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Town of Nantucket Massachusetts 10.05.2016A -Town of Nantucket, Massachusetts Presentation Prepared For Standard and Poor’s RATINGS SERVICES 2 Slide Itinerary……………………………………………………………3 Team Nantucket……………………………………………………4 Presentation Agenda………………………………………………5 Management………………………………………………………6 - 11 Financial Policies……………………………………………………12 Revenue and Exepnditure Assumptions……………………………13 - 15 Budget Amendments and Updates…………………………………16 Long-Term Financial Planning………………………………………17 Capital Improvement Plan…………………………………………18 Investment Management……………………………………………19 Debt Management…………………………………………………20 Reserve Policies……………………………………………………21 - 22 Financial Measures…………………………………………………23 Budgetary Flexibility…………………………………………………24 - 35 Budgetary Performance……………………………………………36 - 41 Liquidity……………………………………………………………42 - 43 Debt and Contingent Liabilities………………………………………44 - 48 Other Pertinent Items………………………………………………49 - 53 Economy……………………………………………………………54 - 66 Contents Itinerary Opening Remarks – Jim Kelly, Chairman of Board of Selectmen Introductions – C. Elizabeth Gibson, Town Manager Presentation o Brian E. Turbitt, Director of Municipal Finance o Julia Lindner, Financial Analyst o Andrew Vorce , Director of Planning and Land Use Services Presentation Questions/Lunch Island Tour Guest Drop-Off 3 Team Nantucket Town of Nantucket C. Elizabeth Gibson, Town Manager Brian E. Turbitt, Finance Director Julia Lindner, Financial Analyst Deborah Dilworth, Assessor Andrew Vorce , Director of Planning and Land Use Services Roselli, Clark and Associates Tony Roselli, CPA, Partner First Southwest Company, Division of Hilltop Securities Cinder McNerney, Managing Director Megan Hyland, Assistant Vice President Lisa Driscoll, Assistant Vice President 4 Presentation Agenda Management Financial Measures Management of Long-Term Liabilities Planning and Economic Development 5 Management Town Manager, C. Elizabeth Gibson o Experience Town Manager, Town of Nantucket (1994 – present) Masters in Public Administration 6 Management Brian E. Turbitt, Finance Director o Experience Town of Nantucket, Finance Director (2014 – present) Town of Millbury, Finance Director (2008 – 2014) Town of Millbury, Finance Committee Chairman (2006 – 2008) Member (2005 – 2006) 7 Management Julia Lindner, Financial Analyst o Experience Town of Nantucket, Financial Analyst Investment Banking RBC Capital Markets – Analyst Genuity Capital Markets – Associate 8 Management Deborah Dilworth, Principal Assessor o Experience Town of Nantucket Principal Assessor (2001 – present) Interim Finance Director (2013 – 2014) 9 Management Andrew Vorce , Director of Planning and Land Use Services o Experience Nantucket Planning and Economic Development Commission Director (2005 – present) Senior Planner (1994 – 2005) State Planner of the Year Award (2015) MPA; Suffolk University 10 Management The current administration is making a significant positive impact on finances o Financial policies that have existed for a number of years were codified in fiscal 2016 o This was made possible through a grant received as part of a Community Compact Cabinet agreement with the Commonwealth o Emphasis is to continue the philosophy of building reserves through conservative forecasting and stringent budget management o Draft policies are currently waiting Board of Selectmen approval (anticipated before calendar year-end) 11 Financial Policies Codification of Management Policies o Revenue and Expenditure Assumptions o Budget Amendments and Updates o Long-Term Financial Planning o Long-Term Capital Planning o Investment Management Policies o Debt Management Policies o Reserve and Liquidity Policies 12 Revenue and Expenditure Assumptions Revenue and Expenditure Assumptions o Financial assumptions and projections are realistic and well-grounded o Formal historical trend analysis is performed and updated periodically for both receipts and spending o Efforts are made to determine whether revenues or expenditures will deviate from their long-term trends o Local and national indicators are monitored for any cyclical changes 13 Revenue and Expenditure Assumptions Revenue Assumptions o Property taxes are assumed to increase 2.5% per year o New growth is estimated at 85% of long-term average o State Aid assumed to remain constant o Local receipts are forecasted using qualitative and quantitative methods (seasonally adjusted time series) o Revenue projections are conservative despite very strong growth in local receipts 14 Revenue and Expenditure Assumptions Expenditure Assumptions o Health insurance projected to rise 8% per year •Cadillac Tax in full effect by fiscal year 2021 o Pension funding in accordance with actuarial valuation o Debt service in accordance with current amortization schedules with estimates for new debt (working closely with financial advisor) o Operating expenditures projected to increase at an average of 2% o Salaries assumed to increase in accordance with collective bargaining agreements •Non-union employees projected at 2% for fiscal year 2017 and 1.5% thereafter 15 Budget Amendments and Updates Budget Amendments and Updates o Procedures for reviewing and amending the budget are in place o Weekly budget surveillance is performed to identify problem areas o Management possess ability and willingness to address necessary intra-year revenue and expenditure changes to meet fiscal targets o Involvement of department heads on a monthly basis is key to expenditure control o Quarterly budget updates are presented to Board of Selectmen o Response is through spending freeze, Town Meeting action or reserve fund transfer 16 Long-Term Financial Planning Long-Term Financial Planning o Long-term financial plan is in place o Rolling 7- year forecasts are utilized o Future issues are identified timely and possible solutions are vetted o Revenue and expenditure decisions are made from a long-term perspective o Structural balance is a clear goal 17 Capital Improvement Plan Long-Term Capital Overview o The Town has created a long-term capital improvement plan o 10 year rolling plan o Surveys all department heads and managers o Annual capital needs plan developed based on high/medium/low priority o Funding sources identified up front o Linked to operating budget and long-term revenue and financing strategies o Larger projects costs determined using professional consultants 18 Investment Management Investment Management Policies o Currently following MGL investment regulations o Trust funds invested using published list o Stabilization funds invested using prudent investor regulations o Reduced risk, rather than yield is primary objective o Requirement to report investment performance to the Board of Selectmen quarterly 19 Debt Management Debt Management Policies o Current adopted policy 12% of expenditures o May exceed this limit only in certain situations and only through a debt exclusion o Average life of combined debt should never exceed 10 years o 65% of succeeding debt will be retired within 10 years o Enterprise debt to be subsidized through user rates 20 Reserve Policies Reserve Policies o Reserve ratio on a GAAP basis as defined by S+P rating agency shall not be below 15% of expenditures (unassigned + assigned/adjusted expenditures) o 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 o Free cash shall not be below 5% of expenditures 21 Reserve Policies Reserve Policies o General Stabilization Fund Target to reach 7% of expenditures (currently 6.6%) Use for unique and emergency type situations (i.e. 9C cuts, snow and ice, catastrophic event) o Capital Stabilization Fund Target to reach and exceed 3% of expenditures (currently 1.5% - funded in 2016) Use for capital only to help subsidize capital improvement plan or emergency capital event 22 Financial Measures Budgetary Flexibility Budgetary Performance Liquidity 23 Budgetary Flexibility Unassigned plus assigned fund balance (GAAP) = $20.6 million Reserve ratio = unassigned fund balance plus assigned fund balance divided by general fund expenditures and transfers out Reserve ratio is 25.3% Consistently over 20% since 2010; attestation that management reserve policies are operating as intended Dollar levels have been trending higher 142% higher than 2010 Past few years are highest level in the Town’s history History of general overrides passing Current forecasts call for maintaining reserves at similar or slightly higher levels for several years 24 Budgetary Flexibility 25 Fiscal General Fund Transfers One-time Adjusted Reserve Year Assigned Unassigned Total Expenditures Out Capital Recurring Ratio 2016 3,028,651 17,571,873 20,600,524 75,753,810 16,551,710 (10,938,480) 81,367,040 25.32% 2015 6,323,207 15,470,669 21,793,876 72,251,992 8,312,295 (5,271,000) 75,293,287 28.95% 2014 2,047,757 14,745,606 16,793,363 68,622,281 8,403,098 (4,017,480) 73,007,899 23.00% 2013 5,146,635 13,881,601 19,028,236 64,911,578 9,843,342 (4,855,920) 69,899,000 27.22% 2012 2,182,323 14,373,770 16,556,093 63,774,476 11,278,447 (2,965,297) 72,087,626 22.97% 2011 4,488,570 12,186,769 16,675,339 63,133,614 9,666,236 (4,550,470) 68,249,380 24.43% 2010 3,136,435 11,047,142 14,183,577 69,768,595 5,586,596 (4,510,690) 70,844,501 20.02% Budgetary Flexibility Existing Stabilization Funds (As of June 30, 2016) o General Stabilization - $5,044,555 o Capital Stabilization - $1,250,000 26 Budgetary Flexibility 10.0 15.0 20.0 25.0 2010 2011 2012 2013 2014 2015 2016 14.1 16.7 16.6 19.0 16.8 21.8 20.6 Unassigned plus assigned fund balance (in millions) 27 Budgetary Flexibility 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2010 2011 2012 2013 2014 2015 2016 20.0% 24.4% 23.0% 27.2% 23.0% 28.9% 25.3% Reserve ratio 28 Budgetary Flexibility The Town has tremendous flexibility in its future budgets o Levy capacity in the past 5 years at 3 - 5% of levy o Direct capital from the General Fund $3 - $11 million in past 5 years o New growth averaging $0.9 million over last 10 years o Reserve ratio at almost 25% 29 Budgetary Flexibility Historical Unused Levy Capacity 30 Fiscal Levy Unused Year Limit Levy Levy Capacity Tax savings 2016 72,429,696$ 69,636,374$ 2,793,322$ 3.86% 2015 69,792,303 66,329,953 3,462,350 4.96% 2014 67,372,224 64,647,039 2,725,185 4.04% 2013 65,695,822 63,618,274 2,077,548 3.16% 2012 64,834,729 62,274,744 2,559,985 3.95% Budgetary Flexibility Direct Capital Outlay 31 Fiscal Direct Percent Year Capital of Levy 2016 10,938,480 15.7% 2015 5,271,000 7.9% 2014 4,017,480 6.2% 2013 4,855,920 7.6% 2012 2,965,297 4.8% 2011 4,550,470 7.2% 2010 4,510,690 7.4% Budgetary Flexibility New growth is trending back to its highs of 2007 and 2008 as current development is robust and will have a positive impact on future economic conditions; also see planning section of slides for economic development 10 year average $0.88 million 2016 new growth $1.14 million 32 Budgetary Flexibility New Growth History 33 New Growth 2007 1,180,879 2008 1,371,189 2009 1,028,362 2010 683,501 2011 333,058 2012 518,585 2013 859,044 2014 679,339 2015 1,037,749 2016 1,140,085 5 year average 846,960 10 year average 883,179 Budgetary Flexibility - 0.20 0.40 0.60 0.80 1.00 1.20 1.40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 New Growth (in millions) 34 Budgetary Flexibility History of successful tax overrides 35 Fiscal Year Amount 2012 100,000 2007 2,200,000 2006 495,000 2004 282,000 Budgetary Performance The Town’s budgetary performance has been outstanding in each of the last 4 years Results versus expenditures have ranged from 8 to 11% after factoring out direct capital disbursements The trend is expected to continue in 2017 The Town was able to balance its budget for fiscal 2017 and is in the process of setting the tax rate 36 Budgetary Performance 37 2016 2015 2014 2013 2012 General Fund Revenues 88,986,863 82,466,208 78,058,829 76,902,637 74,609,148 Adjustments: Transfers in 44,402 81,000 1,751,972 600,428 106,831 Unique items - strom reimbursement (843,805) - - - - Adjusted General Fund Revenues 88,187,460 82,547,208 79,810,801 77,503,065 74,715,979 General Fund Expenditures 75,753,810 72,251,992 68,622,281 64,911,578 63,774,476 Adjustments: Transfers out 16,551,710 9,512,295 8,403,098 9,843,342 11,278,447 Unique items and capital (10,938,480) (5,271,000) (4,017,480) (4,855,920) (2,965,297) Adjusted General Fund Expenditures 81,367,040 76,493,287 73,007,899 69,899,000 72,087,626 Adjusted budgetary result 6,820,420 6,053,921 6,802,902 7,604,065 2,628,353 General Fund Net Result 8.4%7.9%9.3%10.9%3.6% General Fund Budgetary Performance 38 2016 2015 2014 2013 2012 All Governmental Funds Revenue 97,741,601 91,584,368 86,860,554 84,605,465 84,246,345 Adjustments: Indirect charges - - 1,110,478 579,447 260,996 Unique items (843,805) - - - - Adjusted Governmental Fund Revenues 96,897,796 91,584,368 87,971,032 85,184,912 84,507,341 All Governmental Funds Expenditures 105,290,679 85,326,226 79,508,402 75,872,635 72,319,131 Adjustments: Enterprise subsidies 8,706,384 7,962,295 8,053,098 8,882,738 11,464,597 Unique items and capital (20,235,917) (5,951,395) (3,933,554) (7,977,431) (3,128,718) Adjusted Governmental Fund Expenditures 93,761,146 87,337,126 83,627,946 76,777,942 80,655,010 Adjusted budgetary result 3,136,650 4,247,242 4,343,086 8,406,970 3,852,331 All Governmental Funds Net Result 3.3%4.9%5.2%10.9%4.8% All Governmental Funds Budgetary Performance Primary drivers for 2016 (favorable to budget/forecast) o Motor vehicle receipts $0.8 million o Meals excise receipts $0.1 million o Room occupancy $0.9 million o Departmental and other receipts $0.9 million o Tax title and delinquent taxes $0.6 million o Other minor revenue items in aggregate $0.8 million o Expenditure turn-backs $2.5 million 39 Budgetary Performance Primary drivers for 2015 (favorable to budget/forecast) o Motor vehicle receipts $0.5 million o Meals excise receipts $0.1 million o Room occupancy $0.6 million o Departmental and other receipts $0.7 million o Tax title and delinquent taxes $1.9 million o Other minor revenue items in aggregate $0.8 million o Expenditure turn-backs $2.2 million 40 Budgetary Performance 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 2012 2013 2014 2015 2016 2.60 7.60 6.80 6.10 7.70 Operating performance general fund (in millions) 41 Liquidity The Town’s liquidity has historically been very strong Unrestricted cash and investments $66 million at end of fiscal year 2016 Trend continues into fiscal year 2017 Cash to debt service and cash to expenditure ratios are at the top end of the rating scale 42 Liquidity 43 Gross cash 106,919,887 Gross investments 4,200,701 Restricted cash (44,915,972) Restricted investments (167,197) Unrestricted cash 66,037,419 debt service 2016 (not enterprise)7,062,270 ratio 935.07% General fund expenditures 2016 (includes subsidies to OIH and Landfill)84,523,324 ratio 78.1% Debt and Contingent Liabilities Strong liquidity position has enabled the Town to avoid cash flow notes for a number of years The Town does not engage or have any exposure in any of the following o Bank loans o Variable rate debt o Direct purchase debt o Unrated loans or bonds 44 Debt and Contingent Liabilities The Town does not have any overlapping debt Projects related to the current bond issue o School - $40M o Airport - $ 2M o Miscellaneous rollovers Projects related to possible future bond issues o Complete sewer number 1 - $41M o Sewer number 2 - $80M o New nursing home - $40M o Fire station - $17M o Administrative offices - $30M 45 Debt and Contingent Liabilities Barnstable Contributory Retirement System Net Pension Liability - Nantucket proportionate share - $59.9M Plan assets as a percentage of latest Actuarial Accrued Liability 58.1% In top 50% relative to funding ratios in the Commonwealth as of 1/1/14 valuation out of 105 systems 46 Debt and Contingent Liabilities Other Postemployment Benefits (OPEB) o Created Trust under 32B section 20 o Created a dedicated annual funding source from taxation o Plan is to eventually incrementally fund each year until ARC is reached; if forecasts allow o 2014 - 2017 – funded $1,750,000 in aggregate o Upon fully funding pension in 2036, become more aggressive with OPEB 47 Debt and Contingent Liabilities Other Postemployment Benefits – funding to date 48 Fiscal Year Amount 2014 250,000 2015 500,000 2016 500,000 2017 500,000 Other Pertinent Items 2017 budget versus 2016 budget o Health insurance +9% o Pension +8% o Planned staff increases +2% o Contractual wages +2% 49 Other Pertinent Items Proprietary Fund Subsidies o Several years ago Our Island Home and Landfill were converted to enterprise funds from Town Departments o Management believed transparency was important o Nothing has changed economically from the previous reporting o Activities will never be self sufficient and never were o Essentially they are still Town departments supported by taxation o Any Town department, if carved out, would need a general fund subsidy o Town is committed to and will continue to support these activities o All other enterprise funds are self supporting 50 Other Pertinent Items Storm mitigation o Storm mitigation is a critical component of the Towns strategic goals o The Town is confident it is well prepared for a major catastrophic event Tremendous budgetary flexibility Direct cash capital outlay is up to about $10 million per year; this could be deferred or borrowed Excess levy capacity is averaging about $3 million per year and could be used Reserves are well above Town target level of 15% thus $8 million could be freed up and still be at target Excess flood insurance of $10 million Reliance on Federal Emergency Disaster Relief (No-name storm 1991 was costliest on record at $30 million and was covered by FEMA) Borrowing capacity is close to $1 billion Town has shown a willingness to override debt when needed and general operating when needed as illustrated in previous slides 51 Other Pertinent Items Land Bank o Separate organization created through a special act o Town has no control o Town guarantees debt o Outstanding debt $26.9 million o Annual debt service approximately $2.8 million o Unrestricted equity $10.8 million o 2016 operating revenues $24.2 million o 2016 operating expenditures $7.8 million o Purchased land each of last two years with annual surplus 52 Other Pertinent Items Miscellaneous items o School enrollment is increasing due to population increases o More people are moving to the Island o Current contracts are through June 30, 2017 o Negotiations will be commencing in the near future 53 Economy Economic development mission o Maintain strong property values o Plan for the orderly and coordinated development and protection of the physical, social and economic resources of the Island o Maintain low vacancy rate and turnover in commercial property o Aggressively compete with other vacation destinations o Stimulate future investment in the community 54 Economy Expansion of Wastewater system is key o Will result in increased values and growth o Will attract more business to the island o Maintaining high water quality in the harbors 55 Economy Major Employers o Town of Nantucket o Nantucket Cottage Hospital o Nantucket Island Resorts o Stop and Shop o Marine Home Center o Blue Hills Bank 56 Economy 57 Equalized valuation has been consistently very strong over the past few years; and in 2016 exceeded $20B. The most recent valuation places the Town 4th in the Commonwealth with 5 of the top 6 rated AAA. Equalized Valuation (in billions) Boston 128.0 Cambridge 34.7 Newton 24.3 Nantucket 20.5 Brookline 19.7 Barnstable 13.1 Quincy 12.0 Worcester 11.2 Falmouth 11.2 Economy 58 Economy 59 Economy Projects o Harbor Place Redevelopment o Richmond Great Point Development, LLC o Nantucket Cottage Hospital o Nantucket Public Schools 60 Economy Harbor Place Redevelopment o Downtown parcel (5.65 acres) located adjacent to the Boat Basin o Four current landowners o Currently home to a fuel farm, supermarket, and parking lot o Extraordinary opportunity for the Town to develop its waterfront into a mixed use gateway o Recently the landowners presented a plan to redevelop the entire area o Plan includes relocation of fuel farm and supermarket; and removal of parking lot o Erection of a 3 story parking garage and transportation center that will aesthetically blend into the downtown o Facelift of the area closest to the waterfront with a mixed use component in the center of the new layout o Estimated project to complete – up to $200 million 61 Economy Harbor Place Redevelopment 62 Economy Richmond Great Point Development LLC o Old South Road properties o 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 o Currently phase 1 of the project is under construction which consists of 28 market rate apartment units with a mix of studio, one-bedroom and two-bedroom options o Proposal for 42 residential buildings on 14.5 acres that include 225 apartment units of mixed market rate and affordable rate units o Proposal for 100 single family lots for 2, 3 and 4 bedroom homes; both mixed market rate and affordable priced homes 63 Economy Richmond Great Point Development LLC 64 Economy Nantucket Cottage Hospital o $90 million construction of new hospital o Current facility is 104 years old and is in need of major repairs and maintenance o New facility will be designed to maximize privacy, safety and efficiency in a more modern medical manner o Expected to be completed in 2018 o Funded completely from gifts and donations including $20 million from Massachusetts General Hospital 65 Economy Nantucket Cottage Hospital 66 Questions 67