Financial Management

’Tis the season for budget preparations. The pandemic has wrought havoc on our lives and municipal finances. From the unexpected costs of local emergency management to the unforeseen economic turmoil that will be realized for months to come, towns will have to be creative in order to ensure fiscal resilience. VLCT provides this advice for budgeting amid COVID-19 and global economic uncertainty. 

As Bob Dylan sang way back in the ’60s (a time many of us remember fondly, assuming we can remember it at all), “a hard rain is gonna fall.” Well, it fell, and the next budget is going to be a challenging one for most of us in the municipal world. I’ve outlined some best practices for you to consider in planning for that next budget. 

1. Keep long-term goals in mind when developing your budget. Be aware of future needs and be sure the budget incorporates a way to reach those goals. Your budget is NOT just a one-year commitment: your annual budgets should be the vehicle to finance your Town Plan and Capital Improvement Program goals along with the municipality’s annual operations. If you continually defer these costs, you will most certainly pay for them down the road with higher maintenance, repairs, or exorbitant financing costs. Careful capital investment planning and funding should continue through a crisis. Temporarily suspending funding, rebalancing project loads, or refinancing debt are ways to relieve some fiscal stress in a given year. Just be sure you have a catch-up plan in place for future budgets.
2. Analyze your historical data for trends and use that in forecasting. This is particularly important when there is uncertainty about future revenues and expenses. DO NOT use the old incremental budgeting method (adding a percentage increase to the current budget). It’s a poor practice and can lead to disaster. Historical data tells an important story. Look at the past 3 to 5 years of revenues and expenses, and factor in any information you have about what the future may hold for each of your major line items (taxes, salaries, benefits, etc.). Be conservative with revenues and consider eliminating any lower priority programs or costs.
3. Pay attention to collective bargaining agreements and other multiple-year contractual arrangements such as leases, consulting, and professional services. Understand your contracts thoroughly and brainstorm options for cost-cutting. You may be able to re-negotiate some lease or service agreements depending on contract language and vendor flexibility. Union contracts are a bit more challenging. Read the contracts carefully and determine where you may have some wiggle room. A discussion with bargaining unit representatives may yield positive results if they are faced with unpalatable consequences but are treated fairly and with respect.

Above all, it is important that your staff who are managing department budgets understand the need to stay lean and avoid “cushions” or “padding,” so you may want to consider use of surplus (if you have it) to cover one-time costs or emergency items. If municipal officials believe that they won’t be left in the lurch in the event of unforeseen expenses, they will be less apt to hoard funds, and you will have some flexibility in maintaining your essential services. The good news is that, if you can make it through this budget crisis, the next time it happens you will be prepared.

The times they are indeed a-changing!

B. Michael Gilbar, Chief Financial Officer
VLCT

The above title is inspired by What Pet Should I Get? by Dr. Seuss, a favorite quarantine book of my toddler. The book traces the decision making of two children after receiving the authorization to purchase a pet. Much of the narrative revolves around a fundamental constraint of scarcity as the children explore the pet shop knowing they can only pick one pet despite many options. In the end, the children choose a pet that is shown in a covered basket and unknown to the reader.

The story serves as a fitting synopsis of both how communities approach debt capacity and the way that the personal and professional have become indistinguishable seven months into the pandemic.

The scarcity explored in the story is the key element behind the many inquiries the Bond Bank receives about the amount of overall debt that is appropriate for towns, school districts, and other units of government.

This complicated but essential question boils down to a few considerations for communities:

1. What amount of debt service can be incurred while maintaining an affordable tax burden or other municipal fee structure?
2. What amount of debt is appropriate before crowding out other important areas of community spending?
3. What amount of debt will lenders provide, and at what cost?

These questions inform the related concepts of debt affordability and debt capacity. In addition to statutory considerations, these concepts drive a local government’s analysis of how much debt to incur as part of capital planning efforts.

The answers to the first of these questions is perhaps the most perplexing as it can represent the values of a community as well as their position next to financial benchmarks derived from peer communities.

The Bond Bank recently released our 2020 Vermont Debt Medians, which we will publish annually going forward. These medians provide a starting place within a larger capital and debt planning analysis to measure overall debt affordability. The Government Finance Officers Association (GFOA), for example, advocates for the use of benchmarking to tackle questions of debt capacity.

What the medians cannot do, however, is conclusively answer questions of debt affordability. One community may wish to exceed benchmarks temporarily or permanently to accomplish long-standing community goals such as overcoming historic legacies of underinvestment or other unique self-determined considerations.

The Bond Bank believes that comparative benchmarking can nevertheless provide a critical starting point for planning by introducing a substantive measure of objective criteria in what can otherwise be an exclusively subjective assessment. In other words, the pet selected may remain a mystery, but at least the lid to the basket will be open.

Michael Gaughan
Executive Director & Secretary
Vermont Bond Bank

Editor's note: Peter Elwell retired from the Town of Brattleboro at the end of 2021. 

Peter Elwell has been Brattleboro’s town manager since 2015. He is the son of former Brattleboro town manager Corwin “Corky” Elwell, who served in that position for almost 30 years and who was also a founding member of VLCT. [Editor's note: Corky passed away on June 4, 2022 at the age of 94.] Peter graduated from Brattleboro Union High School, attended Middlebury College, and received a master’s degree in government administration from the University of Pennsylvania. Then, for 26 years, he switched climes to work in Palm Beach, Florida, including 14 years as town manager. That city honored him by proclaiming December 12, 2014, “Peter Elwell Day” as he prepared to leave to become manager of his home town.

Upon returning to in Brattleboro, Peter swiftly discovered the enormous contrasts between the two communities. “About the only thing that’s similar is the year-round population,” he says. Twelve thousand people call Brattleboro home and 10,000 do so in Palm Beach. However, the population of the latter triples in the wintertime. “It’s a very seasonal, very affluent community,” he says. “So, from a budgetary point of view, the main difference is that in Brattleboro, I’m in the real world.”

It was rare in Palm Beach for its government to question whether it could afford to pay for something. In Brattleboro and nearly everywhere else, that decision is always an issue. “Palm Beach had a very large staff and ample financial resources, and I worked there for a long time,” Peter says, “but I can tell you that having been in Brattleboro now for five and a half years, there hasn’t been a day that I haven’t been grateful to be back home and doing the work here.”

A crucial part of that work is preparing the annual town budget, and Peter and his staff have established an exceptionally effective process. Specific budget-related tasks are scheduled throughout the entire year, so some part of the annual budgetary cycle is always in motion. “We have an engaged group of community members who appreciate the fact that we don’t focus on the budget only in the winter,” he says.

How does Brattleboro’s budget development correspond to particular events in the town’s municipal calendar? Read on.

1. Following town meeting in March and through June, Peter and his staff begin the process by updating their Comprehensive Review of Town Operations (CRTO), a document that tracks municipal projects that have been accomplished as well as those still on the to-do list, and identifying the highest priority goals for the coming year. In the CRTO, projects are categorized as short-term, medium-term, or long-term, and each town department identifies ways to reduce costs and improve municipal services.

At the same time, the CRTO is part of the selectboard’s goal-setting strategy for the year.

It sounds complex, but it isn’t. For example, the document does not include details of the items on the to-do list. But the CRTO keeps Peter, his staff, and the selectboard aware of longer-term trends, and its flexibility allows adjustments to it based on any shift in priorities.

2. The second part, the staff’s completion of the Long-Term Financial Plan (LTFP), takes place during the summer. This five-year financial forecast is explicitly not a budget. Rather, it tries to show how decisions made in the upcoming budget process will impact future town finances. “By showing how the things we can anticipate with a lot of certainty will change in the proposed budget for the coming fiscal year,” says Peter, “we can reflect that in the LTFP, and then use what we already know plus trend information to forecast the four additional years and beyond.”

When completed, the LTFP is reviewed, typically in August or September.

3. Part 3 occurs in September and October when Peter’s staff prepares the proposed budget for the coming year. An eight-to-ten-page written narrative that accompanies the budget explains the major issues and any significant changes from the prior year’s budget. Updates to the LTFP are also included in this narrative.

4. Part 4, unveiling the staff’s proposed budget to the public and distributing it to the selectboard, takes place at the first selectboard meeting in November. The detailed narrative is released at this time.

5. In part 5, from November through January, Peter’s staff works with the selectboard to finalize the budget. If (or when) the selectboard makes changes to the staff’s proposed budget, the budget message is updated correspondingly. This process typically involves between eight and twelve public meetings, permitting ample access for – and input from – the community.

6. Snow on the ground is a normal accompaniment to part 6, in January, when the selectboard finalizes its recommended budget and composes the warning for town meeting. The budget narrative becomes the budget’s cover document in the annual town report.

7. Part 7 occurs during February, when Brattleboro, like everyone else involved in municipal government across the state, prepares for town meeting.

8. The process comes full circle with part 8 at town meeting in March when direct democracy is practiced in its purest form as voters assemble to discuss issues, debate the budget, air grievances, and elect officers for the coming year.

Once Brattleboro voters approve the budget, the process starts anew.

The year-round process allows the community to stay abreast of financial conditions and how they change over time. “We’re really intentional about working throughout the year,” says Peter. “It’s CRTO and goal-setting in the spring, LTFP in the summer, staff introducing a budget in the fall, the selectboard working on [the budget] with public input in the winter, and then town meeting.”

The COVID-19 pandemic, however, presented a one-time twist to the process. On March 11, the town held its information meeting to prepare for its March 21 representative town meeting. (Brattleboro holds its meeting on the third Saturday after Town Meeting Day.) On March 13, the governor issued his “Stay Home, Stay Safe” order, compelling Brattleboro to cancel the meeting. In early June, the Vermont Legislature acted to allow a handful of town governing bodies – including Brattleboro’s – to approve their budgets instead of relying on a vote of registered voters at town meeting. So, on June 16, the Brattleboro Selectboard adopted the town’s FY21 budget.

“As we struggled in June and July with how to have a town meeting [ultimately rescheduled for September 12],” says Peter, “it became evident that the biggest issue of any town meeting would actually not be on the warning this year because it was a matter of business the selectboard had already completed.” They explained to the community that it was a one-time permission by the state and a one-time action by the town because of the extraordinary circumstances. “I think most people understood [our reasoning],” says Peter. “But now as we look forward to September 12, there are 19 items of business to do but none of them is the budget – and that certainly makes for a different flavor for town meeting.”

Different, probably, but also the same in that it will be the impetus for Brattleboro’s next annual cycle of budget preparation.

David Gunn
VLCT News editor