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TO THE HONORABLE TOWN COUNCIL AND CITIZENS OF DEXTER: INTRODUCTION TO THE FY 2005 MUNICIPAL BUDGET The municipal budget in Dexter includes funding requirements to cover town operations, the local share contribution to School Administrative District #46, and the annual tax levy set by Penobscot County to fund county operations, including emergency dispatch services. This year about 70% of our total funding needs are paid for by property taxes with the remaining 30% covered by a variety of local revenue sources, state reimbursements, and grants. This represents an alarming shift of dependence on property taxes to fund municipal operations, our schools, and contributions to county government. In comparison, in FY2003 60% of our total funding requirements were paid by taxation. This trend reflects the dramatic decrease in revenues being experienced by municipalities throughout the state. The most disturbing decrease has been experienced in revenues received from the state. We have been unable to compensate for the loss of state revenues even with increases in some local fees and charges. Out of each municipal dollar that will be spent in FY 2005 approximately 64.5 cents will go towards operating the town, 32 cents to help fund the schools, and 3.5 cents go for services provided by Penobscot County. We're now in the seventh year of our program to move the municipal budget to a pure “gross budgeting” process. Separate Expense, Revenue, and Capital Budgets combine to make up the "municipal budget package". This is the type of budgeting and accounting arrangement used by most municipal governments in Maine, and is designed to clearly project and account for all expenses and revenues in separate budget documents. Prior to 1998 a number of our department expense budgets also included projected income from fees, services, and reimbursements. This procedure often masked the real cost of doing business, reduced overall revenue projections, and detracted from the value of the budget as an effective management device. In correcting this past fiscal procedure we have attempted to clearly define all true expenses as well as revenues, and improve our accounting procedures. This positive trend has been reflected in annual audits conducted each year since we began the changeover. As you review the Expense Budget please keep in mind the very important fact that many of the departmental expenditures are often offset by revenues that are presented in the accompanying Revenue Budget. Developing the budget for FY 2005 has presented the difficult challenge of providing for the needs of the community and its future development while attempting to minimize the impact on property taxes. We've been particularly sensitive to the issue of increasing property taxes, not only because of the burden it places on property owners but also because a high mil rate tends to discourage the growth of business and attraction of new industry to the area. The most frustrating factor to deal with this year has been trying to cope with increases in operating costs as well as the dramatic decrease in projected revenues. In fact, many of the factors affecting the municipal funding requirements are due to issues and conditions over which we have very little local control. The impact of escalating costs of power, utilities, fuel, insurance, minimum wage increases, postage, and state requirements, has placed us in a position of having to contend with significant fixed costs before we even addressed the funding needs of each municipal department, or considered the contributions to our Capital Improvement Programs. The overall fiscal situation was worsened by the fact that projected revenues for FY 2005 are down notably over last year, and FY2004 was disappointing when it came to revenue production. New to the Expense Budget in FY2005 is funding to support maintenance and possible future reconstruction requirements for the Wassookeag Dam. This includes routine maintenance, engineering studies, and dedication of funds to a new capital reserve account for the express purpose of supporting future dam projects. Overall the FY 2005 Expense Budget reflects a decrease in municipal spending of $212,051. This represents a reduction of 7.3% in our operating costs compared to the previous year. We were able to achieve the reduction primarily by deferring most of our planned major equipment acquisitions and slipping some of our capital improvement programs. We took this action as a precautionary measure in the event that the Palesky Tax Cap Initiative is successful. In the event the 10 mil property tax cap is instituted the Town may be forced to liquidate many of our existing assets in order to fund a dramatically downsized municipal operation in FY 2006. Unfortunately, we continue to under-fund many of our Capital Improvement Programs that are critical to the long-term welfare of the community. In fact, this year we will contribute only $144,000 to our capital reserve programs, the lowest amount since my assuming the position of Town Manager in Dexter. The increasing demands on the municipal dollar that are often beyond the ability of municipal leaders to influence will inevitably have an impact on the Town's ability to provide the level of programs and services that have been available in the past. The sobering reality is that even with a reduction in operating costs amounting to more than $200,000, the impact of reduced revenue projections for FY 2005 translates into a net increase of about 1.2% in funding requirements. The Town Council took extraordinary steps to trim this year's operating budget to avoid an increase in the property tax mil rate. Unfortunately, without relief in the form of increased state aid to education there appears to be little chance of sustaining a level mil rate in FY2006. A significant factor in the computation of our FY2005 revenue projections has been the manner in which we must now deal with the Homestead Exemption Reimbursements received from the State. Previously the Homestead Exemption funds have been treated as revenues; however, we will no longer be able account for the Homestead Exemption funds in this manner which translates into an unanticipated shortfall of approximately $155,000 annually. Also in previous years we've elected to take $150-200,000 annually from the general fund to help keep tax increases to a minimum; however, this year I recommended that the Town Council refrain from the practice because our general fund balances are approaching a point that cash liquidity issues have become a concern. In the past we've managed to operate for the entire year from the property taxes collected in November and revenues derived from other sources. However, the combination of continued use of general funds to reduce taxes, maximized revenue projections, reduced income from revenues, and declining returns on investments has placed significant stress on the general fund totals. In 2004, for the first time in a number of years, we will have to borrow funds in anticipation of tax collections. This will be necessary in order to provide adequate cash flow to sustain operations through the first quarter of the new fiscal year. Over the past several years the demand on the tax dollar to support municipal services, education and the county has increased significantly. This has placed the municipal leadership in the unenviable position of having to raise taxes or reduce programs. During the last several years we've been fortunate enough to offset most of the increased spending with an increase in revenues and a growth of the municipal property valuation. Unfortunately, as we look to the coming fiscal year, we're faced with a municipal valuation that is remaining relatively constant, but at the same time we're confronted with significantly lower levels of revenue. These factors, when added to the increasing cost of funding basic municipal operations and reduced levels of support from state and federal government, have placed the community in a challenging fiscal situation for FY2005. Respectfully submitted, Robert F. Simpson |