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1. Liana

2. Sehrish

3. Judy

4. Mike

5. Dustin

6. Kirsten

7. Anthony S

• jburtonrider ??• belgarth7 ??

FY2012 MA Local Aid

“The fiscal year 2012 budget continues the Patrick-Murray Administration’s unprecedented support for cities and towns. The Administration’s approach to fiscal year 2012 continues to give cities and towns tools they need to manage costs, with the overarching goal of preserving local services for residents and taxpayers.”

Gov. Deval Patrick

FY2012 MA Local AidRepresents 16% of the Commonwealth’s annual budget 

In FY 2012, total local aid programs account for $5.05 billion

• The FY 2012 Ch 70 funding is $3.99 billion, $140 million increase over FY 2011

• Funding for the special education circuit breaker, which goes directly to municipalities, increases by $80 million from fiscal year 2011 to fiscal year 2012

• Increasing Chapter 90 Local Road Program funding for fiscal year 2012 to $200 million, $45 million more than FY 2011

• Level funding of State Owned Land, Regional School Transportation, Charter School Reimbursements, Library Aid, Veterans’ Benefits & Tax Reimbursements

• Unrestricted General Government Aid will be funded at $833.9 million in FY 2012, while a $65 million reduction from FY 2011, $10 million from this reduction will be used to support a competitive grant program to drive regionalization and other efficiency initiatives as well as a performance management

FY2012 MA Local Aid

Chapter 70 Payments to Cities and Towns

For school aid to cities, towns, regional school districts, counties maintaining agricultural schools and independent vocational /agricultural and technical schools to be distributed under section 3 of this act

• FY2011 $3,851,193,043 • FY2012 $3,990,519,337 (proposed)

FY2012 Lawrence Local Aid

FY2012 Lowell Local Aid

FY2012 Chelmsford Local Aid

Capital Budgeting

57.508-201

The Budget as a Policy, Planning and Information ToolWeek 4 - Spring 2011

Operating vs. Capital Budget

• Items and materials to be consumed

• Useful life >3 years

• Costs over $5000 - $10,000 (or more)

• Based on size and complexity of the entity

• Capital equipment, facilities, infrastructure

• Investments for community development

• Should be based on strategic plan

Relationship to Operating Budget

• Must be fiscally constrained

• CIP should match capital needs with financial ability to pay

• Completion of capital projects will impact operating budget

• Completed projects often require maintenance and upkeep

• May require additional utilities like electricity, water, fuel

• Impacts of capital projects on the annual operating budget should be estimated and noted in the CIP

• Debt service

Capital Projects

• Acquisition of a long lasting physical asset or facility• Expenditure on equipment or facility that will provide

benefit for many years• Investment for community, neighborhood or economic

development• Real estate, infrastructure, roads, bridges, etc.• Normally “stationary” in nature• But may include large research or consulting projects

Capital Projects

What is a Capital Improvement Program (CIP) Project? 

CIP projects include, but are not limited to, the construction, purchase, or renovation of buildings or other physical structures or property and all associated engineering and design work, equipment, vehicles, and/or major consulting services projects, surveys and studies. A capital improvement generally has a useful life of 5years. It also provides one of the following two elements: has a cost of approximately $5000 or more, or satisfies the functionality of a capital asset. In most cases, a capital improvement is not a recurring capital outlay item or a maintenance expense.

Types of Projects• Assets for organization’s own use

– Office buildings, schools, libraries– Equipment, trucks, busses

• Investments in facilities that enhance development– Sewer & water systems– Downtown amenities– Convention centers or sports arenas

• Intangibles– Research projects– Consulting or engineering studies for major projects

Major Projects

Cost items chargeable to a capital project• Architectural and engineering design

• Legal services related to the project

• Acquisition of land or other property including brokerage fees

• Preparation of land for construction and landscaping during or after

• Easements related to the project

• Construction labor and materials

• Equipment and furnishings that are affixed to the project

• Initial inventory of movable furnishings and equipment

• Interest and other financing charges during construction

• Construction management and contract monitoring costs

From ICMA

Typical Issues

• Capital investing often deferred– Combined infrastructure deficit = $3.2 trillion– $1 trillion estimated for sewer & water alone

• Pay now vs. pay later

• Short term political decision making

• Used as a ruse to reduce operating budget

• Classification of purchases

Elements of the C I P

• Inventory of capital assets

• Process to develop the plan

• Sort and long range (multi-year) projects

• Budgets from the CIP

• Financial component of the CIP (bonding)

• Implementation plan and schedule

CIP Process• Adopt a CIP Bylaw • Appoint a CIP Committee• Prepare an Inventory of Existing Facilities • Determine the Status of Previously Approved Projects • Assess the Town's Financial Capacity• Solicit, Compile and Evaluate Project Requests • Establish Project Priority• Develop a CIP Financing Plan• Adopt a Capital Improvements Program• Monitor Approved Projects • Update Capital Programs

C I P Requirements

• Should be based on a comprehensive plan

• Should have asset inventory data base

• Should have public input and review

• Should have 5 year, 10 year & 20 year ranges

• Should have evaluation criteria

• Should be ranked in priority order

• Should have financing strategy in place

Evaluation Criteria

• Degree of urgency

• Benefits to be derived

• Cost and financial impact

• Value to the local constituency

Evaluation Criterion

What is the payback period?

• “How long does it take to get our money back?” (The number of years required to recover a project’s cost)

• Calculated by adding project’s revenues to its capital cost until the cash flow for the project turns positive

Sample Evaluation Criteria• Project is necessary to correct a dangerous and/or blighting condition • Project is necessary to protect public health and safety • Project is necessary to implement a priority housing project • Project is necessary to implement a priority economic development project• Project directly supports priority City programs• City funding will leverage other fund sources • Funds will be spent in the budget year • Project fulfills a state or federal mandate • Project fulfills an approved, prior commitment of city funds • Project promotes joint use of public facilities among city agencies • Project promotes public - private partnership• Adequate project details and justification have been provided • Agency has fully utilized previous appropriations for approved purposes

Program vs. Budget• Annual / current inventory of capital assets

• Process / CIP committee to develop the plan

• An assessment of financial capacity– Capital budgets come from the CIP – Financial component of the CIP

• Procedure to solicit, compile and evaluate project requests

• Procedure to establish project priority

• Implementation plan and schedule

• Develop a specific CIP Financing Plan

• Adopt the CIP by vote of the policy board

• Monitor Approved Projects

Program vs. Budget

“Once capital planning is in place, the GFOA recommends that governments prepare and adopt a formal capital budget as part of their annual or biennial operating budget process. This entails two main steps: (1) preparing and adopting the capital budget, which outlines the type of information that should be found in a capital budget, including definition of capital expenditures, capital project summary information, scope of projects, completion schedules, project costs, funding sources, and other analytical information used to make decisions; and (2) reporting on the capital budget, which is often overlooked in financial policies on capital budgeting and planning.”

Timetable

Nashua Capital Budgeting

• Sophisticated process

• Annual capital budgets from 5-10 yr CIP

• Starts with requests from departments

• Organized by planning board & staff

• Submitted to mayor

• Approved by board of aldermen

(see: General Obligation Capital Improvement Bond Statement)

Lowell Capital Budgeting

Establishing Needs, Prioritizing & Funding

Lawrence Capital Budgeting

?

Sunnyvale Capital Budgeting

And the winner is…

MA Capital Budgeting

MA Capital Budgeting

MA Capital Budgeting

Paying for Capital Projects

57.508-201

The Budget as a Policy, Planning and Information ToolWeek 4 - Spring 2011

Financial Components

• Fiscal feasibility of funding the projects

• Level of operating expenditures

• Potential for project to generate revenue

• Potential for project to reduce operating cost

• Grants or cost sharing possible

• Debt carrying capacity

• Bond rating

• Debt management

Financing Options

• “Pay-As-You-Go”

• General Obligation Bond

• Bond Anticipation Notes

• Revenue Bond

• Installment Sales

• Impact Fees

• Intergovernmental Revenues

“Pay-As-You-Go”

• Many public entities have “capital projects funds”

• Many also have enterprise fund (e.g., sewer, solid waste)

• Starts with appropriations made in annual operating budget

• Investment income generated

General Obligation Bond

• Public entity may borrow money pledging the “full faith and credit” to repay the loan

• Sometimes requires voter approval

• Cities generally sell G. O. bonds once a year

• General obligation debt managed through the use of bond anticipation notes

Bond Anticipation Notes

• Means of acquiring short term or interim financing

• Use of BANs common for public entities that wish to generate funding for an upcoming project and plan on issuing bonds that will cover the expenses over the long term

• Later repaid by the issuance of G.O. bonds

• Portion of the proceeds gained from the sale of the bonds go to repay the BANs

Revenue Bond

• Public entity may borrow money pledging the revenues generated from the projects to repay the debt

• Revenue bonds do not require voter approval

• Like general obligation bonds, revenue bonds sold once a year

Installment Sales

• Called “Certificates of Participation”

• Contract for a building or for equipment using that building or equipment to secure the financing

• Similar to a mortgage transaction

• City does not pledge the use of its taxing power to pay

• Local governing board must approve the use of each contract

Impact Fees

• One-time charges levied against new development

• Based on the impact on community infrastructure

• Used for a proportionate cost of needed improvements made necessary by new construction

• Cannot be used for routine or periodic maintenance

• Cannot be used where not related to new development

Intergovernmental Revenues

• Funding from county, state or federal governments

• Revolving loan fund for wastewater treatment plants

• Funding for transportation and transit-related improvements

• Stimulus funds

Debt Management• Short-term borrowing

– Tax anticipation notes– Bond anticipation notes– Revenue anticipation notes

• Long-term debt– Bonding for capital equipment and facilities– G.O. bonds (general obligation)

– Revenue bonds– Wide variety of debt vehicles

Borrowing Process

• Origination Phase– Determination of need– Willingness and ability to borrow

• Underwriting– Credit rating firm establishes rate of interest– Underwriters purchases the bonds

• Distribution– Primary (new issues) and secondary markets– Dealers buy/sell/trade with investors (tax exempt bonds)

Underwriters

Bond Rating

• Bond ratings assign the credit risk

• While many factors go into the investment decision making process, the bond rating is the single most important factor affecting the interest cost on bonds

• Three major rating agencies for municipal bonds Moody's Investors Service Standard & Poor's Fitch Ratings

Moody’s Bond Ratings• "Aaa" - Judged to be of the best quality. They carry the smallest degree of

investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure.

• "Aa" - Judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa.

• "A" – Judged to possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.

• "Baa" - Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.  

Rating Criteria

• Economic conditions

• Debt structure

• Government’s financial condition

• Demographic factors

• Management practices

• Mathematical ratios used to compare communities

Local Bond Ratings

Moody’s

• Nashua Aaa• Chelmsford Aa2• Lowell A1• Springfield A2• Lawrence Baa1

Big City Bond Ratings

Moody’s

• Boston Aaa• New York Aa2• St. Louis Aa3• Cleveland A1• Detroit Ba3

NE State Bond Ratings

Moody’s

• Vermont Aaa

• Maine Aa2

• Massachusetts Aa1

• New Hampshire Aa1

• Connecticut Aa3

• Rhode Island Aa3 (negative)

State Bond Ratings

S&P gives California the lowest: A

Moody’s gives Lousiana the lowest: A2

“This week, when Moody’s Investors Service changed California’s credit worthiness from A+ to a flat A, a $6.5 billion dollar bond issue cost taxpayers an additional $213 million in interest and insurance.”

Springfield’s Bond Rating

STANDARD AND POOR’S GIVES SPRINGFIELD A BOND UPGRADE

The City received word today that Standard and Poor’s has given it a full level upgrade with a stable outlook.  “This is terrific news for the City of Springfield,” said Mayor Sarno.  “This will translate into significant cost savings for the City moving forward which is increasingly important as our City continues to deal with its current financial situation.”

Prior to the upgrade, the City had a bond rating of BBB.  It was only a short time ago that the City was dealing with junk bond status.  The City is still awaiting word from Moody’s on their bond rating decision and expects that in the coming days.

Not Just for Cities

September 22--LOWELL, MA –

Lowell General Hospital has received a vote of confidence from Moody’s Investor Services.

Moody’s, an independent provider of credit ratings, has upgraded Lowell General’s outlook from stable to positive. Moody's also affirmed the hospital’s Baa1 long-term rating.

“The positive rating outlook reflects our expectation for steady volume and operating performance trends, with maintenance of a healthy balance sheet cushion to debt and operations,” Moody’s said in its report.

Philosophy of Public Debt

• Borrowing is an alternative way of paying for projects and facilities that will benefit residents in the long term

• It is nearly impossible to tax or charge future residents so it is convenient to schedule those payments over time

• As a critical mechanism for future planning, government borrowing at the local level has become much more complex over the past 30 years

• Where governments used to issue mostly G.O. bonds or simple revenue bonds, they now rely on literally dozens of different financial instruments and private equity financing

Major Issue with Devolution

While the gross dollar figure has risen each year, federal aid as a percentage of state & local revenues has declined since 1980

• 1980 = 27%• 2007 = 17%• 2012 = 9% ??

Devolution means shifting or transferring power

Devolution has meant reduction in federal aid

More Local Public Spending

“The reduction of federal subsidies for basic welfare provision in the United States is so well documented that it is hardly worth repeating. Localities are now left with the responsibility of either making up the shortfall or abandoning the welfare state themselves.”

Jason Hackworth   The Neoliberal City University of Toronto

More Local Public Debt

“First, the governing turn away from federally organized Keynesianism has transferred certain responsibilities to localities that are often funded with debt. Localities are thus more reliant on capital markets and the decisions that determine their access to such markets.”

Jason Hackworth  

The Neoliberal City

University of Toronto

Massachusetts Public Debt

• 1st in the nation in debt per capita

• 2nd in net tax-supported debt as % of personal income

• 3rd in the nation in total outstanding debt

• 4th in total net tax-supported debt

• 49th out of 50 states in terms of local debt as % of total

• Includes debt issued by the Massachusetts School Building Authority, MBTA, Turnpike Authority

Public Debt Limits

• Constitutional vs. Statutory vs. Executive

• Debt limits exist that impose a ceiling on the amount of debt that local government can incur

• Debt limits for local governments are commonly % of the average full valuation of its taxable property

• Debt limits for school districts also a % of the full valuation

• Debt issued for single purpose authorities (water supply, turnpikes) often excluded from the debt limit

More Financial Hurdles

“Second, an increased presence of institutional investors in the municipal bond market has strengthened the investment-grade threshold because such investors are legally prohibited from holding a high percentage of speculative securities. Localities with speculative-grade debt are less able to sell their bonds than before.”

Jason Hackworth   The Neoliberal City University of Toronto

Less “Local” Public Debt

“Third, commercial banks and locally–based lenders, which used to lend more frequently to cities (based on their own market research), are less involved in municipal debt markets than ever before.”

Jason Hackworth  

The Neoliberal City

University of Toronto

Most Influential Force…

“… bond rating firms such as Moody’s Investor Service and Standard and Poors are perhaps the single most influential force in determining the quantity, quality and geography of local investment in the developed world.”

Jason Hackworth  

The Neoliberal City

University of Toronto