time, non-recurring expenditures.

When free cash funds are still available after the first three priorities, as they are this year, we prioritize one‐time capital expenditures, particularly those with bonding terms of 10 years.

This year, the Administration is proposing that Free Cash be used to fund the following:

Replacement of the two turf fields at Newton South High School ($3.2M),
Large vehicle/construction equipment purchases ($2.0M),
Replacement of Fire Department Engine 7 ($800K),
Purchase of 2 trackless sidewalk plows ($300K), and
Contribution toward the Horace Mann addition, contingent upon the passage of the Operating Override ($7.5M).

American Rescue Plan Act (ARPA) Funds

With the help of $63.5 million in unprecedented one-time federal funding from the American Rescue Plan Act (ARPA), the City of Newton is supporting those most impacted by the pandemic, investing in the operations of the Newton Public Schools and the City, and seeding initiatives that will help Newtonians and our City not just stabilize and recover but permanently become more resilient, livable, vibrant, inclusive, and sustainable. We are investing these funds with the lens of equity, ensuring all geographic areas of Newton, all ages, and all people are supported while we help those disproportionately hurt by COVID-19.

All of Newton came together to craft this plan. Through community meetings and listening sessions, anARPAinput@newtonma.gov email address, and with open office hours, calls, emails and letters, our City Councilors, School Committee members, community groups, residents, businesspeople and non-profit leaders weighed in to help guide our investments.

We have invested heavily in our students and schools, our COVID response, and in affordable housing and human services. We moved forward with one-time infrastructure investments ̶ from roads and traffic calming to village centers and commercial corridors, and police facilities to multiple elementary school buildings. We supported the recovery of small businesses, restauranteurs and artists. We helped the youngest users of our Library and the oldest residents of our City. We improved our parks, athletic fields, playgrounds and recreation facilities as well as added more trees. The pie chart below shows our strategic intent.

Altogether, the investment of the ARPA funds will be transformative for all Newtonians:

We are helping residents facing hardships and people disproportionately impacted by the pandemic – too often people of color – with both short-term emergency housing support and longer- term economic stability and mobility initiatives.
Four homes were bought to add to our stock of affordable housing.
Rapid antigen tests were purchased.
Ventilation systems were improved.
Chromebooks were provided to students.
We supported our littles ones as they emerged from the isolation of the pandemic with a much larger, fully renovated Children’s Room at the Newton Free Library.
A new community garden is fast taking shape on the north side of the City.
Trails were improved and trails and playgrounds became more accessible.
Athletic fields were improved with lighting.
More trees were cared for, something that proved particularly timely with the extreme drought we’ve been through this summer.
Our employees received stipends for their extraordinary service during the pandemic.
Roads were repaired.
Artists were supported.
A new Senior Center was designed and additional green space for the users and the Newtonville community was acquired.
We moved forward with architects to rebuild, renovate or improve four elementary schools – Countryside, Lincoln-Eliot, Horace-Mann and Franklin.

Please see the full list of the ARPA investments on the City website here.

The American Rescue Plan Act, ARPA, funds were a huge help but the $63.5M Newton received did not even make up the total lost revenue the City experienced from the pandemic.

Tax Overlay Fund

Cities and towns must maintain an account to fund anticipated property tax abatement, exemption and receivable exposure for all fiscal years. This is referred to as the “Overlay” account. As part of the annual budget and tax rate process, the Board of Assessors must analyze the balance in the overlay account and determine whether it is adequate to fund anticipated property tax abatements, exemptions and receivables during the upcoming fiscal year in addition to existing abatement, exemption and receivable exposure for all previous fiscal years, including all tax relief and tax deferral programs.

As a general rule, each year the City of Newton sets aside approximately one percent (1%) of the property tax levy for this reserve.

Currently, the City’s Overlay account has a higher balance because of higher than usual potential tax abatements.

More specifically, Eversource has been appealing their assessed value from the City of Newton (as well as Boston, Brookline, Cambridge and Springfield) since FY2012. Eversource has lost cases with Boston and Springfield but had continued to withhold payment and appeal to higher courts. The Board of Assessors have set aside a cumulative amount of $8 million over the last decade for a potential tax abatement, depending on the outcome of the appeal. However, last spring the City received full payment of the principal and interest for Fiscal Years 2013 through 2022 from Eversource totaling approximately $12.7M. As the City already had set aside $8 million in the Overlay fund, $8M of the $12.7M was transferred to Free Cash and is available for investments. The remaining $4.7M from the Eversource payment (as well as the $8M already accumulated in the Overlay Fund) remain until the appeal process is resolved. (The City has kept the $4.7M to pay the interest to Eversource if the appeal is resolved in their favor.)

In other words, Eversource has not withdrawn their appeals against the City of Newton. Therefore, their case continues to move forward. Should Eversource prevail, the City of Newton will be responsible for returning all payments in this case plus interest at the rate of 8% per annum beginning on the date of receipt of their payment. Therefore, the full amount of the Eversource funds in question (now estimated at $14.7 million) must be treated as a liability for the City and must remain reserved in the Overlay account until the appeal is adjudicated.

Why can’t the City just borrow/bond the money it needs?

The City of Newton bonds/borrows the funds needed for capital projects like the Countryside, Franklin, or Horace Mann School projects (which are part of this override proposal) and for the Oak Hill addition, the renovated facility for the Newton Early Childhood Program, the new home for Lincoln Eliot at 150 Jackson Road, and NewCAL (the new Senior Center) which will be paid out of our debt service in our operating budget. These loans must be paid back with interest, and those payments must be made from our operating budget. Without the additional funds from an override, these additional loans would increase the City’s debt to levels that a balanced budget could not cover without threatening our Aaa bond rating, or cutting programs or services to make the loan payments.

What will be the impact on City of Newton revenue from the Millionaires Tax?

“Fair Share/Millionaires Tax” Funds

The Healey/Driscoll Administration has released its budget proposal for Fiscal Year 2024, including the intended uses of the new “Fair Share” Amendment funds passed by state voters increasing taxes on incomes over $1 million. The Fair Share funds are estimated for FY2024 at $1 billion. The Healey/Driscoll budget proposal invests $510 million in education and $490 million in transportation.

The Governor’s proposal does not include any funds in either category, however, that could be used by the City of Newton or the Newton Public Schools in education or transportation.

Education ($510 million)

$140M for child care grants to providers and Pre-K projects
$360M for higher education
$10M for summer early college, workforce, technical and innovation pathways

Transportation ($490 million)

$186M for MBTA capital investments and means tested fares
$100M for highway bridge preservation
$25M for regional transit authority funding and grants
$50M for federal matching funds for state projects
$14M for state roadside maintenance and beautification
$12.5M for Palmer and Pittsfield rail projects
$100M for municipal partnership programs for projects on state Transportation Improvement Program (TIP) list
$2.5M for water transportation

*******

It may also be helpful to know the Healey/Driscoll Administration budget proposals for the key municipal road paving account, below.

Chapter 90 Roads Funds

The Healey/Driscoll Administration’s proposal for Chapter 90, the aid to municipalities for local road repairs, is level funded at $200 million per year for both FY2024 and FY2025 where it has been for many years.

What revenue does the City receive from Cannabis companies?

On December 3, 2018, the City of Newton adopted amendments to its Zoning Ordinance to govern all marijuana establishments and recreational marijuana dispensaries. The Newton Zoning Ordinance requires a Special Permit from the City Council for all marijuana establishments. Marijuana uses are restricted to certain commercial and manufacturing zones and numerous standards and criteria are placed on the different types of marijuana uses. The City of Newton also has a limit of eight (8) marijuana retailers in total, a requirement for a half-mile buffer between all marijuana retailers and dispensaries, and a 500-foot buffer zone for any schools or childcare uses.

Under state law, marijuana establishments and treatment centers are required to execute Host Community Agreements (HCA) with the municipalities in which they operate. The agreement must set forth the responsibilities of the marijuana establishment or dispensary and the community. The HCA may include a community impact fee of up to 3% of gross sales to be paid to the host community, and said payment is limited to a term of five years.

Additionally, the state imposes a tax on the sale of all recreational products. The state shares a total of a 3% tax on the sale of these cannabis products.

In August, 2022, the State passed a comprehensive cannabis regulation law. While the State Cannabis Control Commission is currently deciding on the final regulations to implement based on this law, provisions of the law related to community impact fees make the future of HCA funding coming to cities and towns uncertain. That uncertainty is compounded by the rapid expansion in the number of cannabis stores and the likelihood of an industry shakeout.

The following chart shows the total revenue the City has received through June 30, 2022.

History and Context

When was the last override passed in Newton?

What progress has Newton made since the 2013 override?

Newton successfully completed all the major elements of the 2013 override, including the beautiful rebuilt Zervas, Angier and Cabot Elementary Schools and Fire Headquarters & Fire Station 3 and relocation of the Wires Division, on time and at no additional cost to the taxpayers. Most of the same staff who led this charge are still in place today. The 2013 Operating Override also included $4.5 million for Newton Public Schools, $1 million to accelerate road repair and paving, and $500,000 for 4 new police positions with cruisers and technology. These funds were put immediately to great use in these three categories to address increased needs and deteriorating road conditions.

Why are there so many schools in Newton that need to be renovated or rebuilt?

The United States saw a sharp decline in school building infrastructure investments following the mid-1960's. This was primarily due to the fact that many schools were built in the 1930's during the WPA period, and then again from 1950-1965 in response to the Baby Boom. Once the mid-1960's hit, most of the nation's schools had been built in the previous thirty years, meaning that they were all quite new. Newton followed these nation trends as well. Prior to the Angier, Zervas, and Cabot School projects, 22 of 24 of our school buildings were built between the 1920's and 1960's. The only two exceptions were F.A. Day Middle School built in 1971, and Newton North High School built in 2010. Newton South gets an honorable mention for the modest renovation and addition in 2002. One trap that many cities and towns fell into was that they assumed that new buildings were new and therefore didn't need significant investments in maintenance, when in fact you absolutely must lean in even more to protect your new infrastructure investments.

Then the 1970's hit, and with this came a steady and prolonged increase in the costs of construction that only relented for a period following the 2008 housing bubble collapse. These rising costs led to less investment in building infrastructure around the country, and here in Newton. Aside from some small renovations over the years, most of our buildings saw very little investment from 1970-2010. Many people started to push in the 2000's to conduct a comprehensive building assessment of the school and municipal buildings. Some expressed concerns that conducting these assessments would lead to it becoming clear that significant investments would be needed to "catch up."

Several building assessments were conducted in the 2010's which not surprisingly identified that many, if not most, of our buildings needed significant investments. Those assessments led the way for the 2013 override, the Angier, Zervas, and Cabot Projects, and they continue to guide our capital planning efforts today.

How often does Newton pass overrides?

How does Newton compare with other communities on overrides?

Peer communities have levied more taxes through overrides. According to the Department of Local Services, since 1990, 301 Massachusetts communities have passed 1,801 overrides. This means that the average community has passed 3 times as many overrides as Newton. Looking at a few of our neighboring communities, since 2000 there have been 5 years in which Brookline has passed overrides, 9 years for Lexington, 11 years for Needham, and 14 years for Wellesley.

How do our property taxes compare with other communities?

Newton’s property tax rates are well below the median property tax rate per $1,000 of assessed value (in other words: an “apples to apples” comparison with other communities). According to the Massachusetts Department of Local Services, Newton’s residential tax rate for 2022 was $10.52, making Newton the 53^rd lowest out of 351 communities, putting it in the lowest 15% for residential tax rates by assessed value.

If Newton’s tax rate is low, why are my taxes higher than property owners in some other communities?

Newton’s property tax rate is very low compared with other Massachusetts communities – in fact, our residential tax rate is in the lowest 15% of communities. Newton’s homes are, however, very valuable. The median home price in Newton is now just over $1.2 million. People want to move to Newton because of our excellent schools, wonderful neighbors and neighborhoods, and excellent services ̶ all in close proximity to Boston. The real estate market here in Newton is very attractive, and that results in continued growth in home values. That means Newton homeowners might still pay what seems like “high taxes.” A low tax rate applied to a very valuable property results in what seems like a big bill. In FY2021, Newton’s average tax bill was $13,386 which ranked 17^th in the Commonwealth for single family properties but below area communities like Brookline ($20,492), Wellesley ($16,889), Belmont ($15,568), Lexington ($16,613), and Weston ($22,766).

STILL HAVE QUESTIONS?

Please email us at override@newtonma.gov.

Conditions are dangerous for brush and outdoor fires

City of Newton, MA

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