Finance Committee Wary Of Using Reserves To Reduce Amount Of Debt Exclusion Override

Report On The Meeting Of The Amherst Finance Committee, February 28, 2023

The meeting was held over Zoom and was recorded. The recording can be viewed here.

Present
Andy Steinberg (Chair, at large), Cathy Schoen (District 1), Lynn Griesemer (District 2), Ana Devlin Gauthier (District 5), Ellisha Walker (at large)

Non-voting Community Members: Bob Hegner. Absent: Matt Halloway and Bernie Kubiak

Staff: Sean Mangano (Finance Director), Paul Bockelman (Town Manager), Athena O’Keeffe (Clerk of Council)

Public Comment
Toni Cunningham spoke in favor of both motions on the agenda to use the some of the town’s capital reserves to reduce the size of the burden on taxpayers. She said that the two motions achieve different things, and she supports both. 

Elementary School Building Project Debt Authorization
The bulk of the meeting was devoted to debating and voting on the two motions on the agenda to reduce the amount of the debt exclusion override.

A motion by Ellisha Walker proposed taking $10 million from town reserves to reduce the override by that amount, that is, from an anticipated $55 million in borrowing to $45 million. Walker prefaced her motion with a passionate speech, reminding her colleagues that there are a substantial number of Amherst residents who will experience hardship as a result of this borrowing and subsequent tax increase, and that the government has an obligation to address that hardship. Walker, like Cunningham before her, noted that the two motions were complementary and that she supported both. She implored her colleagues three times to address the needs of Amherst’s most vulnerable residents and was rebuffed each time. Walker’s motion failed 1-4, with Walker being the only vote in favor.

A motion by Cathy Schoen proposed to use $5 million of town reserves to pay for the initial costs of geothermal and photovoltaic systems, with the expectation that those funds would be restored to the reserves when the town receives anticipated energy credits for those systems. That draw on reserves would reduce the amount of borrowing for the school by $5 million. The motion, with slight revisions (see below), passed unanimously (5-0) and will be forwarded to the full Town Council for their approval.,

Prior to introduction of the motions, the Finance Committee reviewed questions that it had solicited from the public concerning the debt authorization for the Elementary School Building Project and chose to take up two at this meeting. Those are listed below along with Finance Director Sean Mangano’s responses. The complete memo with all nine questions and answers can be found here.

Q. How would a $1 million reduction in the amount of debt to be repaid from the debt exclusion impact the average single family household? 

A. A $1 million reduction in the amount of debt to be repaid from a debt exclusion could be achieved by further reductions to project costs or by identifying alternative funding sources. Each $1 million reduction reduces principal and interest payments by approx. $60,000 per year based on current assumptions of a 4.0% interest rate and a thirty-year repayment term. The annual impact on the average value single family home is a savings of approx. $9 per year for each $1 million reduction in debt or in other words, the average single family home impact of $478 would drop to $469.

Q.. Provide an update on the four-building project model and how these new figures and possible use of reserves impact the model? 

A. The last presentation on planning for the four building projects was October 18, 2022 at the Finance Committee. 

In a period of rising construction costs and high interest rates, model number three appears the most viable. Model number three maintains the stated funding for the Jones Library of $15.8 million. It assumes a debt exclusion for the new elementary school and use of capital stabilization funds to pay for the fire station without debt. The public works facility will move forward as soon as there is sufficient capacity in the capital budget. The anticipated impacts of the debt exclusion are lower now than back in October as the town share has come down to approximately $53 million. 

If capital stabilization funds are used to reduce the amount to be borrowed further, it will delay the fire station project for an undetermined amount of time. One approach to offset possible delays is a policy that dedicates energy related tax credit payments to the capital stabilization fund. The tax credit program is new for municipalities so more exploration is needed to verify this approach. If allowable, this approach will help offset the use of reserves for the new school and possibly accelerate the Fire Department project. 

Mangano added that the town would need to build that fund up to about $20 million in order to be able to build the fire station without incurring debt.

Ana Devlin Gauthier asked what the town will do with the energy credits that come back. Mangano replied that the best option is to put them back into the capital stabilization fund to recoup those expenses to help finance the other cap projects.

Motions To Use Reserve Funds To Reduce The Amount Of The Debt Exclusion Override
Chair Andy Steinberg asked Walker not to put her motion on the floor, and instead to just talk about it. (The motion was in the packet). Walker replied that her prepared remarks were in the form of a motion, and she didn’t understand why she shouldn’t just make the motion. She said that her motion and Schoen’s motion were complementary and that the committee ought to consider adopting both and emphasized her conviction that they are not in competition. She introduced her motion to use $10 million from Amherst’s reserves to reduce the amount of borrowing for the school by that amount and hence reduce the tax burden on Amherst residents. She offered an explanation for why such a reduction was needed and how it was possible without hurting the overall capital plan.

“This is what the reserves are for. We need a new elementary school building AND our residents need to continue to be able to live in this town.”

Town Councilor Ellisha Walker (at large)

Walker pointed out that there are a large number of Amherst residents who are already struggling financially and may not be able to pay the added burden that will be brought with the override, on top of the annual 2.5% regular property tax increase and substantial anticipated increases in water, sewer, and electric bills. She reported that 10% of all families in Amherst live below the poverty line, as do 17% of families in Amherst with a single female head of household, 15% of multi-racial families in Amherst, and 21% of Black families in Amherst. She emphasized that without relief for our most needy residents, building the new school is not a social justice project, as it has been described by some people. She asked, emphatically, “Who are we building this school for? This failure to address pressing needs of town residents is the reason that our enrollments are declining. The combined motions would provide significant relief for individuals and families. Lowering the debt exclusion override from $55 million to $45 million represents an 18% lower impact to individuals and families; $40 million [by also adopting Schoen’s motion] would be 27% less.” She continued, “That is substantial to our residents, particularly those least able to afford this and other tax increases and other upcoming fee increases. Approximately $90 to $135 per year pays for a lot of necessary items for those who are not wealthy. This is what the reserves are for. We need a new elementary school building AND our residents need to continue to be able to live in this town. This motion will bring them a little bit of relief,” she said.

“By definition 37% of the youth in this community on a daily basis do not have access to enough money to pay for food, clothing, and shelter. And here we are as elected officials representing the needs of our community in a discussion to bring forward a project that will raise taxes (beyond the regular 2.5%) for the next 30 years as if it’s an insignificant, small ask.”

Town Councilor Ellisha Walker (At large)

Walker argued that her proposal was fiscally sound, with current total reserves of the town at approximately $24 million, including almost $10 million in a new Capital Reserves Account. Using $10 million would still leave $14 million in reserves, or 16% of operating revenues, which would keep the town within its targeted range. Neighboring towns have lower reserves (between 4 and 9%), with the same AA rating as Amherst. Looking at the capital spending plan, the capital reserves would be expected to increase again before the next project is ready for construction.

“I’ve heard this project touted as a social justice project because of the high percentage of minority and low-income youth that are enrolled in our school systems,” she said. “According to the Massachusetts Department of Elementary and Secondary Education, in this current school year, 37% of our elementary school students come from low-income families. We are discussing the funding of a school building for an estimated 575 students where a large portion of those children live in poverty. And I just want to talk about what that means for a minute. By definition, poverty is about not having enough money to meet basic needs including food, clothing, and shelter. By definition 37% of the youth in this community on a daily basis do not have access to enough money to pay for food, clothing, and shelter. And here we are as elected officials representing the needs of our community in discussion to bring forward a project that will raise taxes for the next 30 years as if it’s an insignificant, small ask.

“Maybe [it is small] for those who have enough privilege to measure the increase in the absence of a morning coffee or latte. That is not the reality for many residents. Without a substantial amount of relief for these residents, this is not a social justice project. And so let’s not forget that social justice doesn’t solely encompass education [and the physical spaces in which students are educated], it’s also about economic equity and its accessibility. 

“I have lived in Amherst since 1993. I have seen low-income families come and go over the years due to expenses in this town mostly related to housing and housing instability. And so I wonder who we are really building this school for? These are the same economic disparities and discriminatory practices that have been causing our enrollment decline over the years.”

She concluded, “I present this motion to you all today with the hopes that our town leadership will make this commitment to show up for our entire community.”

Discussion OF The Walker Motio
Devlin Gauthier said that she was sympathetic with the intent of the motion, but did not believe that the town could afford to allocate reserve funds to the school project. She said that the fire station and the DPW are slated to cost $20 million and $30 million respectively and “we can’t afford to take money away from the future to make things a bit easier now.” She did not mention costs associated with the Jones Library expansion project.

Griesemer thanked Walker for “giving voice to a segment of town that’s important and might benefit from her suggestion”. But she said that she supports Devlin Gauthier’s concern about the other capital projects and “not unfairly burdening future generations”. Griesemer noted that her district (District 2) suffers from roads that are in an extreme state of disrepair and argued that roads, too, “are a social justice issue because roads determine whether you can get to where you need to go”. She suggested that some residents of her district risk losing access to fire and ambulance services because of the neglected roads. She further said that a BIPOC teen center may never get built “if we spend the reserves on the school”. She concluded, “I’m not sure this is the way to solve that problem.”

Walker acknowledged the urgent need to complete the DPW and fire station projects, but said that her proposal does not undermine those projects. Rather, she said,  ”it means we need to think differently about how we will build them”. 

She added, “Passing this motion does not mean that ambulances and fire won’t come to your house as Lynn [Griesemer] suggested. Those are future projects. The school is happening right now, and we need to talk about how it will go forward right now. Given that fire and DPW will not come before us for a few years, we will have time to consider them. This is not the time to set projects against each other. This is a no-brainer for me. The town needs to re-evaluate its priorities and how it values the people who live here.”

Devlin Gauthier argued that we need to know the impact of drawing down the reserves on future capital projects right now, and without answers to that question she’s not comfortable with saying we’ll figure it out up the road. “I don’t think it’s saying we’re putting the projects against each other. We have a framework for funding all four and we need to use those funds as they were intended. I’m open to hearing a viable alternative.”

Steinberg warned that building reserves up is “a slow process” and that a big draw would take a long time to replenish. He also said that “you can’t necessarily attribute the decline in Amherst school enrollments to the town becoming unaffordable”, pointing out that there’s also been a public school enrollment decline across the Commonwealth. “These are demographic trends and not necessarily indicative of fiscal conditions. We’re talking about having to know about how these projects are going to play out in the years to come.”

“How come we didn’t do that — figure out how our most vulnerable residents would deal with these increasingly tough circumstances [in the years to come]? The changes we’re talking about may completely change their lives. Why hasn’t that been part of the discussion, part of the planning? “Why are we seeking a solution to funding the DPW up the road, but no solution for the folks who are very much in need, which is much more immediate?”

Town Councilor Ellisha Walker (at large)

Walker asked, “How come we didn’t do that — figure out how our most vulnerable residents would deal with these increasingly tough circumstances [in the years to come]? The changes we’re talking about may completely change their lives. Why hasn’t that been part of the discussion, part of the planning?”   She asked, “Why are we seeking a solution to funding the DPW up the road, but no solution for the folks who are very much in need, which is much more immediate?”

Griesemer then lectured Walker on all of the planning that went into how to pay for the four major capital projects, saying that she’s been involved with planning for all of them since 2006. “Twenty years of planning!” she exclaimed,  “we’ve been looking for ways to pay for [these], and each year the cost keeps going up. Now we have a plan that allows us to do these four projects in five to  six years, or now maybe 10 to 15 years, but we can do them. We’ve been working hard to get as much funding in as possible.”

But she did not answer Walker’s question about what planning the town has done to anticipate the impacts of increasing taxes so much on the town’s most vulnerable residents.

Schoen pointed out that with her motion (to use $5 million from the reserves), the amount would be paid back into the reserves  “quickly”, when the town receives energy credits for  energy efficiencies in construction, and hence poses less of a risk to the reserves than Walker’s motion.

Devlin Gauthier wondered whether a $10 million draw might be feasible knowing that as much as $5.4 million in energy credits might come back and that even more might come back from energy credits from the other two capital projects. “How much would we need to get back to not hurt the reserves — how high can we go?” she asked.

Mangano said the goal is to get the capital stabilization fund to $20 million, and cautioned,. “We haven’t seen the rules on energy credits yet, so we’re not sure what kinds of restrictions and limits will be imposed,” although he said there is certainly “a lot of potential there”.

Walker expressed appreciation for all of the previous planning but protested that Amherst’s most vulnerable residents were still being ignored. “What I am asking is, what kind of planning has been done to help the residents who will experience the greatest hardships? Where’s the planning for that?” She pressed on, saying, “My motion is on the floor. My objective is to talk about how to help residents who are greatly disadvantaged by the borrowing for the school. There’s been no discussion of that, of the financial hardship and burdens that are experienced on a daily basis by families that live in this town right now.

Steinberg responded that “we’ve been conscious of the impact of a high tax community on segments of the population for a long time, going back to the days of Town Meeting, and for that  reason, we’ve endeavored to avoid overrides and have strived to live within our limits, partly by building up reserves.” He said he feels as if “for a long time, we’ve done the best we can while dealing with difficult circumstances, bringing the lowest level of ‘asks’ possible to our residents, but we can’t avoid the prevailing reality now.” 

Mangano added, “We have to get these buildings built — that has to be the priority.” Griesemer again thanked Walker for her motion and said, “We hear you, Ellisha.”

The motion failed 1-4 with only Walker voting in support. Non-voting member Hegner did not support the motion either.

Discussion Of Schoen’s Motion
Schoen introduced her motion to use $5 million of reserves to pay for the initial costs of geothermal and photovoltaic systems with the expectation that those funds would be restored to the reserves when the town receives anticipated energy credits for those systems. She noted that she did not receive guidance from the Clerk of Council in drafting her motion as did Walker, and hence the motion might not be as well-worded as it needs to be.

Schoen suggested that, since we do not know exactly how much money will be available to the town in energy tax credits, the motion should instruct the town manager to allocate from $0 to $5 million of reserves to reduce the amount of borrowing, and not more than will be available in tax credits and “what we can reasonably assume that we will be able to get back”. Town Manager Paul Bockelman pointed out that it would be difficult for him to implement such an imprecise directive and recommended that the committee act on the original motion to allocate $5 million.

There was very little discussion of the motion, other than to emphasize that it allowed a reduction of the total amount of borrowing with an expectation that the amount used would be restored to the reserves relatively quickly.

The final wording of the motion was, as follows, a recommendation That the Town Council request the Town Manager to allocate $5 million of the capital stabilization fund to the new elementary school building project to support the initial costs of geothermal and photovoltaic systems, contingent on a positive vote for the school project on May 2.

An accompanying motion stated that as the town receives those credits, they must go back into the capital stabilization fund.

The main motion and its accompanying motion passed unanimously (5-0) with non-voting member Hegner supporting. Those recommendations will now be passed on to the full Town Council for approval.