The EYE on Harvard

News Analysis: How much debt is too much debt?
by John Osborn, Reporter Harvard Press · Friday, April 20, 2012

At the debate last week sponsored by the Harvard League of Women Voters and the Harvard Press, the two candidates competing for a seat on the Board of Selectmen took different positions on the $3.97 million proposal of the Municipal Building Committee to renovate Town Hall.

Candidate Rhonda Sprague, a local real estate broker and member of the Community Preservation Committee, cited a report of the Capital Investment and Planning Committee that said funding the current capital plan would result in an increase of 26.8 percent in the average tax bill by 2020, and she warned that the increase would make it even more difficult for young families to buy homes in Harvard and for older residents to stay.

“If we raise our taxes to a point where Harvard becomes not sustainable for a lot of people,” she said, “I have a problem with it.”

But candidate Lucy Wallace, who previously served on the Board of Selectmen for 12 years, said it was wrong to place the primary responsibility for rising taxes on the Town Hall and other capital projects that the capital committee has included in its financial impact analysis for the next eight years. Rising town expenses—the so-called “omnibus budget”—together with a decline in state aid are the culprits, she said. Town debt has actually been declining, Wallace said, and the additional expense of Town Hall is “not significant.”

When Harvard residents reach into their mailboxes later this week to pull out their copies of the 63-page Town Meeting Warrant, they’ll find much of the information they need to draw their own conclusions in the form of reports from both the capital and the finance committees. For the truly committed, a visit to the town library to retrieve warrants from the past 10 years and to the massive database of municipal data at the Massachusetts Department of Revenue website will give them the additional historical and comparative data they need for the rest.

Falling debt, for now, but expenses are rising

The numbers for the fiscal years 2000 through 2012 confirm a tale of rising town costs and falling state aid. The net effect has been a rise in taxes, with the promise of more of the same for the next eight years, from 2013 (which begins July 1) through 2020, according to the separate projections of the finance and capital committees.

But throughout the past 12 years, town debt has played a minor role—though not a negligible one—in determining the tax rate for any given year, and it will continue to do so, both in absolute terms and as a percentage of the Harvard annual budget, even as the borrowing bill comes due on the town center sewer later this year and whether or not voters approve the proposed renovation of Town Hall and eight other major projects at Town Meeting on April 28.

When it comes to the question of how much debt is “affordable,” however, historical data and future projections are not much help. Bond rating agencies, looking out for the security of bondholders, have their own guidelines. So do a smattering of towns, but they’re rare, and the state Department of Revenue makes no recommendations, though it tracks town finances closely.

But it’s best to start with Harvard’s raw numbers. Here are some facts, lifted mostly from the reports of the capital and finance committees and past Town Meeting warrants.

The amount of principal and interest that the town pays each year on its outstanding or “prior” debt has been declining as a percentage of the town budget for the past decade, dropping from a high of 12 percent of town expenses to a low of five percent next year, according to an analysis done by the Press. That’s a drop of 22 percent. The actual dollar amount of debt payments due in 2013 is $1,007,490, down from the $1,484,443 of 10 years ago. If voters next week approve two capital projects in the Town Meeting warrant–the renovation of Town Hall and the reconstruction of Littleton County Road–annual payments for the pair will account for a mere one-tenth of one percent of the town budget in their first full year of repayment.

2.5 percent increases alone will raise taxes 26 percent by 2020

As debt has declined, town expenses have been rising, from $12,866,096 in the year 2000, to the budgeted $20,710,819 that voters will be asked to approve this spring. That’s an increase of 61 percent, and taxes have increased accordingly. By state law, the town can increase taxes by a maximum of 2.5 percent per year, without an override vote.

“Since I’ve been here we’ve always needed the full 2.5 percent and then some,” Finance Director Lorraine Leonard told the Press in an email.

“This year we did have a little extra at the end of the process and it was allocated to building maintenance and capital funding,” Leonard said. “I have seen small amounts not allocated in other towns, but it is very uncommon. A 2.5 percent increase (plus new growth) isn’t much to work with when 70 to 80 percent of your budget is personnel and [when] some costs, such as health insurance, are pretty much uncontrollable.”

In its own analysis, the Press found that an annual 2.5 percent increase by itself will raise taxes for residents and businesses by 26 percent by 2020.

Meantime, the amount of local aid available from the state to offset town costs has fallen by 18 percent, from a high of $4,116,688 in 2009, when the recession was beginning to rattle Massachusetts finances, to $3,381,224 in the current year, a trend that shifts more of the cost of running the town and paying down its debt to taxpayers. Unless the state reverses course and sweetens the local aid pot for towns as the economy recovers, a further decrease in state aid is likely in the coming fiscal year 2013, which Leonard, using state forecasts, has estimated will level out at $3,303,641.

Throughout this period, the salaries and benefits of Harvard teachers, police, public works employees, and other municipal employees have accounted for 88 to 95 percent of Harvard’s annual operating expenses. That ratio will remain true–and could rise—even if Harvard taxpayers approve all of the projects in the capital committee’s analysis.

In its review of the projections published by the finance and capital committees in the Town Meeting warrant, the Press found that in such a scenario, total town debt would crest at 8 percent of the town budget in 2017—a number well below the high of 12 percent last seen in the fiscal year 2002, and then, in the absence of additional projects, decline.

Debt management policy: “We don’t have one”

Still, none of this answers the question of how much debt is too much?

Harvard is among the majority of towns in the state that has no policy for dealing with that the question.

“We do not have a written formal policy other than what is in the Capital Planning and Investment Committee article language [in a previous Town Warrant],” Leonard confirmed in an email to the Press this week. “No red lines, just a conservative view in order to maintain our AA+ bond rating.”

Emails sent by the Press to the chairs of the capital and finance committees asking what informal guidelines, if any, their committees observed, were unanswered.

The state Department of Revenue “doesn’t have general guidelines,” according to Daniel Bertrand, a spokesman for its Division of Local Services. “Communities vary enormously,” he told the Press in a phone interview.

The answer depends on the needs of each town. For some, a fire truck or road improvement is a major undertaking, he said, while for larger towns with more commercial activity, such costs are more easily absorbed. However, Bertrand observed, the average amount of debt service carried by towns across Massachusetts is 7 percent of total expenses.

In its “Guide to Financial Management for Town Officials,” the Massachusetts Municipal Association, a non-profit advocacy group for the 301 cities and towns in the state, is equally silent. A 10-year-old edition of the Finance Committee Handbook of the Massachusetts Association of Town Finance Committees warns that towns must be “diligent in controlling” their debt positions.

“The impact of putting substantial debt onto the tax rate can make or break the willingness of a community to pay for future projects,” the handbook says.

But the Association of Town Finance Committees, like the MMA, offers no numerical guidelines. The Press was unable to reach either organization for comment in time for this article.

Nevertheless some towns have proceeded to set debt management policies for themselves. Ayer, for example, established debt restrictions in 2010 that limit debt payments as a percentage of the town omnibus budget to 8 percent. Shirley, Lancaster, and Boxborough have no such written policy. The much larger town of Dedham, whose debt management policy is on display at the MMA website, has vowed to limit debt payments to 10 percent of its budget in any given year, but also establishes a debt service “floor” of 2 percent as “an expression of support for continued investment in the town’s roads, sewers, public facilities and other capital assets.”

A vote of confidence from Standard and Poor’s

Harvard’s outstanding debt received a new vote of confidence last week from Standard and Poor’s, which gave the town’s latest municipal bond an AA++ rating, within reach of the firm’s maximum AAA rating. In a phone call, credit analyst Hilary Sutton, who wrote the report, said that while the low-to-moderate debt burden was a factor, the relative wealth of Harvard was the more important factor. The rating, she wrote, “reflects our assessment of the wealthy and residential nature of the town’s tax base, which is expected to…provide a stable source of property tax revenues, the town’s primary revenue source.”

The town has “very strong income levels and extremely strong wealth,” says the report, which also noted that unemployment as of February had declined to 4.5 percent, below the state average at the time of 8.2 percent.

In the end, the “affordability” of a town is in the eye of the beholder, but current and projected debt in Harvard does not seem to be the major factor behind rising town taxes. Next week, taxpayers will get to decide for themselves, first at Town Meeting and later at the ballot box on May 1, when they’re asked to approve debt exclusions for two new projects:

$750,000 for the reconstruction of Littleton County Road, and
$3,970,000 for the renovation of Town Hall, $1 million of which will be covered with funds from the Community Preservation Trust.
The two projects will add $28,529 to the existing $1.3 million of town debt service in 2013. In fiscal 2014, when Harvard taxpayers also begin to repay the cost of the new town center sewer, the amount of the annual debt repayment would rise further, but never beyond 1.3 percent of the ever -increasing operating budget.

Master Plan Steering Committee: Phase II will seek a Devens direction

by Matthew Cook, Editor Harvard Press · Friday, April 20, 2012

One question trumps every other question about the future of land use in Harvard, say members of the Master Plan Steering Committee: What does the town want to do about Devens?

The Planning Board is asking for Town Meeting approval of $100,000 to complete updating the town’s now 10-year-old Master Plan. At the end of this process, say the steering committee members, the town will have its Devens answer.

“The first thing that the town told us, in this master planning process that we’ve gone through so far, is we need to fix Devens,” said Joe Hutchinson, chairman of the Master Plan Steering Committee and an unopposed candidate for Planning Board. “We need to figure out what the town wants, with respect to Devens.”

Results from a town-wide survey done as Phase I of the master planning process were inconclusive. In that survey, said steering committee and Planning Board member Michelle Catalina, 44 percent of respondents said they would like the town to take back jurisdiction of Harvard’s portion of the former military base, 30.1 percent don’t want to take back jurisdiction, and 21 percent said they need more information.

“So if we were to go to a vote…to decide on a direction, we can’t,” Catalina said. “These numbers are way too close for us to make a decision on what to do.”

When the Master Plan was created in 2002, Catalina said, it didn’t touch on Devens because the committee at that time felt it didn’t have enough information.

“What we learned from doing this master plan is many things are unchanged, but there’s more fiscal pressure on us now than there was in 2002,” Catalina said. “And that’s asking Harvard maybe to consider creating a different balance in our land-use decisions.”

Although the Master Plan is primarily a land-use document, Catalina said, property tax revenue from a piece of land is generated by what the town allows that land to be used for.

“Different land-use decisions lead to being able to have more money,” she said. “So unlike the 2002 Master Plan, where Devens wasn’t really a part of it, we heard that Harvard needs to make a decision about Devens.”

Phase II of the master planning process, then, Hutchinson said, will involve hiring a consultant to complete a “municipal impact” study of Devens.

“What we need is the study of Devens as it impacts Harvard’s revenues and expenses, as it impacts its schools, as it impacts housing, as it impacts open space and recreation, all the elements in the master plan,” he said. “…Because Devens affects everything else in the master plan, we would then inform everything else that gets done in the scoping process of Phase II with what we learn about Devens and its impact on Harvard.”

The committee members say it’s necessary for a consultant to do the study, rather than the town handling it in-house, so that it is, among other things, “independent of the politics of the town, ” Catalina said.

“You want a professional,” Hutchinson said. “You want someone with expertise, and you want somebody who’s independent to give you this data.”

Lucy Wallace, a member of the steering committee and a candidate for Board of Selectmen, added that an independent consultant would bring in perspectives from beyond Harvard’s borders.

“With a consultant, because they have experience with different clients, they can bring different ideas to the table that we don’t think of in our own myopic little world here of Brigadoon,” she said.

Whatever the consultant discovers will be passed on to the residents of Harvard, the committee members say. They plan to use part of the $100,000 for education efforts.

“One of the things that needs to happen in Phase II is public outreach and education at a very high level and in an ongoing way,” Hutchinson said. “If we’re asking this consultant to go discuss impact, we have to make that impact known to our residents and we have to know how they feel about it, and that’s what we’ll do throughout.”

Ultimately, the steering committee members say, Harvard could take the Devens issue to a Special Town Meeting vote, informed by the data in the consultant’s report. This vote could take the form of a resolution on how the town wants to proceed regarding Devens.

“Joe has been the strongest advocate of this, and I think, in a sense, he’s right, because whoever has to go negotiate has a stronger sense of commitment of the community,” Wallace said. She noted the large turnout for the recent Special Town Meeting on the redevelopment of Vicksburg Square in Devens. “If we were going to have something like this, I imagine you might get a really big group in there, which means you would really feel confident saying the direction we’re preceding is ‘this way.’ And you wouldn’t get to the end of the road, which has happened the last three times [Town Meeting has voted on Devens issues], where your legs were cut out from under you.”

Completion of Phase II could happen within the next 12 months, the committee members say, if Town Meeting approves their funding on April 28. If not, Catalina said, “We’ll probably regroup and try again.”

The funding article has been recommended by the Finance Committee. Selectmen, however, voted 3–2 earlier this month against recommending it.

“Rather than blindly approving a ton of money for a series of tasks that have been put together by a very small collection of people,” Selectman Bill Johnson said at the time of the vote, “I’d rather give our working boards and committees the time they need to review the vision” and incorporate it into their own five-year plans. “Let them define the external services they need to collect and analyze data to resolve questions that they’re unable to resolve [on their own].”

“To me,” Johnson said, “it’s like putting a $100k chauffeur on retainer, when you don’t know where you want to go, how many trips you’re going to take, or how far you need to go on each trip.”

Catalina said last week she’s not sure the steering committee was “clearly represented” to the Selectmen or others around town who say Harvard has studied Devens enough.

“I think when we explain to them what we’re going to put together, what the goal is going to be, and the way it’s going to work, hopefully they’ll decide it is a good thing to do,” she said.