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Home My WebLink AboutFY2018 Budget Message - Final w Appendices Town of Nantucket Fiscal Year 2018 Budget Message As of December 9, 2016 Endorsed/Revised by the Board of Selectmen on [insert date], 2016 Page 1 TABLE OF CONTENTS SECTION I – Introduction…………………………………………………....pg.3 SECTION II – Overview of FY2018 General Fund Budget..………………...pg.5 A. Projected FY2018 General Fund Revenue B. Projected FY2018 General Fund Expenses C. Future Year Considerations D. Other Recommendations SECTION III – Conclusion……………………..…………………………….pg.13 APPENDICES A. S&P Global Credit Rating Report October 12, 2016.……..….pg.15 B. Moody’s Credit Rating Report, October 11, 2016...………….pg.22 C. State of the Economy………………………………………....pg.30 The Conference Board Economic Forecast for the U.S. Economy, The Conference Board, November 9, 2016 D. The Muni Watch – Economic data dashboard………………...pg.31 E. FY2018 General Fund Revenue Breakdown…………..……...pg.32 F. FY2018 General Fund Expenditure Breakdown………..…….pg.33 G. FY2018 Expense Increase Request List…….………………...pg.34 H. New Growth and Local Revenues…………………………….pg.36 I. Other Postemployment Benefits (OPEB) Trust Fund………...pg.37 J. Stabilization and Reserve Funds..…………………………….pg.38 K. Free Cash and Unused Levy Capacity……….……………….pg.39 L. Enterprise Funds Subsidies and Retained Earnings..…………pg.40 • Our Island Home • Solid Waste Enterprise Fund M. General Fund Debt Service Schedule…………………………pg.41 N. List of Collective Bargaining Agreements……………………pg.42 O. Nantucket Facilities Assessment, LLB Architects, June 2015 • Link: http://www.nantucket-ma.gov/DocumentCenter/Home/View/10819 P. Town of Nantucket Financial Policies • Link: http://www.nantucket-ma.gov/186/Financial-Policies Page 2 I – Introduction The Town ended FY2016 in a strong financial position and preliminary results for FY2017 are positive overall. Going into FY2018, although we remain confident, we are monitoring a number of economic and financial indicators, some of which are showing signs of leveling off. The following is evidence the Town’s financial condition is and will remain secure: » We increased reserves by establishing a Capital Projects Reserve Fund at the 2015 Annual Town Meeting, with an initial appropriation of $1,000,000 followed by an appropriation of $250,000 at the 2016 ATM. The current balance represents 1.5% of expenditures while the target is 3%; » The Town’s bond rating was reaffirmed at Aa1 by Moody’s Investor Services in October of 2016 (Appendix B). The Town also received an initial rating of Aa+ from S&P Global (Appendix A). These bond ratings are one level below the highest bond rating issued by each of the rating agencies. The benefits of these high ratings include the opportunity to borrow at lower interest rates; » Free Cash for use in FY2017 and FY2018 was certified by the Department of Revenue on October 17, 2016 in the amount of $6,642,219. Free Cash is only used for non-recurring items; » The Stabilization Fund remains strong with a current balance of $5,044,554 (Appendix I). A best management practice is to have reserves that are 10% of the budget. Using an approximate budget of $85,000,000, the Stabilization Fund balance is approximately 6%. However, when we account for the Free Cash (undesignated reserves) balance of $6,642,219, the reserve amount exceeds the best management practice guideline (Appendix K); » Short-term and long-term capital project planning continued and the Town rolled out Plan-it, a capital project management software. The software is helping the Town produce a more uniform and consistent plan that is accessible to all departments; » Increased focus on Town infrastructure continues. Projects have been identified in the Facilities Assessment Report finalized in June, 2015 (Appendix O) and the Town has acquired software to assist with the tracking of maintenance, repairs, and capital planning needs. » Local receipts including meals excise tax and room occupancy tax revenues remain stable after a strong growth period in the aftermath of the Financial Crisis of 2007-2008. New growth continues to exceed the historical average, coming in 11% or $130,595 over the amount certified in FY2016 (Appendix H). This year we introduced the Muni Watch, a quarterly dashboard to help monitor trends in local receipts as well as local and national indicators (see Appendix D); » On November 16, 2016, the Board of Selectmen adopted revised financial policies, which emphasize conservative forecasting and stringent budget management, are the framework for continued financial stability for the Town. The crafting of these policies was made possible by a grant received as part of Page 3 a Community Compact Cabinet agreement with the Commonwealth, which was signed in 2015 (Appendix P); » Between 2013 and 2016, the Town funded $1,750,000 in the OPEB Trust (Other Post Employment Benefits) and there continues to be an annual appropriation of $500,000 per year to help fund the liability (Appendix I). » The Town continues to make its annual required funding to the Barnstable County Retirement System. When compared to the rest of the Commonwealth’s municipalities, Nantucket remains in the top half in terms of retirement funding levels. While local economic conditions are stable, we need to be cognizant of national economic indicators as well, including the monthly labor report, weekly report on first-time unemployment claims, consumer goods and materials report, and the monthly report on national building permits issued by the Conference Board. These seem to be steady for the moment. However, real domestic growth remains below long-term averages and there is still uncertainty in the future of interest rate levels set by the Federal Reserve monetary police (Appendix C). At the local level, the Town faces a balancing act between the increasing demands of a growing island, rising costs and financial flexibility. The growing needs of the community are putting pressure on the Town’s ability to remain below the levy limit for FY2018. Each year, we are challenged to not only present a balanced budget but a plan of service for the community that must acknowledge that all requests and competing needs cannot be met to the degree desired by individual groups and departments. This year we find ourselves especially challenged by the effects of the recent growth period on the island, which are straining Town resources. Fixed costs are always increasing, especially those of employee benefits, service contracts, insurance and (generally) utilities. Health insurance is particularly problematic, with state and federal requirements that leave municipalities with few options to address rising costs. For FY2018, the Town’s levy capacity for FY2018 will allow for funding of fixed obligations and annual appropriations, as well as a limited number level of additional expense increases that meet goals and priorities of the Board of Selectmen and Town Administration. Page 4 A SECTION I A. Proje As noted ea were consi taxes, mea half of FY2 are showin in FY2017 monies use Appendix E to the FY2 Local A $2. Moto E $2.4 II - Overvie ected FY201 arlier, local istent increas als taxes, fer 2017, we ar ng signs of s the Airport ed to subsidi E for a detai 017 approve l Receipts - ll Other 7m (3%) or Vehicle Excise 4m (3%) R ew of FY201 18 General F economic re ses in all are rry embarkat e seeing inc tabilizing. A has embark ze Airport o iled breakdow ed budget. Rooms and M Excise $4.0m (4% 18 General F Fund Revenu evenue indica eas of revenu tion fees and creases in cer Although it w ed on a mult perations fro wn of the FY Meals %) Lice P $1.5 Fund Budge ue ators are sho ues such as: d motor vehic rtain revenu will not be f ti-year paym om FY2012 Y2018 propo enses and Permits 5m (2%) et owing overal new growth cle excise tax ue categories factored in as ment plan for to FY2015, osed Genera Tax R $78.1m State Aid $3.3m (4% ll continued h, building pe xes. As we s while other s a revenue s the “paybac totaling $4,6 al Fund budg Revenue m (84%) d %) strength. In ermits, room near the end rs (room occ source to fun ck” of Gener 611,770. Re get revenue a FY2016 the m occupancy d of the first cupancy tax nd the budge ral Fund efer to as compared ere t x) et, d Page 5 y B. Prop The propose » Tow » Fixe » Cap dep The Town sh year plus 1% below the 1% 12.1 posed FY201 ed FY2018 G wn and Scho ed costs allo - Health I for FY2 - General - Debt Se - Retirem grow by pital of $820 artments for hall spend on % of the total r % minimum, 18 General F General Fund ool salaries an ocated betwe Insurance for 018 Insurance, w rvice, which ment assessme y 8.5% in FY ,000 within r capital impr capital proje real estate an the Town m Fixed Co $27.9m (3 Fund Expens d budget wil nd operation en several ex r active and r which is proj h is establish ent, in the B Y2018 the budget, rovements, p cts a minimu nd personal p may forego th osts 30%) Speci Appropri $10.9m ( ses l fund: nal expenses xpense categ retired empl jected to rem ed by the cu arnstable Co allocated e pursuant to a m of 1% of to property taxes e funding re ial iations (12%) gories includ oyees, which main stable b urrent repaym ounty Retirem qually betw a requiremen otal Town loc s collected in quirement. N Muni Depart $26.4m School Department $28.0m (30% ding: h is projecte between FY2 ment schedul ment System ween the Tow nt of the Tow cal receipts co n the prior fisc Nantucket Tow icipal tments m (28%) t %) d to rise at a 2017 and FY le (Appendix m, which is a wn and Sch wn Code: ollected in the cal year. If lo wn Code Cha a rate of 8.5% Y2018 x M) ssumed to hool e prior fiscal ocal receipts apter 11, § 11 % fall - Page 6 » Special Annual Appropriations allow the following: - Provides $500,000 to the Other Post-Employment Benefits (OPEB) Trust Fund, in accordance with the Town’s OPEB policy. FY2018 will be the 4th consecutive year in which a deposit to this Trust Fund is made. The current balance of the fund through the first quarter of FY2017 was $1,841,213 (Appendix I); - Provides $500,000 to the Reserve Fund (see Appendix J); - Provides subsidies to two Enterprise Funds: Our Island Home ($1,511,446) and Solid Waste ($6,594,930) (see Appendix L); - Provides funding to Health and Human Services, Cherry Sheet charges, the County Assessment and unpaid bills from prior fiscal years » Refer to Appendix F for a detailed breakdown of the FY2018 proposed General Fund expenses as compared to the FY2017 approved budget. Expense Increases Over the past 3-5 years, Nantucket has experienced significant growth and the Town’s scope of responsibility has increased as well. We have taken on initiatives that are beneficial and responsive to needs but these will require additional resources. The service levels the Town maintains have not all kept up with the island’s growth, particularly in areas such as: infrastructure and public building maintenance, project management, events and business license management and monitoring, code enforcement, parking enforcement, expansion of water quality initiatives, workforce housing efforts, etc. The expense increase requests address several of these. Other expense increase requests not specifically listed here will address inflationary cost increases, licensing and permit fees, personnel adjustments, operational issues or necessary equipment replacements. Some of these are “one-time” expenses while others are intended to recur annually. This information as well as the amounts recommended as compared to the original requests is shown on in Appendix G. From a broad perspective, the proposed FY2018 budget will begin or continue to address the following goals and priorities: » Facilities maintenance (buildings, parks, fields, beaches) » Town-wide staffing study to establish plan for departmental personnel needs » Water quality (monitoring; pond management; fertilizer regulations education and enforcement, shellfish propagation facility operation) » Public information mandates (new state public records law going into effect January, 2017) Page 7 » Administrative management improvements (information technology improvements, personnel/payroll/human resources management improvements, project management improvements and increased engineering oversight, sewer department) » Workforce housing initiatives » Town revaluation work for the state mandated FY2019 revaluation year » Public safety improvements (additional School Resource Officer for the new elementary and intermediate school buildings) » Community convenience and visitor experience initiatives (traffic mitigation strategies, increase in information availability) Specifically, the above goals and priorities will be addressed with the following expense increases: Personnel-Related Expense Requests 1. Town Administration » Full-time records management position The new public records for municipalities will become effective January 1, 2017 and will require local government to address public requests for information in a very timely and coordinated matter. A Records Access Officer is required by this law as part of a formal electronic records management program. » Reclassification of employees This request comes from different departments to reclassify positions to better suit the employees’ job training and adjusted duties, and to comply with collective bargaining agreements. 2. DPW – Sewer » Full-time Sewer Administrative Position A separate sewer department was created in FY2017 and requires administrative support. This position would be funded out of the Sewer Enterprise Fund. 3. Health Department » Additional hours for Seasonal Inspector These increased hours would allow for an extended season to perform fertilizer enforcement. Funding would come from the Septic Revolving Fund. 4. Human Resources » Funding to take part-time HR Specialist position to full-time The increased staff support was highlighted in the operational review of HR in order to meet industry staffing standards. Page 8 5. Natural Resources » Full-time Technician position for newly renovated Brant Point Hatchery Facility This state-of-the-art facility requires extensive coverage to ensure hatchery operation is properly functioning. » Additional funding to combine several seasonal positions into one full-time position This position will combine seasonal positions, including a mandated position to monitor protected species around the island, a Seasonal Shellfish Warden and a seasonal position to help enforce fertilizer regulations into one full-time year-round position. 6. PLUS » Increase part-time Housing Specialist into a full-time position » Additional funding for overtime for inspectors Additional overtime funding is requested to maintain the timely processing of the large volume of building permits being submitted to the department. 7. Police » Additional full-time School Resource Officer for NES and NIS A single SRO is not sufficient considering the size of the school system. » Additional funding for overtime for 4th of July events The funding for additional overtime would be to manage the large influx of visitors on the island for the Fourth of July holiday period. 8. Police – Dispatch » Increased shift coverage funding Staffing levels must meet minimum staffing requirements. » Funding for temporary Per Diem Dispatcher Staffing levels must meet minimum staffing requirements. Operational Expense-Related Requests 1. Town Administration » Town-wide staffing assessment As it was recommended last year, a Town-wide assessment of staffing levels would benefit the Town in both the allocation of existing as well as new human resources. This type of study could also, for example, provide for efficiencies between departments, subcontracting opportunities for specific areas along with the identification of areas where staff should be increased. » Fast-ferry connector The fast-ferry connector has helped alleviate downtown parking and traffic. Although we believe a sustainable independent funding source should be secured if the Board elects to prioritize this service going forward, for the time being, we recommend partial funding similar to last year’s. This funding would come from the Town Administration department as well as from the Cape & Islands License Plate Special Revenue Page 9 Fund. » Affordable Housing Trust Fund The Board has been clear in its commitment to helping to increase the access and supply of housing on Nantucket. This request for funding will go to continue these efforts. 2. DPW » Engineering Services The DPW originally requested a number of new positions including an Assistant Town Engineer, an Engineer Tech/Data Specialist and a Construction Inspector to assist in overseeing the large number of projects that are at various phases of completion and those which have not commenced yet. We recommend instead that the Town hire professional engineering services to fulfill the important task of ensuring our investments into infrastructure are executed correctly and efficiently. » Increased allocation for tree maintenance and plantings This funding provides for the replacement and replanting of trees where older ones might be removed. This is part of a continued effort to meet Tree City guidelines. 3. DPW – Facilities » Increased allocation to public buildings maintenance & repairs » Increased allocation to grounds maintenance » Painting of 4 Fairgrounds exterior » Renovation of Fire Station to install female showers and egress for 2nd floor The delay of the new fire station may force us to renovate the current facility to comply with regulations. 4. Finance – Assessor » State mandated revaluation Includes field work and increased staffing needs for revaluation mandated every 5 years. 5. Human Resources » Additional training for various departments/managers related to statutory mandates » Support services for mandated Affordable Care Act (ACA) reporting » Funding for employee recognition events » New hires, including seasonal hires, background check and drug testing » Consolidation of advertising funding for job postings from other departments 6. IT & GIS » E-permitting training, customization of forms, scanning of past permits » Additional funding for e-permitting hosting 7. Natural Resources » Partial funding for phragmites removal in Long Pond The funds will go towards a project coordinated by the Nantucket Pond Coalition to remove some of the weeds choking Long Pond. Page 10 » Water quality testing in Long Pond The testing is being done to determine the impact from the Landfill’s activities to the pond. 8. PLUS » Replacement of vehicle » Additional funding for advertising of public notices » Additional funding for inspector training due to new codes » Operational review of the HDC 9. Police » Seasonal employee training » Additional funding for increased travel costs C. Future Year Considerations Strategic Plan During FY2018, the Board expects to continue the development of a Strategic Plan with measurable goals and objectives. A Strategic Plan will help us become more proactive and make use our resources effectively to focus on and accomplish formally agreed-upon goals. Health Insurance The “Cadillac Tax”, a component of the Affordable Care Act (ACA), is federally mandated excise tax on high-end plans and is expected to be implemented January 1, 2020. In summary, employers will pay a 40% tax on all costs for health insurance plans in excess of $27,500 for family and $10,200 for individual plans with some inflation adjustment in future years. Based on Nantucket’s current workforce and related insurance portfolio, the Town would be required to pay in excess of $800,000 in FY2021 when the Town feels the effect of a full year of the proposed tax. Sewer Improvements A significant sewer project was approved at the 2016 Annual Town Meeting (ATM), namely the Nantucket Harbor Shimmo/Plus Infill Parcels sewer project. The debt service related to borrowings for this project will likely begin impacting the tax rate in FY2019. Vendor Contract Expirations During FY2017, the following concession leases will expire (all expire 12/31/16): Jetties, Surfside and Children’s Beach. Conservative estimates will be used for the anticipated revenue from these concessions which in FY2017 will total approximately $200,000. The contracts for custodial services for various Town buildings and for landscaping services will expire in the spring of 2017. Conservative numbers will be used for the anticipated costs of these contracts, if unknown before the budget is finalized. Our Island Home The 2015 Annual Town Meeting (ATM) approved expenditures for the sighting and preliminary design of a Page 11 new Our Island Home facility. The Town has engaged a firm to conduct the study and also a firm to assist the Town in developing and analyzing the new operational model and costs of the facility going forward. The Board of Selectmen voted to move forward with a Small House model that includes 30 skilled nursing beds and 10 level IV skilled nursing beds at the Sherburne Commons site. School The new intermediate school is scheduled to open in School Year 2017-18. This new facility will require additional staff, namely 4 new positions dedicated to the maintenance of the facility, a principal, school nurse, librarian and a guidance counselor. The School Resource Officer (SRO) requested is being paid out of the Police Department budget. Most other faculty will be transferred to the new facility from existing staff. Other additional costs include utility and maintenance costs. Collective Bargaining The Town is currently negotiating collective bargaining agreements with the large majority of unions with which it has agreements. The negotiations are for contracts expiring on June 30, 2017 (Appendix N). Revenue Although in the near future, current revenue sources appear to be sufficient, other areas to potentially look toward in the future for generating new revenue include: PILOT possibilities (Payment-in-Lieu-of-Taxes for entities that do not pay property tax – if all of these were taxed in FY2017, taxes due would have exceeded $10,000,000); parking fees (paid parking for Town parking lots, downtown parking, beach parking); taxi transaction fee (requires meters); expansion of room occupancy tax to seasonal vacation rentals (requires special legislation); increase to the ferry embarkation fee; increase of real estate transfer tax for housing initiatives or another dedicated purpose (requires special legislation which was approved at 2016 ATM, efforts continue to further legislation); tax on medical and recreational marijuana sales (may be possible in recent enacted marijuana legislation act). Some of these have been pursued by the Town, others are being pursued and some have remained stalled or not pursued. D. Other Recommendations Our Island Home Due to growing operational costs, an increasingly out-of-date facility, and multiple long-term infrastructure issues, the Board of Selectmen has voted to construct a new Small House model facility on land near the Sherburne Commons facility. We have engaged a consulting firm (SK Advisors) to prepare a detailed financial analysis of the long-term costs of this operational model as compared to the current, institutional model. While Our Island Home is accounted for as an Enterprise Fund (meant to fund its own operations), it requires a substantial subsidy from the General Fund for its operations and capital costs (Appendix L). Town Administration has recommended that a tax override for dedicated operating support for Our Island Home be considered within the next 1-2 years. Solid Waste Enterprise Fund The current working landfill cell will reach capacity in 2017. The Town is undertaking the process of Page 12 construction of a new lined landfill cell. The Town is experiencing increased utilization of the landfill, which is putting pressure on the General Fund subsidy (Appendix L). We will be addressing issues related to the Solid Waste operations in the near future. SECTION III - Conclusion The FY2018 General Fund budget, as proposed, is $93,176,494 this represents an increase of $6,333,246, or 7.3%, over the FY2017 budget. The Town has been extremely fortunate to be able to fund several items, within its levy limit, including Our Island Home, Solid Waste Enterprise Fund (including the landfill mining program), health insurance, an annual amount of capital items. While the FY2018 budget is balanced and addresses our fixed obligations, it also puts forward some new initiatives that are intended to provide better or increased service to the public, as well as additional resources toward maintaining our infrastructure in a proactive manner, and address or continue to address goals and priorities of the Board of Selectmen and Town Administration. Our biggest challenges include adequate staffing, expanded programming, infrastructure maintenance, housing and keeping pace with the cost of living and faster-than-expected increases in costs ranging from health insurance to construction/maintenance costs – the same issues Nantucket families and businesses are encountering for their own budgets. Over the last 20 years, our community has grown significantly in size and diversity. We are facing some “big city” problems (public safety, housing shortage) now more than ever and it will take additional resources in the coming years to address these. Thanks to the Board of Selectmen, Capital Program Committee, Finance Committee, Town departments, and especially to the staff who spend many, many hours putting together the information necessary to develop the budget recommendations, including Assistant Town Manager Gregg Tivnan, Finance Director Brian E. Turbitt, Assistant Finance Director & Acting Treasurer Lynell Vollans and Financial Analyst Julia Lindner. Prepared by: Town Manager, pursuant to Article IV, Section 4.2(d)(3) of the Charter of the Town of Nantucket Page 13 Appendices Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 U.S. PUBLIC FINANCE CREDIT OPINION 11 October 2016 New Issue Contacts Nicholas Lehman 617-535-7694 AVP-Analyst nicholas.lehman@moodys.com Robert Azrin 617-535-7692 VP-Senior Analyst robert.azrin@moodys.com Nantucket (Town of) MA New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs Summary Rating Rationale Moody's Investors Service has assigned a Aa1 rating to the Town of Nantucket MA's $41 million General Obligation Municipal Purpose Loan of 2016 Bonds and a MIG 1 to $9.2 million General Obligation Bond Anticipation Notes (BANs, dated November 10, 2016 and payable November 10, 2017). Moody's maintains the Aa1 long-term rating on the town's outstanding general obligation bonds. The Aa1 rating reflects the town's stable financial position with healthy reserves, large tax base with very strong home values, above average wealth levels, and manageable debt burden and long-term liabilities. The MIG 1 rating reflects the strong long-term rating of the town, ample liquidity to cover outstanding notes, and sufficient management of refinancing risk. The rating also incorporates the town's ability to access the capital markets given the frequent issuance over the last five years. Credit Strengths » Sizeable tax base with strong home values » Stable and healthy financial position with ample reserves » Strong fiscal management Credit Challenges » Airport and nursing home enterprise operations » Moderate increase in debt issuance over near term » Exposure to potential storm risk Rating Outlook Outlooks are usually not assigned to local government credits with this amount of debt outstanding. Factors that Could Lead to an Upgrade » Large increase in wealth levels (median family income and per capita income) » Sustained trend of self-sufficiency in airport and nursing home enterprise funds Page 22 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs » Additional increase in reserve levels Factors that Could Lead to a Downgrade » Significant reduction in reserves » Increased reliance on General Fund to support enterprise funds » Deterioration of tax base » Material increase in the debt burden beyond current expectations Key Indicators Exhibit 1 As of June 30 fiscal year-end Source: Moody's Investors Service Recent Developments Since our last rating report in July 2016, the fiscal 2016 draft CAFR is available and indicates a General Fund operating deficit of $3.1 million attributable to a material increase in capital spending. The town transferred $7.5 million into the Town Capital Projects fund to cover the capital expenditures, net of those transfers, the General Fund would have ended with a surplus given positive variance in both revenues and expenditures. Additionally, over the past year the town has formalized its comprehensive management practices including a reserve policy and long-term financial and capital planning. The policies will be adopted by the town board by the end of the calendar year. Page 23 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE 3 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs Detailed Rating Considerations Economy and Tax Base: Sizeable Tax Base Supported By High-end Housing Stock Nantucket is an island community located approximately 30 miles south of Cape Cod, Massachusetts. The town's large $17.8 billion tax base is primarily residential (93% of 2016 assessed value) and has a year-round population of 10,298, although this number can swell to almost 45,000 during the summer months. Reflecting its status as a desirable seasonal resort community, assessed values remain high, although the town has experienced moderate declines in recent years. The town saw a 14.2% decline in assessed value in fiscal 2011 followed by minimal change until 2015 and 2016, which saw 7.3% and 13% increases, respectively. Home values on the island are significantly above the state and national average with an equalized value per capita of $1.7 million, reflecting the high-end housing stock and limited year-round population. Wealth levels on the island are also above the national average, with a median family income of $89,728, or 147.4% of the US average. New growth in the town spiked to $1 million in 2015 and 2016, reflecting renewed investment through new and redevelopment projects in the area after the recession, and is projected at $900,000 to $1 million in fiscal 2017. Additionally, the town's unemployment rate remains below the commonwealth and US. Financial Operations, Reserves and Coverage: Strong Financial Position Expected To Continue Nantucket's financial position will likely remain stable over the near term due to conservative fiscal management. Additionally, after four years of strong growth, we expect the healthy reserves to be maintained at the current levels as a percent of revenues. The fiscal 2015 audited financials reflect an operating surplus of $783,000 attributable to strong building permit fees and local receipts as well as savings in most expenditure line items. The surplus increased the available General Fund balance (committed, assigned and unassigned) to $25.8 million or 31.3% of revenues. The town's revenues are derived primarily from property taxes (81% of 2015 revenues) with a strong collection rate of over 98% in the current fiscal year. Education (30% of 2014 expenditures) and pension and fringe benefits (20%) continue to be the town's largest expenditures. The town also transfers out approximately 11% of expenditures annually to cover enterprise fund operations for solid waste, nursing home and airport. The solid waste fund receives $5.5 million annually due to a transfer out of a portion of the tax levy (excluded from Proposition 2 1/2) dedicated to solid waste operations given the seasonal fluctuation in town population. In fiscal 2015 the nursing home fund (Our Island Home) received $2.3 million to subsidize operations. The subsidy represents only 4% of 2015 expenditures and has remained stable for at least the last five years. The airport enterprise operations in 2015 mark the first year of no subsidy from the General Fund (see prior reports for details). Fiscal 2016 draft CAFR indicates a operating deficit of $3.1 million driven by a $7.5 million in transfers out of the General Fund to the Town Capital Projects fund. Net of the transfers towards capital expenditures, the General Fund experienced positive variance in both revenues and expenditures. The available General Fund balance declined to $22.9 million or 25.6% of revenues while the unassigned fund balance increased to $17.6 million or 19.7%. The fiscal 2017 budget increased by 6.3% from 2016, due largely to health insurance and additional staffing. The budget is balanced with a tax levy expected to be equal to the 2.5% levy limit and no free cash appropriation. General Fund subsidies to the Our Island Home Fund and Solid Waste Fund increased due to one-time costs, to $2.8 million and $5.6 million, respectively. LIQUIDITY The net cash position at the end of fiscal 2015 was $27 million or a healthy 32.7% of revenues. The draft fiscal 2016 financials report a slight declined by still strong cash position of $25.1 million or 28.1% of revenues. The strong liquidity position at the end of fiscal 2016 provides ample coverage of 3.8 times the current BAN issuance. Debt, Pensions and Legal Covenants: Debt Burden Expected To Increase But Remain Manageable The current direct debt burden (1% of equalized value) will rise over the near term given additional capital plans. The debt burden will remain manageable given sufficient structuring and taxpayer support of projects. Capital projects, including approximately $80 million in sewer projects and a $37.5 million nursing home facility will contribute to a material increase over the next few years. Additionally, the town pledges its full faith and credit on the Nantucket Islands Land Bank (Aa1) bonds with $22.1 million outstanding. The bonds are considered self-supporting and are secured by a 2% tax on the purchase price of all real estate transfers occurring each year. The town is expected to continue to be a frequent issuer with an authorized unissued debt amount of $158 million. Page 24 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE 4 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs DEBT STRUCTURE The entire debt portfolio is fixed rate with 68% of principal retired in ten years. Fiscal 2015 debt service represented 8.5% of expenditures. DEBT-RELATED DERIVATIVES Nantucket is not party to any derivatives. PENSIONS AND OPEB The town participates in the Barnstable County Contributory Retirement System, a multi-employer, defined benefit retirement plan. The town's annual contribution for the plan was $4.7 million in fiscal 2015, or 5.4% of General Fund expenditures. The town's 2015 three-year average adjusted net pension liability, under Moody's methodology for adjusting reported pension data, is $114.4 million, or a moderate 1.4 times General Fund revenues. Moody's uses the adjusted net pension liability to improve comparability of reported pension liabilities. The adjustments are not intended to replace the town's reported liability information, but to improve comparability with other rated entities. We determined the town's share of liability for the plan in proportion to its contributions to the plan. The town has established an OPEB trust and in addition to making pay-as-you-go contributions of $2.3 million in 2015, the town also budgets for a $500,000 annual contribution into the trust. The current balance in the OPEB trust is $1.3 million, and an additional $500,000 was deposited in fiscal 2016 and budgeted for in 2017. Total fixed costs in fiscal 2015, including debt service, required pension contributions and retiree healthcare payments, represented $14 million, or 15.1% of expenditures. Management and Governance Town management has shown a long term trend of consistent and conservative fiscal management. In fiscal 2016 the town formalized its management policies including debt, financial and reserve policies and long-range financial and capital planning. The financial planning includes a seven year operating forecast with adequate budget assumptions. All together, the formal adoption of these management policies position the town to maintain their strong credit profile over the long term. Massachusetts towns have an institutional framework score of “Aa,” or strong. Revenues are highly predictable due to a heavy reliance on property taxes. Towns have a moderate revenue-raising ability given the Proposition 2 ½ levy limit. Expenditures primarily consist of personnel costs, as well as education costs for towns that manage school operations, and are highly predictable given state-mandated school spending guidelines and employee contracts. Towns have a moderate expenditure reduction ability given the high presence of collective bargaining contracts, offset by low fixed costs in most cases. Legal Security The bonds in the amount of $36.96 million are secured by the town's general obligation unlimited tax pledge as debt service has been excluded from the levy limits of proposition 2 ½. The remaining bonds are secured by the town's general obligation limited tax pledge as debt service has not been voted exempt from Proposition 2 ½. The BANs are secured by the town's general obligation limited tax pledge as debt service has not been excluded from Proposition 2 ½. Use of Proceeds Bond proceeds will redeem $27.6 million of BANs scheduled to mature and the remaining balance will finance multiple capital projects of the town including the high school and fire station projects. The BAN proceeds will renew a like amount of notes scheduled to mature that financed multiple capital projects. Obligor Profile Nantucket is an island community located approximately 30 miles south of Cape Cod, Massachusetts. The town is primarily residential and has a year-round population of 10,298, although this number can swell to almost 45,000 during the summer months. Page 25 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE 5 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs Methodology The principal methodology used in this general obligation rating was US Local Government General Obligation Debt published in January 2014. The principal methodology used in this bond anticipation note rating was US Bond Anticipation Notes published in April 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. Page 26 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE 6 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs Ratings Exhibit 2 Nantucket (Town of) MA Issue Rating General Obligation Municipal Purpose Loan of 2016 Bonds Aa1 Rating Type Underlying LT Sale Amount $40,928,000 Expected Sale Date 10/19/2016 Rating Description General Obligation General Obligation Bond Anticipation Notes, Series 2016 MIG 1 Rating Type Underlying ST Sale Amount $9,210,443 Expected Sale Date 10/19/2016 Rating Description Note: Bond Anticipation Source: Moody's Investors Service Page 27 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE 7 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs © 2016 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved. 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("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER 1044058 Page 28 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE 8 11 October 2016 Nantucket (Town of) MA: New Issue - Moody's Assigns Aa1 and MIG 1 to Nantucket, MA's GO Bonds & BANs Contacts Nicholas Lehman 617-535-7694 AVP-Analyst nicholas.lehman@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Page 29 © 2016 The Conference Board, Inc. The Conference Board Economic Forecast for the U.S. Economy November 9, 2016 Modest economic growth increasingly kept in check by supply constraints rather than slow demand The US economy expanded at 2.9 percent in the third quarter, following a disappointing 1.1 percent annualized growth rate in the first half of 2016. The 2.9 percent pace, which is above trend growth, resulted from likely one-time gains in trade (driven by a short-term surge in soybeans) and an inventory build after the run off of the past five quarters. The underlying trend of consumption and investment remained modest, growing at only 1.4 percent annualized rate. The fourth quarter will mostly depend on consumer’s willingness to spend this holiday season. Business investment will likely remain weak given the downside risks from subdued domestic demand, global trade and geopolitical events even as the tension of US presidential elections resides. Net trade will likely hold back growth as soybean exports reverse. The Fed is widely expected to raise rates in December, given where employment and inflation are. And it might even be willing to run the economy hot for some time with very gradual continued ‘normalizing’ of rates next year. Oil prices and import prices are likely to temporarily push the top line above the Fed’s 2 percent target for a brief period. Supply-constrained job growth and continued low productivity gains will tamp down economic growth and corporate profits in 2017. The Conference Board’s Global Economic Outlook 2017 available for download on November 16 will feature a fresh reassessment of medium and long-term growth. The U.S. Economic Forecast THE CONFERENCE BOARD ECONOMIC OUTLOOK, 2016-2017 Percentage Change, Seasonally Adjusted Annual Rates (except where noted) 2017 2015 2016 2017 III Q* IV Q I Q II Q III Q ANNUAL ANNUAL ANNUAL -------------------------------------------------------------------------------------------------------- Real GDP 2.9 1.7 2.1 1.8 1.8 2.6 1.5 2.0 Real Consumer Spending 2.1 2.3 2.2 2.1 2.0 3.2 2.6 2.3 Residential Investment -6.2 5.8 5.0 5.0 4.2 11.7 4.3 2.7 Real Capital Spending 1.1 1.4 1.8 2.2 2.5 2.1 -0.5 1.8 Exports 10.0 -2.0 2.7 2.4 2.3 0.1 0.5 2.5 * Actual data Page 30 11/10/2016Town of Nantucket ‐ Quarterly Municipal WatchMost RecentTrendMost RecentTrendLocal ReceiptsQuarterQ/Q (1)LTMY/Y (1)3‐MoLTMLocal IndicatorsQuarterQ/Q (1)LTMY/Y (1)3‐MoLTMBuilding Permits$274,415 (11%) $1.2m 13%Real Estate ‐ Sales$317m 26% $1,014m 11%Rooms Tax$1,547,159 (1%) $3.4m 3%Real Estate ‐ Transactions135 (2%) 535 10%Meals Tax$432,066 2% $1.0m 6%SSA Freight Revenue (2)$5.6m 6% $25.8m 6%Motor Excise Tax$385,571 44% $2.7m 12%SSA Nantucket Passengers 314,692 (1%) 649,333 1%Airport Landing Fees$3,225 9% $12,831 17% $241 m$277 m$175 m$211 m$274 m$343 m$163 m$156 m$251 m$289 m$200 m$209 m$317 m$0m$50m$100m$150m$200m$250m$300m$350m$400mQ1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17Dollar Volume (M$)4 QTR Moving Average$209 k$231 k$163 k$297 k$272 k$238 k$262 k$242 k$310 k$257 k$322 k$332 k$274 k$0m$50m$100m$150m$200m$250m$300m$350mQ1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17Dollars (thousands)4 QTR Moving Average$1 7mMotor Excise Tax (in millions)$1.65m$1 55mRooms Tax (in millions)$361k$$382k$383k$424k$418k$432kMeals Tax (in thousands)Building Permits ‐Historicals and Moving AverageReal Estate Sales ‐Historical and Moving AverageTrendNational Leading IndicatorsCurrent3‐Mo12‐Mo3‐MoLTMDetailsLIBOR T‐Bill Yield Spread0.55% 0.50% 0.21%Aka TED Spread: difference between 3 mth LIBOR & 3 mth treasury bill. TED < 0.5% signals stability.Sr Loan Officer Survey1.5% 8.6% (7%)Fed Reserve survey: % of loan officers seeing tightening of loan standards for med/large companies.S&P 500 Performance2,112 2,171 2,078S&P 500 index as proxy of performance of risky equity assets across different industries and sectors.Weekly Initial Claims257,750259,750267,5004‐week average of unemployment insurance initial claims, a lower figure is positive.(1) Current reading is compared to same period last year.(2) SSA freight revenue is based on Q4/FY16.Local Update: Local receipts data showed tappering of growth, particularly Rooms Tax (down 1% over Q1/FY16). Building Permits saw a 10%+ dip over Q1/FY16, although recent data shows some catching up. Local indicators are seeing varying growth trends. Real estate sales still have momentum in dollar terms while transactions count was down over Q1/FY16.National News: Similarly to last quarter, domestic growth is a concern and interest rates remain low. There remains uncertainty as to the timing of potential rate hikes by the Fed. $0.4m$0.1m$1.3m$0.6m$0.3m$0.1m$1.4m$0.7m$0.3m$0.2m$1.7m$0.6m$0.4m$1.16m$1.26m$0.08m$0.08m$1.30m$1.56m$0.09m$0.08m$1.56m$1.65m$0.10m$0.11m$1.55m$361k$359k$67k$75k$382k$383k$79k$64k$424k$418k$86k$71k$432kPage 31 FY2018 General Fund Revenue Breakdown Budget Budget FY2017 FY2018 $ Change% Change Tax Revenue Limitations Levy Limit from Prior Year 65,801,036$ 68,716,742$ 2,915,706$ 4.4% Add: 2 1/2 % increase 1,645,026 1,717,919 72,893 4.4% Add: Prop 2.5% operating override - - - na Add: new growth estimate 900,000 800,000 (100,000) (11.1%) Add: operating override - - - na Levy Limit for Current Year 68,346,062 71,234,660 2,888,599$ 4.2% Add: Debt Exclusion 6,854,905 8,036,972 1,182,067 Maximum Allowable Levy for Current Year 75,200,967$ 79,271,632$ 4,070,666$ 5.4% OVERLAY (1,000,000)(900,000) 100,000 (10.0%) Net available:74,200,967$ 78,371,632$ 4,170,666$ 5.6% State Aid 3,180,702$ 3,271,156$ 90,454$ 2.8% Local Receipts: Motor Vehicle Excise 2,150,000 2,400,000 250,000 11.6% Other Excise 3,500,000 3,954,000 454,000 13.0% Penalties and Interest on Taxes and Excises 599,140 599,140 - - Payments in Lieu of Taxes 7,330 7,330 - - Other Charges for Services 44,600 30,000 (14,600) (32.7%) Fees 857,785 875,000 17,215 2.0% Rentals 556,090 700,000 143,910 25.9% Other Departmental Revenue 186,430 175,000 (11,430) (6.1%) Licenses and Permits 1,375,000 1,500,000 125,000 9.1% Fines and Forefits 244,800 200,000 (44,800) (18.3%) Investment Income 110,500 145,000 34,500 31.2% Miscellaneous Recurring (RDS Subsidy)49,240 11,250 (37,990) (77.2%) Miscellaneous Non-Recurring - - - na Total Local Receipts 9,680,915 10,596,720 915,805 9.5% Total Revenue 87,062,584$ 92,239,508$ 5,176,925$ 5.9% ,,$,,$,,$ Other Sources Other Sources - 65,000 65,000 na Free Cash Used 72,100 1,180,500 1,108,400 1,537.3% Excess Overlay - Total Revenue and Other Sources 87,134,684$ 93,485,008$ 6,350,325$ 7.3% Total Expenses and Other Uses (budget reprogramming)86,843,248$ 93,176,494$ 6,333,246$ 7.3% Page 32 FY2018 General Fund Expense Breakdown Budget Budget FY2017 FY2018 $ Change % Change General Fund Operating Budget Items: Salaries - Town (includes allowance for collective bargaining)17,189,549$ 18,044,519$ 854,970$ 5.0% Town Expense increase Requests- Salaries 463,245 349,307 (113,938) (24.6%) Salaries - School (includes allowance for collective bargaining)21,109,849 21,734,425 624,576 3.0% School Expense increase Requests- Salaries 573,130 573,130 na Transfers to community school 400,000 400,000 Subtotal Salaries 39,162,643$ 41,101,381$ 1,938,738$ 5.0% Operating Expenses, Town:5,951,035 6,752,236 801,201 13.5% +Town Expense Increase Requests-Operating 889,700 1,180,500 290,800 32.7% Operating Override - 2011 Mosquito Control 105,063 106,140 1,077 1.0% Operating Expenses, School 4,976,793 4,976,793 - - +School Expense Increase Requests-Operating 202,294 202,294 na Transfers to community school - 65,000 65,000 na Subtotal Expense 11,922,591$ 13,282,963$ 1,360,372$ 11.4% Group Medical Insurance- Active Employees 9,255,215 9,472,238 217,023 2.3% Group Medical Insurance- Retired Employees 2,578,585 3,157,413 578,828 22.4% General Insurance (all other insurance)2,264,360 2,457,743 193,383 8.5% Subtotal Insurance 14,098,160$ 15,087,393$ 989,233$ 7.0% Debt Service 7,177,125$ 8,522,427$ 1,345,302$ 18.7% Retirement 3,727,687$ 4,255,533$ 527,846$ 14.2% Total General Fund Operating Budget Items 76,088,206$ 82,249,697$ 6,161,491$ 8.1% Other Articles Unpaid Bills - - - na Reserve Fund 500,000 500,000 - - Health and Human Services 400,000 400,000 - - County Assessment 170,201 170,201 - - Other Post Employment Benefits (OPEB / GASB45) 500,000 500,000 - - Capital - na General Fund budgeted from revenue (Town Bylaw 11-12.1)- na Town Capital (Non-Recurring)387,458 410,000 22,542 5.8% School Capital (Non-Recurring)387,458 410,000 22,542 5.8% Enterprise Fund Transfers - na Transfer to Enterprise Fund (Our Island Home - Beginning FY2011)2,352,375 1,511,446 (840,929) (35.7%) Add: Additional Subsidy from Free Cash (Our Island Home)- - - na Transfer to Enterprise Fund (SWEF Operating Overrides 1999/2006)- 3,394,013 3,394,013 na Add: Additional General Fund Subsidy to SWEF 2012-Forward 4,930,250 1,659,988 (3,270,262) (66.3%) Add: Additional General Fund Subsidy to SWEF 2018-Forward 840,929 840,929 na Add: Additional General Fund Subsidy to SWEF-Landfill Mining 700,000 700,000 - - Transfer to Airport Enterprise Fund - - - na Transfer to Siasconset Water - - - naTotal Other Article Appropriations 10,327,742$ 10,496,577$ 168,835$ 1.6% Other Statutory Expenditures Overlay and other deficits - - - na Cherry Sheet Offsets and Charges 427,300 430,220 2,920 0.7% Total Appropriations and Other Statutory Expenditures 86,843,248$ 93,176,494$ 6,333,246$ 7.3% Page 33 FY2018 Town Expense Increase Request List Department Description of Expense Request One-Time or Ongoing Amount Requested Amount Recommended Personnel Expense Increase Requests (EIRs) DPW - Sewer Sewer Admin position (S2) Ongoing 62,000$ 62,000$ Health Increase hours for seasonal inspector Ongoing 9,300 9,300 Human Resources Taking part-time to full-time for HR specialist Ongoing 8,320 8,320 Natural Resources Full-time Facility Technician position for Brant Point Hatchery facility Ongoing 69,415 69,415 Natural Resources Combine unfilled seasonal positions into full-time Protected Species/Asst. Warden Ongoing 69,415 38,521 PLUS Housing specialist from part-time to full-time Ongoing 30,300 30,300 PLUS Overtime Ongoing 3,000 3,000 Police Full-time school resource officer (SRO) Ongoing 56,295 56,295 Police Add'l overtime related to Fourth of July events Ongoing 45,000 45,000 Police - Dispatch Increased shift coverage Ongoing 35,000 15,000 Police - Dispatch Per diem dispatcher Ongoing 25,000 35,000 Town Administration Records management position (RAO) Ongoing 70,000 70,000 Town Administration Reclassification of Employees Ongoing 16,977 16,977 DPW Full-time Downtown Foreman Ongoing 62,000 - DPW Full-time construction inspector (M3 or S1) Ongoing 55,599 - DPW Add'l full-time Office Admin position- S1 (4 total) Ongoing 56,710 - DPW Full-time central fleet manager Ongoing 77,760 - DPW Full-time laborer (M1) Ongoing 50,643 - DPW - Solid Waste Landfill Admin position (S3) Ongoing 70,803 Finance Collector's office clerk from part-time to full-time Ongoing 27,906 - Fire 4 full-time paramedic positions Ongoing 340,000 - Health Full-time health inspector position Ongoing 76,400 - Human Resources Full-time HR specialist position Ongoing 44,000 - IT & GIS Full-time e-permitting position Ongoing 39,900 - Natural Resources Part-time admin assistant Ongoing 28,000 - Police Full-time police officer Ongoing 56,295 - Police 2 Full-time parking control officers Ongoing 112,200 - Police Education incentive for proposed new hires Ongoing 3,200 - Police Holiday pay related to proposed new hires Ongoing 3,000 - Police/Harbormaster Seasonal overtime Ongoing 30,000 - Town Clerk Full-time admin position to meet Public Records Law Ongoing 56,000 - Total Personnel Expense Increase Requests 1,690,438$ 459,128$ Page 34 FY2018 Town Expense Increase Request List Department Description of Expense Request One-Time or Ongoing Amount Requested Amount Recommended Operating Expense Increase Requests (EIRs) DPW Increased allocation for tree maintenance & plantings Ongoing 4,000 4,000 DPW Engineering Services Ongoing - 100,000 DPW - Facilities Partial waterproofing of 20 South Water exterior One-time 15,000 15,000 DPW - Facilities 2 Fairgrounds accessible ramp (ADA) One-time 20,000 20,000 DPW - Facilities Fire station reno costs for female shower, 2nd floor egress (regulations) One-time 45,000 45,000 DPW - Facilities Painting 4 FG exterior One-time 48,000 48,000 DPW - Facilities Increased allocation to grounds Ongoing 5,000 5,000 DPW - Facilities Increased allocation to public buildings maintenance Ongoing 10,000 10,000 Finance State mandated revaluation One-time 200,000 200,000 Human Resources Add'l training for various depts/mgrs related to statutory mandates One-time 50,000 30,000 Human Resources Support services for mandated ACA reporting Ongoing 31,000 31,000 Human Resources Funding for NEET events Ongoing 8,000 8,000 Human Resources New hires, incl. seasonal emp. background check & drug testing Ongoing 7,000 12,000 Human Resources Consolidating advertising for job postings from other departments Ongoing 7,500 7,500 IT & GIS E-permitting training, form customization, scanning of past permits One-time 25,000 25,000 IT & GIS Add'l funds for e-permitting hosting Ongoing 10,000 10,000 Natural Resources Partial funding for phragmite removal in Long Pond (pond coalition) One-time 25,000 25,000 Natural Resources Water testing in Long Pond One-time 40,000 40,000 PLUS Replacement of vehicle One-time 27,500 27,500 PLUS HDC related services - potential for operational review One-time 5,000 5,000 PLUS Add'l funding for advertising of public notices Ongoing 4,000 4,000 PLUS Add'l funding for inspector training (new building codes) Ongoing 3,500 3,500 Police Add'l funding for increased travel cost & frequency (drug lab, training) Ongoing 20,000 20,000 Police/Harbormaster Seasonal employee drug testing and training Ongoing 10,000 5,000 Police/Harbormaster Lifeguard ATV & beach equipment (Oxygen, defibrilators) Ongoing 15,000 15,000 Town Administration Town-wide staffing assessment One-time 200,000 200,000 Town Administration Fast Ferry Connector One-time 75,000 75,000 Town Administration AHTF One-time 1,000,000 500,000 DPW Funds to cover uniforms for increased staff Ongoing 3,000 - Health Ricoh lease (as part of move out of 2 FG) Ongoing 2,600 - PLUS Add'l funding for postage of public notices Ongoing 3,000 - PLUS Add'l funding for repair & maintenance of office furniture Ongoing 3,000 - Police Add'l funding for postage costs (licensing) Ongoing 2,500 - Police Advertising for licensing, permitting, procurement (statutory)Ongoing 4,000 - Police/Harbormaster Rubbish removal for Town Pier Ongoing 6,000 - Total Operating Expense Increase Requests 1,934,600$ 1,490,500$ Total Town Expense Increase Requests 3,625,038$ 1,949,628$ Funding Source: Tax Levy 614,307$ Free Cash 1,180,500 Alternate Sources (revolving funds, special revenue funds) 154,821 Total Recommended Funding 1,949,628$ Page 35 New Growth and Local Receipts History FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 New Growth 518,585$ 859,043$ 679,339$ 1,037,750$ 1,140,085$ 1,270,680$ Local Receipts Summary Motor Excise Tax 1,909,533 1,850,103 2,444,483 2,512,722 2,674,907 Rooms Tax 2,037,133 2,346,122 2,582,944 3,041,496 3,428,604 Meals Tax 674,041 783,557 860,798 908,283 997,903 Building Permits & Plumbing, Wiring Inspections Fees 732,526 847,501 1,013,711 1,143,944 1,403,681 Penalties & Interest 749,172 789,100 677,483 1,055,298 817,045 Licenses & Permits 432,853 321,280 506,081 436,146 493,146 Other 5,504,687 2,431,660 3,853,893 2,349,217 3,233,763 Total Local Receipts 12,039,944$ 9,369,323$ 11,939,392$ 11,447,107$ 13,049,049$ Page 36 Other Post Employment Benefits Trust Fund Other Post Employment Benefits are those benefits that an employee is eligible to receive at the start of retirement. Other post employment benefits that a retiree may be eligible for are typically: health insurance premiums, life insurance premiums, or deferred compensations. They do not include pension benefits. Bond rating agencies rate municipalities more highly if they establish an OPEB Trust Fund and make regular annual appropriations to begin covering a greater portion of the established OPEB liability over time. The balance at the end of the previous five years is shown below. FY2012 FY2013 FY2014 FY2015 FY2016 OPEB Trust Fund - 250,111$ 248,522$ 765,994$ 1,341,213$ (Other Post Employment Benefits) Page 37 Stabilization Fund The Stabilization Fund is a special revenue account permitted by Massachusetts General Laws to allow savings to be set aside and made available for emergency expenditures. In the case of an emergency expenditure, a municipality with a Stabilization Fund balance may use the available fund balance rather than spiking its property tax rate. The tax rate may be therefore “stabilized”. Bond rating agencies rate municipalities more highly if they maintain a healthy reserve balance in this and other reserve accounts. The five-year history of the Stabilization Fund is shown below. Reserve Fund The Reserve Fund is a special revenue account permitted by Massachusetts General Laws to allow municipalities to appropriate or transfer a sum not exceeding 5% of the tax levy of the prior fiscal year. This Reserve Fund is dedicated to extraordinary or unforeseen expenditures, such as a natural disaster, and does not carry over to any future years if it goes unspent. No direct drafts against this fund can be made, but transfers from time to time can be voted by the Finance Committee of the Town. Bond rating agencies rate municipalities more highly if they maintain a healthy reserve balance in this and other reserve accounts. The five-year history of annual appropriations in the Reserve Fund is shown below. FY2012 FY2013 FY2014 FY2015 FY2016 General Stabilization $3,767,769 $3,740,988 $4,776,308 $4,834,733 $5,044,535 FY2012 FY2013 FY2014 FY2015 FY2016 Reserve Fund 668,000$ 867,000$ 725,000$ 500,000$ 500,000$ Page 38 Unused Levy Capacity Excess levy capacity is a potential municipal reserve that arises out of the operation of Proposition 2 1/2. It is the difference between the maximum tax revenue a municipality is permitted to raise under Proposition 2 1/2 rules (levy limit) and the tax revenue actually raised (levy). If a city or town creates excess levy capacity, it can in subsequent years build the reserve by again taxing less than the levy limit or tap into this taxing capacity to finance municipal spending without restriction. Free Cash Free cash is a revenue source that results from the calculation, as of July 1, of a municipality’s remaining, unrestricted funds from operations of the previous fiscal year, based on the balance sheet as of June 30. It typically includes actual receipts in excess of revenue estimates and unspent amounts in departmental budget line-items for the year just ending, plus unexpended free cash from the previous year. Free cash is offset by property tax receivables and certain deficits; as result, it can be a negative number. Free cash plays a role in sustaining a strong credit rating, and the DOR encourages the adoption of policies on its use. Under sound financial policies, a community would strive to generate free cash in an amount equal to 3% to 5% of its annual budget. As a non-recurring revenue source, a prudent use of free cash is to fund one-time expenditures, capital expenditures, or replenish other reserves, according to DOR. Free cash is not available for use until a balance sheet for the prior year is submitted by the accountant, auditor or comptroller and free cash is certified by the Department of Revenue. The use of free cash requires an appropriation approved by the city council on recommendation of the mayor, or the town council or town meeting, but only after it is certified by the DOR. Free cash is “a necessary component of sound fiscal management” and “one indicator of fiscal health” that can positively affect bond ratings and reduce borrowing costs, according to the Division of Local Services. FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 Unused Levy Capacity 2,559,985$ 2,077,549$ 2,725,185$ 3,462,350$ 2,793,322$ 845,439$ FY2012 FY2013 FY2014 FY2015 FY2016 Free Cash 6,602,336 5,671,200 5,201,357 5,405,506 6,642,219 Page 39 Enterprise Fund Subsidies and Retained Earnings In recent years, the General Fund budget has funded operational deficits for Our Island Home and the Solid Waste Enterprise Fund. Below is a summary of the last five years of subsidies to Enterprise Funds as well the end-of-year retained earnings balance over the same period. Proposed FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 General Fund Subsidy to Our Island Home 2,261,560$ 2,295,000$ 2,267,598$ 2,295,000$ 2,352,375$ 1,511,446$ Retained Earnings 2,054,350 1,747,556 1,649,432 5,962,402 General Fund Subsidy to Solid Waste Enterprise Fund Landfill Operations 4,516,502 4,612,963 4,699,787 4,810,000 4,930,250 5,894,930 Landfill Mining 700,000 700,000 700,000 700,000 700,000 700,000 Retained Earnings 1,643,730 1,781,493 2,245,252 75,264 Page 40 Page 41 List of Collective Bargaining Agreements Town Contracts: Union Description Contract Expiration 1199 SEIU United Healthcare Workers East Our Island Home June 30, 2017 LiUNA Town June 30, 2017 LiUNA Deputy June 30, 2018 Police 330 Patrol Officers June 30, 2017 Police 330A Superior Police Officers June 30, 2017 IAFF Fire June 30, 2017 AFSCME DPW June 30, 2017 LiUNA Airport June 30, 2017 LiUNA Water June 30, 2017 School Contracts: Union Description Contract Expiration Nantucket Teachers’ Association Teachers Assistants June 30, 2018 Nantucket Teachers’ Association Teachers June 30, 2017 Nantucket Teachers’ Association Educational Support Personnel June 30, 2019 Nantucket Teachers’ Association Facilities June 30, 2018 Page 42