Arlington instituted a long range planning process in 2004. The process is based on a projection of revenues and expenses using agreed-upon growth rates for budgeted expenditures and best estimates for growth not in our control (e.g. health insurance and state aid). The Long Range Plan is developed by the Long Range Planning Committee, which includes representatives from the Select Board, School Committee, Finance Committee, Capital Planning Committee, and the Town Manager, Superintendent, Treasurer, and Comptroller. The LRPC meets periodically during “budget season”. The long range plans developed in the LRPC are used as guidelines by the town and school budget authorities. Compliance with the plans is confirmed by the Finance Committee, and is presented in the Finance Committee Report to Town Meeting, which has the final authority on appropriations.
The Long Range Plan is projected using a number of agreements and assumptions, which are adjusted from time to time as conditions change. These agreements are the growth factors which we can control during the budget process and are the guidelines used by the Town and School budget authorities in creating their budgets.
- Town departments (both payroll and expenses) growth, net of offsets, will be limited to 3.25% per year.
- Capital budget – Arlington has adopted a policy of spending 5% of total revenues on the capital budget, which includes cash and debt service expenses on long-term renovations, maintenance, and equipment acquisition.
- School budget growth for general education will be limited to 3.5% per year.
- School Enrollment Growth Factor – In addition to the 3.5% school budget growth, a “growth factor” is added each year to recognize the increase in number of pupils. This is added to the school budget base, so grows the same 3.5% per year. See School Enrollment Growth Factor below for more details.
- Overlay Reserve appropriation – Each year, money is appropriated for tax abatements and other adjustments which result in property tax refunds, in a fund called the Overlay Reserve. The plan appropriates $600,000 most years and $800,000 in years when all properties are re-evaluated, since most abatement requests are made after revaluations.
- Overlay Reserve surplus – The Overlay Reserve appropriation is usually higher than need, and the surplus accumulates in the Overlay Reserve fund, which the Board of Assessors has authority to release to the General Fund as it deems appropriate. Based on historical experience, $200,000 of the surplus is returned as a revenue each year for general use, however, starting in FY2021, the amount has increased to $400,000 per year. If the fund is sufficiently large, a one time appropriation can be made; in FY 2020, $2.5M was appropriated from the Overlay Reserve fund to the Override Stabilization Fund.
- Reserve Fund – the Reserve Fund is a “rainy day” fund which is used to cover unexpected expenses. The plan assumes that 1% of the budget (not including debt-excluded budgets) will be appropriated to the Reserve Fund each year.
- Warrant Articles – this includes the costs of town committees, parades and celebrations, legal fees, and most other small non-departmental expenses, and the plan includes an annual increase of $50,000 in years when there are three elections, as opposed to other years when there are two elections.
These are the assumptions used in the long range plan over which the Town has little or no direct control, but are based on statutory limits (Prop 2 1/2), historical averages and political and economic factors which affect state aid and inflation. The state has provided a complete primer on property tax and Prop 1 1/2, “Levy Limits: A Primer on Proposition 2 1/2“.
- Property taxes are the major source of revenue, and are limited by a total 2.5% increase plus “new growth“, and is calculated from a number of components:
- State aid for education (Chapter 70) – will grow 4% in FY 2021, 3% in FY 2022, 2% in FY 2023 and 1% in FY 2024.
- State aid for general use (UGGA) – will grow by 1% each year.
- Local receipts – licenses, fees, etc. will grow $100,000 each year. See Local Receipts for more information.
- Free cash – every year, some budgeted appropriations are not spent, and this amount is called “free cash.” Fifty percent of the most recently certified free cash (from two years previously) is appropriated as revenue. For example, for FY 2020, half of the free cash from FY 2018 is used as revenue.
- Override Stabilization Fund – if the total of the revenue sources above is insufficient to cover projected expenses, then money is taken from the Override Stabilization Fund as a revenue. Alternatively, if revenues are higher than need, money is appropriated into the Override Stabilization Fund. See Funds for historical information.
Note that growth in state aid, while conservative, is highly dependent on the economy and political decision. After the 2008 recession, state aid dropped $7.4M, or 32%. Refer to the Revenues page for more history.
- Minuteman regional high school – as a member of the Minuteman consortium, Arlington is obligated to pay its share of the budget approved by the Minuteman School Committee. The plan assumes a 3.5% annual increase, based on historical averages. The assessment is affected each year by changes in Arlington student enrollment at Minuteman High School and by capital assessments levied to pay for the costs of the new Minuteman school building, erected in 2020.
- School Budget – school budget growth for general education will be limited to 3.5% per year.
- School Enrollment Growth Factor – in addition to the 3.5% school budget growth, a “growth factor” is added each year to recognize the increase in number of pupils. This is added to the school budget base, so grows the same 3.5% per year. See School Enrollment Growth Factor below for more details.
- Special Education – the plan assumes an average growth of 7% for the cost of providing special education.
- Town Departments – the growth of payroll and expenses, net of offsets, will be limited to 3.25% per year.
- MWRA Debt Service Shift – the Town adopted a provision of Proposition 2 1/2 under which the tax rate is increased to pay a portion of the MWRA water and sewer assessment linked to MWRA debt service. For many years this shift was $5,593,112. The Select Board voted to decrease this shift to $3,691,454 in FY2021, then to $1,845,737 in FY2022, and to eliminate it thereafter. The effect will be to decrease property taxes and to increase water and sewer rates.
- Pensions – the plan assumes a 5.5% annual increase in appropriates to fund pensions for retired employees.
- Insurance – this is mainly for health insurance for current employees from the Massachusetts Group Insurance Commission, and is estimated from the forecasted GIC rate, employee head count and demographics, and health care inflation. The plan estimates a 5.25% annual growth rate.
- State Assessments – these includes assessments for MBTA service, MAPC, and other services provided by the state, and are assumed to grow roughly 2.5% annually, based on historical averages and state law.
- Other appropriations – all other small expenses which vary from year-to-year, including debt service not covered by debt exclusions, court judgements, etc. The plan includes $100,000 for legal settlements, plus the forecast for debt service for the acquisition of the Symmes property.