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• jburtonrider ??
• belgarth7 ??
FY2012 MA Local Aid
“The fiscal year 2012 budget continues the PatrickMurray Administration’s unprecedented support for
cities and towns. The Administration’s approach to
fiscal year 2012 continues to give cities and towns
tools they need to manage costs, with the overarching
goal of preserving local services for residents and
taxpayers.”
Gov. Deval Patrick
FY2012 MA Local Aid
Represents 16% of the Commonwealth’s annual budget
In FY 2012, total local aid programs account for $5.05 billion
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The FY 2012 Ch 70 funding is $3.99 billion, $140 million increase over FY 2011
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Funding for the special education circuit breaker, which goes directly to
municipalities, increases by $80 million from fiscal year 2011 to fiscal year 2012
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Increasing Chapter 90 Local Road Program funding for fiscal year 2012 to $200
million, $45 million more than FY 2011
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Level funding of State Owned Land, Regional School Transportation, Charter
School Reimbursements, Library Aid, Veterans’ Benefits & Tax Reimbursements
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Unrestricted General Government Aid will be funded at $833.9 million in FY 2012,
while a $65 million reduction from FY 2011, $10 million from this reduction will
be used to support a competitive grant program to drive regionalization and other
efficiency initiatives as well as a performance management
FY2012 MA Local Aid
Chapter 70 Payments to Cities and Towns
For school aid to cities, towns, regional school
districts, counties maintaining agricultural schools
and independent vocational /agricultural and technical
schools to be distributed under section 3 of this act
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FY2011 $3,851,193,043
FY2012 $3,990,519,337 (proposed)
FY2012 Lawrence Local Aid
FY2012 Lowell Local Aid
FY2012 Chelmsford Local Aid
Capital Budgeting
57.508-201
The Budget as a Policy, Planning and Information Tool
Week 4 - Spring 2011
Operating vs. Capital Budget
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Items and materials to be consumed
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Useful life >3 years
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Costs over $5000 - $10,000 (or more)
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Based on size and complexity of the entity
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Capital equipment, facilities, infrastructure
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Investments for community development
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Should be based on strategic plan
Relationship to Operating Budget
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Must be fiscally constrained
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CIP should match capital needs with financial ability to pay
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Completion of capital projects will impact operating budget
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Completed projects often require maintenance and upkeep
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May require additional utilities like electricity, water, fuel
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Impacts of capital projects on the annual operating budget
should be estimated and noted in the CIP
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Debt service
Capital Projects
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Acquisition of a long lasting physical asset or facility
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Expenditure on equipment or facility that will provide
benefit for many years
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Investment for community, neighborhood or economic
development
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Real estate, infrastructure, roads, bridges, etc.
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Normally “stationary” in nature
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But may include large research or consulting projects
Capital Projects
What is a Capital Improvement Program (CIP) Project?
CIP projects include, but are not limited to, the construction,
purchase, or renovation of buildings or other physical
structures or property and all associated engineering and
design work, equipment, vehicles, and/or major consulting
services projects, surveys and studies. A capital improvement
generally has a useful life of 5years. It also provides one of
the following two elements: has a cost of approximately
$5000 or more, or satisfies the functionality of a capital asset.
In most cases, a capital improvement is not a recurring capital
outlay item or a maintenance expense.
Types of Projects
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Assets for organization’s own use
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Investments in facilities that enhance development
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Office buildings, schools, libraries
Equipment, trucks, busses
Sewer & water systems
Downtown amenities
Convention centers or sports arenas
Intangibles
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Research projects
Consulting or engineering studies for major projects
Major Projects
Cost items chargeable to a capital project
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Architectural and engineering design
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Legal services related to the project
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Acquisition of land or other property including brokerage fees
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Preparation of land for construction and landscaping during or after
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Easements related to the project
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Construction labor and materials
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Equipment and furnishings that are affixed to the project
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Initial inventory of movable furnishings and equipment
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Interest and other financing charges during construction
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Construction management and contract monitoring costs
From ICMA
Typical Issues
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Capital investing often deferred
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Combined infrastructure deficit = $3.2 trillion
$1 trillion estimated for sewer & water alone
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Pay now vs. pay later
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Short term political decision making
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Used as a ruse to reduce operating budget
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Classification of purchases
Elements of the C I P
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Inventory of capital assets
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Process to develop the plan
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Sort and long range (multi-year) projects
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Budgets from the CIP
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Financial component of the CIP (bonding)
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Implementation plan and schedule
CIP Process
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Adopt a CIP Bylaw
Appoint a CIP Committee
Prepare an Inventory of Existing Facilities
Determine the Status of Previously Approved Projects
Assess the Town's Financial Capacity
Solicit, Compile and Evaluate Project Requests
Establish Project Priority
Develop a CIP Financing Plan
Adopt a Capital Improvements Program
Monitor Approved Projects
Update Capital Programs
C I P Requirements
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Should be based on a comprehensive plan
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Should have asset inventory data base
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Should have public input and review
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Should have 5 year, 10 year & 20 year ranges
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Should have evaluation criteria
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Should be ranked in priority order
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Should have financing strategy in place
Evaluation Criteria
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Degree of urgency
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Benefits to be derived
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Cost and financial impact
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Value to the local constituency
Evaluation Criterion
What is the payback period?
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“How long does it take to get our money back?” (The
number of years required to recover a project’s cost)
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Calculated by adding project’s revenues to its capital
cost until the cash flow for the project turns positive
Sample Evaluation Criteria
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Project is necessary to correct a dangerous and/or blighting condition
Project is necessary to protect public health and safety
Project is necessary to implement a priority housing project
Project is necessary to implement a priority economic development project
Project directly supports priority City programs
City funding will leverage other fund sources
Funds will be spent in the budget year
Project fulfills a state or federal mandate
Project fulfills an approved, prior commitment of city funds
Project promotes joint use of public facilities among city agencies
Project promotes public - private partnership
Adequate project details and justification have been provided
Agency has fully utilized previous appropriations for approved purposes
Program vs. Budget
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Annual / current inventory of capital assets
Process / CIP committee to develop the plan
An assessment of financial capacity
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Capital budgets come from the CIP
Financial component of the CIP
Procedure to solicit, compile and evaluate project requests
Procedure to establish project priority
Implementation plan and schedule
Develop a specific CIP Financing Plan
Adopt the CIP by vote of the policy board
Monitor Approved Projects
Program vs. Budget
“Once capital planning is in place, the GFOA recommends
that governments prepare and adopt a formal capital budget
as part of their annual or biennial operating budget
process. This entails two main steps: (1) preparing and
adopting the capital budget, which outlines the type of
information that should be found in a capital budget,
including definition of capital expenditures, capital project
summary information, scope of projects, completion
schedules, project costs, funding sources, and other
analytical information used to make decisions; and (2)
reporting on the capital budget, which is often overlooked
in financial policies on capital budgeting and planning.”
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Nashua Capital Budgeting
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Sophisticated process
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Annual capital budgets from 5-10 yr CIP
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Starts with requests from departments
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Organized by planning board & staff
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Submitted to mayor
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Approved by board of aldermen
(see: General Obligation Capital Improvement Bond Statement)
Lowell Capital Budgeting
Establishing Needs, Prioritizing & Funding
Lawrence Capital Budgeting
?
Sunnyvale Capital Budgeting
And the winner
is…
MA Capital Budgeting
MA Capital Budgeting
MA Capital Budgeting
Paying for
Capital Projects
57.508-201
The Budget as a Policy, Planning and Information Tool
Week 4 - Spring 2011
Financial Components
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Fiscal feasibility of funding the projects
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Level of operating expenditures
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Potential for project to generate revenue
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Potential for project to reduce operating cost
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Grants or cost sharing possible
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Debt carrying capacity
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Bond rating
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Debt management
Financing Options
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“Pay-As-You-Go”
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General Obligation Bond
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Bond Anticipation Notes
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Revenue Bond
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Installment Sales
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Impact Fees
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Intergovernmental Revenues
“Pay-As-You-Go”
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Many public entities have “capital projects funds”
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Many also have enterprise fund (e.g., sewer, solid waste)
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Starts with appropriations made in annual operating budget
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Investment income generated
General Obligation Bond
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Public entity may borrow money pledging the “full faith and
credit” to repay the loan
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Sometimes requires voter approval
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Cities generally sell G. O. bonds once a year
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General obligation debt managed through the use of bond
anticipation notes
Bond Anticipation Notes
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Means of acquiring short term or interim financing
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Use of BANs common for public entities that wish to generate
funding for an upcoming project and plan on issuing bonds
that will cover the expenses over the long term
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Later repaid by the issuance of G.O. bonds
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Portion of the proceeds gained from the sale of the bonds go to
repay the BANs
Revenue Bond
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Public entity may borrow money pledging the revenues
generated from the projects to repay the debt
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Revenue bonds do not require voter approval
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Like general obligation bonds, revenue bonds sold once a year
Installment Sales
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Called “Certificates of Participation”
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Contract for a building or for equipment using that building or
equipment to secure the financing
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Similar to a mortgage transaction
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City does not pledge the use of its taxing power to pay
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Local governing board must approve the use of each contract
Impact Fees
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One-time charges levied against new development
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Based on the impact on community infrastructure
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Used for a proportionate cost of needed improvements made
necessary by new construction
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Cannot be used for routine or periodic maintenance
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Cannot be used where not related to new development
Intergovernmental Revenues
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Funding from county, state or federal governments
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Revolving loan fund for wastewater treatment plants
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Funding for transportation and transit-related improvements
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Stimulus funds
Debt Management
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Short-term borrowing
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Tax anticipation notes
Bond anticipation notes
Revenue anticipation notes
Long-term debt
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Bonding for capital equipment and facilities
G.O. bonds (general obligation)
Revenue bonds
Wide variety of debt vehicles
Borrowing Process
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Origination Phase
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Underwriting
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Determination of need
Willingness and ability to borrow
Credit rating firm establishes rate of interest
Underwriters purchases the bonds
Distribution
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Primary (new issues) and secondary markets
Dealers buy/sell/trade with investors (tax exempt bonds)
Underwriters
Bond Rating
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Bond ratings assign the credit risk
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While many factors go into the investment decision
making process, the bond rating is the single most
important factor affecting the interest cost on bonds
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Three major rating agencies for municipal bonds
 Moody's
Investors Service
 Standard & Poor's
 Fitch Ratings
Moody’s Bond Ratings
• "Aaa" - Judged to be of the best quality. They carry the smallest degree of
investment risk. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure.
• "Aa" - Judged to be of high quality by all standards. Together with the Aaa group,
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa.
• "A" – Judged to possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
• "Baa" - Bonds which are rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Rating Criteria
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Economic conditions
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Debt structure
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Government’s financial condition
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Demographic factors
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Management practices
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Mathematical ratios used to compare communities
Local Bond Ratings
Moody’s
Nashua
• Chelmsford
• Lowell
• Springfield
• Lawrence
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Aaa
Aa2
A1
A2
Baa1
Big City Bond Ratings
Moody’s
Boston
• New York
• St. Louis
• Cleveland
• Detroit
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Aaa
Aa2
Aa3
A1
Ba3
NE State Bond Ratings
Moody’s
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Vermont
Aaa
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Maine
Aa2
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Massachusetts
Aa1
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New Hampshire
Aa1
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Connecticut
Aa3
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Rhode Island
Aa3 (negative)
State Bond Ratings
S&P gives California the lowest: A
Moody’s gives Lousiana the lowest: A2
“This week, when Moody’s Investors Service changed
California’s credit worthiness from A+ to a flat A, a
$6.5 billion dollar bond issue cost taxpayers an
additional $213 million in interest and insurance.”
Springfield’s Bond Rating
STANDARD AND POOR’S GIVES SPRINGFIELD A BOND
UPGRADE
The City received word today that Standard and Poor’s has
given it a full level upgrade with a stable outlook. “This is
terrific news for the City of Springfield,” said Mayor
Sarno. “This will translate into significant cost savings for the
City moving forward which is increasingly important as our
City continues to deal with its current financial situation.”
Prior to the upgrade, the City had a bond rating of BBB. It was
only a short time ago that the City was dealing with junk bond
status. The City is still awaiting word from Moody’s on their
bond rating decision and expects that in the coming days.
Not Just for Cities
September 22--LOWELL, MA –
Lowell General Hospital has received a vote of
confidence from Moody’s Investor Services.
Moody’s, an independent provider of credit ratings, has
upgraded Lowell General’s outlook from stable to
positive. Moody's also affirmed the hospital’s Baa1
long-term rating.
“The positive rating outlook reflects our expectation for
steady volume and operating performance trends, with
maintenance of a healthy balance sheet cushion to debt
and operations,” Moody’s said in its report.
Philosophy of Public Debt
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Borrowing is an alternative way of paying for projects and
facilities that will benefit residents in the long term
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It is nearly impossible to tax or charge future residents so it is
convenient to schedule those payments over time
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As a critical mechanism for future planning, government
borrowing at the local level has become much more complex
over the past 30 years
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Where governments used to issue mostly G.O. bonds or simple
revenue bonds, they now rely on literally dozens of different
financial instruments and private equity financing
Major Issue with Devolution
While the gross dollar figure has risen each
year, federal aid as a percentage of state &
local revenues has declined since 1980
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1980 = 27%
2007 = 17%
2012 = 9% ??
Devolution means shifting or transferring power
Devolution has meant reduction in federal aid
More Local Public Spending
“The reduction of federal subsidies for basic
welfare provision in the United States is so well
documented that it is hardly worth repeating.
Localities are now left with the responsibility of
either making up the shortfall or abandoning the
welfare state themselves.”
Jason Hackworth
The Neoliberal City
University of Toronto
More Local Public Debt
“First, the governing turn away from federally
organized Keynesianism has transferred certain
responsibilities to localities that are often funded
with debt. Localities are thus more reliant on capital
markets and the decisions that determine their access
to such markets.”
Jason Hackworth
The Neoliberal City
University of Toronto
Massachusetts Public Debt
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1st in the nation in debt per capita
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2nd in net tax-supported debt as % of personal income
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3rd in the nation in total outstanding debt
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4th in total net tax-supported debt
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49th out of 50 states in terms of local debt as % of total
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Includes debt issued by the Massachusetts School
Building Authority, MBTA, Turnpike Authority
Public Debt Limits
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Constitutional vs. Statutory vs. Executive
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Debt limits exist that impose a ceiling on the amount of debt
that local government can incur
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Debt limits for local governments are commonly % of the
average full valuation of its taxable property
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Debt limits for school districts also a % of the full valuation
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Debt issued for single purpose authorities (water supply,
turnpikes) often excluded from the debt limit
More Financial Hurdles
“Second, an increased presence of institutional
investors in the municipal bond market has
strengthened the investment-grade threshold
because such investors are legally prohibited
from holding a high percentage of speculative
securities. Localities with speculative-grade debt
are less able to sell their bonds than before.”
Jason Hackworth
The Neoliberal City
University of Toronto
Less “Local” Public Debt
“Third, commercial banks and locally–based lenders,
which used to lend more frequently to cities (based on
their own market research), are less involved in
municipal debt markets than ever before.”
Jason Hackworth
The Neoliberal City
University of Toronto
Most Influential Force…
“… bond rating firms such as Moody’s Investor
Service and Standard and Poors are perhaps the
single most influential force in determining the
quantity, quality and geography of local
investment in the developed world.”
Jason Hackworth
The Neoliberal City
University of Toronto