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Town of Nantucket Massachusetts - Moodys Presentation Presentation Prepared For Moody’s Investors Service October 24, 2017 Town of Nantucket Dawn E. Hill Holdgate, Chairman, Board of Selectmen James R. Kelly, Board of Selectmen C. Elizabeth Gibson, Town Manager Brian E. Turbitt, Finance Director Michael Cozort, Superintendent of Schools Julia Lindner, Financial Analyst Lynell Vollans, Assistant Finance Director/Treasurer Deborah Dilworth, Assessor Leslie Snell, Deputy Director of Planning, NP & EDC Roselli, Clark and Associates Tony Roselli, CPA, Partner First Southwest Company, Division of Hilltop Securities Cinder McNerney, Managing Director Megan Hyland, Vice President Lisa Driscoll, Director 2 Introduction Moody’s Scorecard Criteria Economy/Tax Base Finances Management Debt/Pensions Comparative Metrics Budget Flexibility Addressing Prior Credit Concerns Other Pertinent Items Economic Development 3 The current administration is making a significant positive impact on finances and has undergone a considerable transition which has led to the Town addressing issues that existed in 2012 and prior and leading to major improvements both financially and in internal controls in the last five years: 2012 new Airport Management appointed 2014 new Finance Director appointed 2014 first CAFR receives award for excellence in financial reporting (now four straight years) 2014 new Airport Accounting Officer appointed 2015 established Financial Analyst position 2015 new School Business Manager appointed 2015 new Assistant Finance Director/Treasurer appointed 2016 comprehensive financial policies codified and accepted o Emphasis on the continued philosophy of building reserves and strong internal controls Entire turn-around has been met with remarkable success that will continue to positively impact the Town for years and decades to come 4 Recent Financial Highlights 2017 assessed value $21.7 billion; 22% increase over 2016 2018 estimated assessed value $22.1 billion; 96% of full value of over $23.0 billion o Fourth highest in the Commonwealth Property sales averaged approximately $1 billion in aggregate from calendar 2014 – 2016 Estimated 2017 property sales; $1.1 billion; a historical record September 2017 property sales reached $185 million – second highest month on record Average sales price $1.8 million; highest in the Commonwealth and amongst the highest in the United States General Fund balance reached $38.7 million – 37.3% of revenues; the fifth straight year over 30% and a 64% increase over 2012 levels Conversion of Our Island Home and Solid Waste from Enterprise Funds to General Fund departments; impact was accretive ($11 million) to General Fund operations The remaining four enterprise funds including the Airport were all self-supporting during fiscal year 2017 and continued a trend of increased profitability that began in 2013 Internal Service Fund reserve balances for health insurance reached the Town’s goal of 20% of claims for the first time and amounted to over $3.3 million 5 6 Rating Numerical Metric 2013 2014 2015 2016 2017 Score Score Weight Total Full Value (billions)18.00 18.00 17.80 17.80 21.70 Aaa 1 10% Full Value Per Capita (millions)1.76 1.73 1.69 1.70 2.12 Aaa 1 10% Median Family income % of US Income 142.90%147.40%165.10%165.10%165.10%Aaa 1 10% Rating Numerical 2013 2014 2015 2016 2017 Score Score Weight Fund balance as a percentage of revenue 31.70%35.39%34.41%31.65%36.96%Aaa 1 10% 5 year $ change in Fund Balance as % of revenue 37.33%Aaa 1 5% Cash balances as a % of revenue 35.28%36.84%36.84%34.99%40.73%Aaa 1 10% 5 year $ change in Cash as a % of revenue 38.17%Aaa 1 5% Rating Numerical 2013 2014 2015 2016 2017 Score Score Weight Institutional Framework (all communities rated same)Aa 2 10% Operating History - 5 year average of operating profit 109.35%Aaa 1 10% Rating Numerical 2013 2014 2015 2016 2017 Score Score Weight Net direct debt/operating revenues 1.53 A 3 5% Net direct debt/full value 0.73%Aaa 1 5% Net pension liability/operating revenues 1.21 A 3 5% Net pension liability/full value 0.58%Aaa 1 5% Indicative Aaa 1.3 100% Debt/Pensions (20%) Economy/Tax Base (30%) Finances (30%) Management (20%) 7 2013 2014 2015 2016 2017 Fund Balance Per Financial Statements 22,719,777$ 25,505,199$ 26,307,100$ 23,282,845$ 38,725,030$ Restricted Fund Balance (1,577,323) (650,518) (488,344) (414,514) (346,780) Impact of consolidating Solid Waste 2,369,173 2,535,786 1,903,503 1,019,531 - Impact of consolidating Our Island Home 3,488,810 3,162,486 3,916,793 8,465,169 - Adjusted Fund Balance 27,000,437$ 30,552,953$ 31,639,052$ 32,353,031$ 38,378,250$ General Fund Revenues Per Financial Statements 76,902,637$ 78,058,829$ 82,466,298$ 88,986,863$ 103,844,891$ Impact of including Our Island Home revenues 4,839,607 4,834,660 5,785,161 9,487,103 - Impact of including Solid Waste revenues 3,428,928 3,426,494 3,695,481 3,743,605 - 85,171,172$ 86,319,983$ 91,946,940$ 102,217,571$ 103,844,891$ Fund Balance as a % of revenue - pro forma 31.70%35.39%34.41%31.65%36.96% Five year change in adjusted fund balance 11,377,813$ Direct cash capital - 2013 4,855,920 Direct cash capital - 2014 4,017,480 Direct cash capital - 2015 5,271,000 Direct cash capital - 2016 10,938,480 Direct cash capital - 2017 2,307,494 Five year change in adjusted fund balance after direct cash capital impact 38,768,187$ Five year change as a % of revenue 37.33% Key Metric Bases Adjusted for Proforma Impact of consolidating Our Island Home and Solid Waste 8 2013 2014 2015 2016 2017 Cash Per Financial Statements 23,555,841$ 25,685,649$ 26,992,764$ 25,080,672$ 42,296,282$ Impact of consolidating Solid Waste 2,758,243 2,703,196 2,718,426 9,202,502 - Impact of consolidating Our Island Home 3,738,240 3,413,537 4,164,665 1,484,022 - Adjusted Cash Balance 30,052,324$ 31,802,382$ 33,875,855$ 35,767,196$ 42,296,282$ General Fund Revenues Per Financial Statements 76,902,637$ 78,058,829$ 82,466,298$ 88,986,863$ 103,844,891$ Impact of including Our Island Home revenues 4,839,607 4,834,660 5,785,161 9,487,103 - Impact of including Solid Waste revenues 3,428,928 3,426,494 3,695,481 3,743,605 - 85,171,172$ 86,319,983$ 91,946,940$ 102,217,571$ 103,844,891$ Cash Balance as a % of revenue - pro forma 35.28%36.84%36.84%34.99%40.73% Five year change in adjusted cash balance 12,243,958$ Direct cash capital - 2013 4,855,920 Direct cash capital - 2014 4,017,480 Direct cash capital - 2015 5,271,000 Direct cash capital - 2016 10,938,480 Direct cash capital - 2017 2,307,494 Five year change in adjusted cash balance after direct cash capital impact 39,634,332$ Five year change as a % of revenue 38.17% 9 2013 2014 2015 2016 2017 General Fund Revenues Per Financial Statements 76,902,637$ 78,058,829$ 82,466,298$ 88,986,863$ 103,844,891$ Impact of including Our Island Home revenues 4,839,607 4,834,660 5,785,161 9,487,103 - Impact of including Solid Waste revenues 3,428,928 3,426,494 3,695,481 3,743,605 - 85,171,172$ 86,319,983$ 91,946,940$ 102,217,571$ 103,844,891$ General Fund Expenses Per Financial Statements 64,911,578$ 68,622,281$ 72,251,992$ 75,816,940$ 94,760,016$ Impact of including Our Island Home expenses 7,018,610 7,270,731 7,506,493 7,785,868 - Impact of including Solid Waste expenses 7,993,740 8,353,782 8,852,981 10,388,660 Transfers out adjusted for proforma impact 2,389,332 808,098 1,550,000 7,845,326 2,383,154 Direct cash capital (4,855,920) (4,017,480) (5,271,000) (10,938,480) (2,307,494) 77,457,340$ 81,037,412$ 84,890,466$ 90,898,314$ 94,835,676$ Operating result 7,713,832$ 5,282,571$ 7,056,474$ 11,319,257$ 9,009,215$ Operating revenues/operating expenses 110.0%106.5%108.3%112.5%109.5% Five year average 109.3% 10 Bonds:Pensions: Governmental 76,064,664$ Net liability 2015 53,675,407 Wannacomet 17,846,400 Net liability 2016 59,963,947 Siasconset 5,589,900 Net liability 2017 69,565,696 Sewer 39,527,894 Airport 9,988,000 three year average 61,068,350 Land Bank 20,544,349 Moody's impact at 4.95%125,591,947 BANs: Governmental 15,790,000 Wannacomet 4,358,000 Siasconset - Sewer 10,920,000 Airport 6,108,213 Land Bank 1,700,000 Supported debt: Wannacomet (22,204,400) Siasconset (5,589,900) Land Bank (22,244,349) Net Direct debt 158,398,771$ Net Pension Liability 125,591,947$ Full Value 21,786,601,417$ Full Value 21,786,601,417$ % of Full Value 0.73%% of Full Value 0.58% Operating revenues 103,844,891$ Operating revenues 103,844,891$ Times operating revenue 1.53 Times operating revenue 1.21 Debt/Pension Calculations 11 Moody’s currently rates fourteen cities and towns in Massachusetts with a Aaa rating. Nantucket compares very favorably with these fourteen communities in the nine critical metrics typically highlighted in a ratings report. Nantucket ranks ahead of all fourteen communities in three other metrics that are not highlighted in the ratings reports, but are part of the credit assessment. In the slides that follow we will use the calculations developed in the previous slides and show how Nantucket’s composite score is greater than all fourteen communities. We will show that Nantucket ranks in the top four in nine of the twelve rating metrics. 12 Acton Belmont Boston BrooklineCambridge Concord Dover HinghamLexington Newton Wayland Wellesley Weston Winchester Nantucket Full Value 13 9 1 5 2 12 15 8 7 3 14 6 11 10 4 Full Value Per Capita 14 13 15 7 9 5 3 10 6 11 12 4 2 8 1 Median Familiy Income 10 12 15 11 14 8 2 9 6 7 4 3 1 5 13 Fund Balance as % of Operating Revenues 12 8 5 15 1 7 4 6 3 14 10 13 11 9 2 Fund Balance Trend 11 10 7 14 2 6 9 4 3 8 15 12 13 5 1 Cash as a % of Operating Revenues 14 8 4 15 1 2 6 7 5 12 9 13 11 10 3 Cash Balance Trend 12 10 7 11 2 6 9 4 3 8 15 14 13 5 1 Operating History 11 5 8 9 6 14 2 7 4 10 15 13 12 3 1 Net Direct Debt as a % of Full Value 1 5 9 2 8 6 3 11 10 7 15 12 13 14 4 Net Direct Debt X Operating Revenues 1 4 7 2 5 6 3 10 8 9 13 11 12 14 15 Net Pension Liability as a % of Full Value 8 11 15 10 13 7 2 9 3 12 14 5 6 4 1 Net Pension Liability X Operating Revenues 5 10 7 14 15 6 2 9 1 12 13 3 11 4 8 Composite rank in metrics 9.33 8.75 8.33 9.58 6.50 7.08 5.00 7.83 4.92 9.42 12.42 9.08 9.67 7.58 4.50 Ranking in each category out of the 14 Aaa rated communities in Massachusetts plus Nantucket Nantucket carries the highest composite score of any Aaa community in Massachusetts and consistenly scores higher in the major rating metrics. 1.0 11.0 21.0 31.0 41.0 51.0 61.0 71.0 81.0 91.0 101.0 111.0 110.9 29.7 22.3 21.7 17.1 10.2 9.3 6.0 5.8 5.8 5.6 5.5 3.9 3.2 2.3 Equalized Valuation – Full Value in Billions of $ (data obtained from applicable City/Town credit report) 13 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.12 0.46 0.41 0.37 0.32 0.30 0.29 0.28 0.28 0.26 0.25 0.24 0.23 0.18 0.17 Equalized Valuation – Full Value per capita in Millions $ (data obtained from applicable City/Town credit report) 14 50.0% 100.0% 150.0% 200.0% 250.0% 300.0% 350.0% 400.0% 450.0% 500.0% 382% 306% 291% 279% 255% 252% 239% 237% 232% 231% 221% 214% 165% 158% 95% 15 Median household income per capita as a % of US median (data obtained from applicable City/Town credit report) 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 53.4% 37.0% 33.2% 31.7% 31.3% 29.1% 27.2% 21.6% 19.5% 18.5% 18.2% 17.9% 15.2% 14.6% 11.5% Available General Fund balance as a % of operating revenues (data obtained from applicable City/Town credit report) 16 -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 37.3% 24.6% 13.1% 12.3% 10.7% 8.9% 8.5% 7.9% 6.1% 5.2% 2.8% 2.0% 1.9% 1.1% -10.0% Five year available general fund balance trend as a % of revenue (data used in calculations is from Official Statements) 17 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 59.5% 42.1% 40.7% 36.5% 35.7% 32.9% 30.6% 25.0% 24.2% 23.8% 23.5% 21.7% 19.3% 18.0% 16.2% Available general fund cash balance as a % of operating revenues (data obtained from applicable City/Town credit report) 18 -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 38.1% 25.3% 13.7% 11.9% 9.9% 9.7% 8.5% 7.8% 6.1% 5.4% 3.6% 2.9% 2.7% 1.8% -9.3% Five year general fund cash balance trend as a % of revenue (data used in calculations is from Official Statements) 19 95.0% 97.0% 99.0% 101.0% 103.0% 105.0% 107.0% 109.0% 109.3% 105.9% 104.7% 104.6% 103.7% 103.4% 103.1% 102.4% 101.2% 100.3% 100.2% 99.9% 99.5% 98.6% 96.6% Five year operating history – revenue/expenditures (data used in calculations is from Official Statements) 20 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 0.40% 0.40% 0.50% 0.70% 0.70% 0.70% 0.70% 0.80% 1.30% 1.30% 1.30% 1.40% 1.60% 1.70% 2.30% Net Direct Debt as a % of full value (data obtained from applicable City/Town credit report) 21 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 0.18 0.30 0.34 0.38 0.40 0.40 0.50 0.60 0.70 0.77 0.80 1.00 1.10 1.10 1.53 Net direct debt times operating revenue (data obtained from applicable City/Town credit report) 22 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 0.50 0.69 0.80 0.80 0.94 1.10 1.20 1.21 1.22 1.29 1.30 1.40 1.40 1.50 1.50 Moody’s adjusted net pension liability times operating revenue (data obtained from applicable City/Town credit report) 23 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0.58% 1.00% 1.10% 1.20% 1.30% 1.70% 1.90% 2.10% 2.10% 2.20% 2.40% 2.40% 2.80% 3.10% 3.20% Moody’s adjusted net pension liability as a % of full value (data obtained from applicable City/Town credit report) 24 Codification of Financial Management Policies Revenue and Expenditure Assumptions Budget Amendments and Updates Long-Term Financial Planning Long-Term Capital Planning Investment Management Policies Debt Management Policies Reserve and Liquidity Policies 25 Revenue and Expenditure Assumptions We believe our financial assumptions and projections are realistic and well-grounded Formal historical trend analysis is performed and updated periodically for both receipts and spending Efforts are made to determine whether revenues or expenditures will deviate from their long-term trends 26 Budget Amendments and Updates Standard procedures for reviewing and amending the budget are in place and accepted Weekly budget surveillance is performed to identify problem areas Management possesses ability and willingness to address necessary intra-year revenue and expenditure changes to meet fiscal targets Our involvement of department heads on a monthly basis is key to expenditure control 27 Long-Term Financial Planning Long-term financial plan exists Rolling seven-year forecasts are utilized annually and assist in budget preparation Future issues are identified timely and possible solutions are vetted through various committees Revenue and expenditure decisions are made from a long-term perspective Structural balance is a clear goal 28 Long-Term Capital Overview The Town has established a ten-year long-term capital improvement plan that is updated annually Meetings are held with all department heads and managers Annual capital needs plan developed based on high/medium/low priority Funding sources identified up front Linked to operating budget and long-term revenue and financing strategies Consultants are used to estimate the costs on larger projects 29 Debt Management Policies Current adopted policy 12% of general fund expenditures May exceed this limit only in certain situations and only through a debt exclusion 65% of succeeding debt will be retired within 10 years Enterprise debt to be subsidized through user rates 30 Reserve Policies Reserve ratio on a GAAP basis shall not be below 15% of expenditures (Unassigned + Assigned/adjusted expenditures) Expectation to maintain total reserves above 30% to provide available resources for storm mitigation or unexpected emergencies Free Cash may not be used for operating items and may only be used for nonrecurring items, emergency items, and capital or long-term liabilities such as OPEB Free Cash shall not be below 5% of budgeted expenditures 31 Reserve Policies General Stabilization Fund o Target to reach 7% of expenditures (currently 6.6%) o Use for unique and emergency type situations (i.e. 9C cuts, snow and ice, catastrophic event) Capital Stabilization Fund o Target to reach and exceed 3% of expenditures o Use for capital only to help subsidize capital improvement plan or emergency capital event 32 Budget flexibility is a key component to Management’s strategy to deliver its goals successfully The Town has significant budget flexibility: Excess levy capacity (average 3.4% of levy over past 5 years) Direct cash capital in lieu of borrowing ($27.4 million in the last 5 years) Willingness to override (four successful operating overrides since 2004) Willingness to exclude debt; overrides totaled $6.6 million of debt service during 2017 Override capacity of $475 million is second highest in Commonwealth after Boston New growth continues near historic highs Fund balance ratio at historic highs Philosophy of conservative forecasting guarantees increase in reserves from year to year (outperformed budget by almost $8.0 million in both fiscal 2016 and 2017) Establishment of other reserves outside of the General Fund 33 Other reserves outside the General Fund total approximately $11.5 million. Airport Reserve Fund $1,929,664 (about 15% of revenue) Health Insurance Trust Fund $3,344,014 (about 21% of claims) School Revolving Funds $947,754 Waterways Improvement Fund $1,120,591 Ambulance Reserve Fund $1,140,181 Beach Improvement Reserve Fund $1,213,133 Sale of Real Estate $1,805,564 These may all be used to smooth out operations in challenging times 34 Storm mitigation is a critical component of the Town’s strategic goals The Town is confident it is well prepared for a major catastrophic event o The No-Name storm in October 1991 was the costliest storm to hit the Island on record; damages island wide were $30 million ($54 million indexed to 2017) o The Town reviewed 100 years of data and used this as the benchmark regarding storm mitigation risk. o The majority of this damage was to private properties not Town properties. o The Town developed a Hazard Mitigation Plan under the Federal Disaster Mitigation Act of 2000 which is in the process of being updated •https://www.nantucket-ma.gov/DocumentCenter/Home/View/17104 •https://www.nantucket-ma.gov/DocumentCenter/Home/View/17103 o Participates in the State Hazardous Mitigation Plan o Three federal reimbursement vehicles were used to cover the entire cost of the damages of the No-Name Storm: •Hazard Mitigation Grant Program •FEMA Individual Household Program •FEMA Public Assistance Project Grants 35 In addition to Federal Assistance, other disaster mitigation sources have been identified as follows: Excess flood insurance - $10 million Borrowing – $1 billion of borrowing capacity Override – $475 million in override capacity Other flexibility sources: Direct cash capital averaging about $5 million per year for last five years Excess levy capacity averaging 3.4% per year for the last five years Excess reserves (currently General Fund balance at almost 40% of revenues) 36 Self support for Enterprise Funds Our Island Home and Solid Waste were consolidated into the General Fund Both of the above were accretive to the General Fund as those activities had accumulated cash reserves Siasconset Water will be merged with Wannacomet Water upon approval from the Governor (legislative approval was required since these were set up by an act of the Legislature) All four remaining enterprise funds were self supportive in 2017 No General Fund subsidies were made to any of these 4 enterprise funds No planned subsidies are in place for 2018 for these 4 enterprise funds The slides that follow show a very positive trend for the enterprise funds that we believe has adequately addressed the risk exposure 37 38 2013 2014 2015 2016 2017 Operating Income (Loss) Per financial statements 1,907,904$ 2,376,040$ 2,606,664$ 2,897,429$ 3,007,708$ Depreciation 973,291 985,727 1,077,667 1,226,783 1,375,028 Principal Maturities (2,130,000) (2,135,000) (2,165,000) (2,218,000) (2,000,800) Interest Expense (1,155,488) (1,129,757) (1,036,213) (896,708) (831,631) Adjusted Income (Loss) for purposes of self support (404,293)$ 97,010$ 483,118$ 1,009,504$ 1,550,305$ Wannacomet and Siasconset Combined 39 2013 2014 2015 2016 2017 Operating Income (Loss) Per financial statements 1,609,270$ 1,373,560$ 1,420,846$ 1,570,802$ 1,627,955$ Depreciation 2,124,472 2,197,593 2,157,304 2,163,851 2,219,146 Principal Maturities (2,081,802) (2,284,019) (2,322,524) (2,542,956) (2,418,649) Interest Expense (1,052,213) (1,341,150) (1,241,353) (1,295,670) (1,007,893) Adjusted Income (Loss) for purposes of self support 599,727$ (54,016)$ 14,273$ (103,973)$ 420,559$ Sewer 40 2013 2014 2015 2016 2017 Operating Income (Loss) Per financial statements (2,512,831)$ (2,186,671)$ (1,576,732)$ (1,490,443)$ (1,608,482)$ Depreciation 2,337,481 2,391,192 2,394,011 2,491,379 3,294,782 Maintenance not part of operating *- 704,116 654,814 287,658 271,591 Principal Maturities (619,000) (765,000) (834,000) (820,000) (839,000) Interest Expense (445,968) (592,138) (430,551) (406,899) (458,378) Adjusted Income (Loss) for purposes of self support (1,240,318)$ (448,501)$ 207,542$ 61,695$ 660,513$ * Represents expenses charged against bond proceeds that were individually not large enough to capitalize and recorded as maintenance. These disbursments are not part of the Airport operating fund. Airport Nursing Home Operations Our Island Home consists of 45 beds at full capacity; currently, 40 beds are occupied The residents and taxpayers have embraced the facility by committing over $2 million in tax dollars annually for a number of years The facility employs almost 70 full-time mostly skilled workers and over 50 part-time workers The employment (over $4 million payroll) provides stimulus to the Town. This is a good thing Closure of the facility has been part of strategic discussions but we do not believe this would be beneficial to the Town 41 Nursing Home Operations Receipts have averaged $6.4 million per year on a cash basis over the past 4 years Disbursements have averaged $7.4 million over this same period The budget has included an appropriation averaging $2.3 million annually from taxation to cover the short-fall, with a corresponding strategic increase to reserves with the difference The Town expects to receive $6.0 million and expend approximately $8.0 million annually in future years The commitment to appropriate over $2 million per year is expected to continue The Town’s strategic plan of increasing reserves for this activity has been highly successful As of June 30, 2017 approximately $8.1 million in reserves have been established and are recorded as a committed balance in the General Fund 42 Nursing Home Operations In May 2017, the House of Representatives passed a revised version of an Affordable Health Care Act (the Act) It has been met with aggressive opposition If the Act were passed, states are expected to experience cuts to their Medicaid allotment The Brookings Institute conducted a study that concluded that using 2011 Medicaid enrollment figures, states could expect to lose $17.8 billion in Medicaid reimbursements This would result in a median loss to states of 19% States have the option of increasing their share of the reimbursements (Massachusetts currently contributes 50%) or passing it down 43 Nursing Home Operations Our Island Home expects to receive 68% of its future income from Medicaid with the remainder from Medicare (5%) and private pay (28%) This represents approximately $4.1 million Our Island Home The median cut, if not subsidized by the Commonwealth, could result in a reduction of approximately $780,000 per year using the 19% median Possibilities: o This may not pass the Federal Legislature due to aggressive opposition o This is not scheduled to begin until 2020 o The Massachusetts cut may be closer to 11% due to the current allocation percentage o The Commonwealth may pick up all or a portion of the cut o The Town has 11 years worth of reserves to cover the maximum short-fall which extends the runway to 2031 o The Town could increase its annual appropriation as this is not a material amount 44 An additional concern presented in prior years was that Nantucket’s wealth was not comparable to other communities in Massachusetts that are rated Aaa We agree that the raw data as presented in a previous slide shows that Nantucket ranks near the bottom of Aaa rated communities in Massachusetts The raw data only includes 15% of the residential tax base who live year-round on the Island and while this is still good enough to merit a low-end Aaa classification, the true amount is significantly higher The remaining 85% is made up of billionaires and millionaires who own second homes on the Island; it is their tax assessments that drive the tax levy which represents well over 90% of the Town budget not the 15% We estimate that 6% (over 1 out of 20) of all US billionaires own property on the Island One needs to look no further than EQV per capita at over $2 million per person and the over $1 billion per year in annual property sales to understand that the slightly above average wage earner is not the purchaser of these properties 45 Property owners exist from 49 states and 15 countries, thus the tax constituent is spread and not concentrated Out of 3,500 counties in the United States, Nantucket County ranks 8th in median income Based on this we believe the salary pool is diluted and an analytical below the line adjustment should be made similar to the example in Moody’s standard criteria where the population of a university was factored differently into the income calculation 46 Positive Drivers for fiscal year 2017 Hotel excise and meal tax – exceeded forecast by $800,000 Motor vehicle excise – exceeded forecast by $500,000 Tax Title – never used in forecast $400,000 Licenses and permits - exceeded forecast by $325,000 Fees for services - exceeded forecast by $250,000 Other minor items – exceeded forecast by $700,000 Expenditure turn backs - $4,550,000 47 Overview of Fiscal 2018 budget Planned use of Free Cash Future Debt Plans Capital Projects 48 Other Postemployment Benefits Created Trust under 3MGL Ch. 32B Section 20 Created dedicated annual funding source from taxation of $500,000 Funded over $2.4 million as of August 2017 Major efforts to manage unfunded liability are underway o Significant plan design changes o More aggressive investment policy o Adopt proposed policy to use pension windfall in 2037 A current pro forma actuarial valuation using the new assumptions shows a net OPEB liability of about $68 million and a full fund date of 2051 49 Land Bank Separate organization created through a special act Town may advise but does not control Town guarantees debt Land Bank required to place funds in a sinking fund annually to guarantee debt payment Outstanding debt $22.2 million Annual debt service $2.4 million Unrestricted equity $18.9 million Operating income $16.1 million Should be categorized as self supporting 50 Economic development mission Maintain strong property values Plan for the orderly and coordinated development and protection of the physical, social and economic resources of the Island Maintain low vacancy rate and turnover in commercial property Aggressively compete with other family destinations Improve the appearance of property and the Town Stimulate future investment in the community 51 Expansion of wastewater system is key further economic growth Will result in increased values and growth Will attract more business to the island 52 53 Significant Projects Harbor Place Richmond Great Point Development, LLC Nantucket Cottage Hospital 54 Harbor Place Downtown parcel (5.65 acres) located adjacent to the Boat Basin Four current landowners Currently home to a fuel farm, supermarket, parking lot and boat marina Extraordinary opportunity for the Town to develop its waterfront into a mixed use gateway Recently the landowners presented a plan to redevelop the entire area Plan includes relocation of fuel farm and supermarket; and removal of parking lot Erection of a three-story parking garage and transportation center that will aesthetically blend into the downtown Facelift of the area closest to the waterfront with a mixed use component in the center of the new layout Estimated project to complete – over $1 billion 55 Harbor Place ($1 Billion development) 56 Richmond Great Point Development LLC Old South Road Properties Goal of RGPD is to make the best and appropriate use of the company’s land portfolio through the development of a thoughtful mixed-use Master Plan Community Consists of rental apartments that include 28 market rate apartment units Studio, one-bedroom and two-bedroom options Proposal for 42 residential buildings on 14.5 acres that include 225 apartment units of mixed market rate and affordable rate units and a proposal for 94 single family lots for 2, 3 and 4 bedroom homes; both mixed market rate and affordable priced homes was approved by the Planning Board in March 2017. 57 Richmond Great Point Development LLC 58 Nantucket Cottage Hospital $120 million construction of new hospital campus Current facility is 104 years old and is in need of major repairs and maintenance In danger of losing accreditation with Massachusetts Department of Public Health New facility will be designed to maximize privacy, safety and efficiency in a more modern medical manner Expected to be completed in 2018 Funded completely from gifts and donations including $20 million from Massachusetts General Hospital 59 Nantucket Cottage Hospital 60 61