I finally got around to watching Tuesday’s Board of Selectman meeting tonight. All I can say is, holy cow.
I’m lying. That’s not all I can say. I could say a lot. For now let’s talk about something boring called “structural deficits.”
That sounds like a fancy-schmancy term that a lawyer, accountant or politician would use (guilty, two out of three). But it’s not really that at all. It’s a technical term used by economists to help the public distinguish between whether the government is spending too much money through no fault of its own, or whether it is spending too much money out of habit.
Quick back story: ten years ago, I was living in Newton, which as we know is a relatively wealthy and business-rich community outside of Boston known for the quality of its educational program. Newton had, in 2002, passed an override to support its schools, but by 2007 had found that it was running out of money to pay for its services. The mayor at the time, David Cohen, called for an override in 2008. The public, however, was confused. Hadn’t the 2002 override solved the problem (they, too, were told that it had)? Where did the money go? Because the public was convinced that the town’s finances were not in order, the 2008 override was soundly defeated. Thereafter, in an effort to figure out what was going on in their relatively affluent city, Newton residents discovered that the city was running a structural deficit – somehow it was spending more money than it was taking in on a year-to-year basis.
And Newton wasn’t alone. In the years after Proposition 2.5 passed, the Commonwealth pledged that it would cover for municipalities the rising cost of things like infrastructure and education in exchange for keeping local tax receipts reasonable. But by the late 1990s, that pact had broken down, and the state slowly started backing away from its promise while reducing both state aid and income taxes. At the same time, the cost of special education and healthcare began to sky-rocket. So, as state aid dwindled, and costs rose exponentially, towns had little choice but to largely fund 5, 7, 10% local cost increases off of a 2.5% local tax increase. You do the math.
As a result, for over ten years now, community after community has discovered that they are running structural deficits. Successful, forward thinking communities with governments that take actual responsibility for their community’s financial condition have identified the problem in a timely fashion and have taken action.
Take for instance the
Town City of Framingham’s Structural Deficit Task Force, who defined “structural deficit” as follows:
What is a Structural Deficit? A deficit can be defined in two ways, ongoing or temporary.
1) A structural deficit is an ongoing deficit that occurs when recurring expenses exceed recurring revenue, regardless of the economic cycle.
2) A non-structural deficit is a temporary condition caused by revenue shortfall, such as local receipts, state or federal revenues and it is usually attributed to economic cycles.
States, cities and towns reserve resources for the specific purpose of addressing temporary conditions. Long range financial forecasts portray the risks associated with costs that are clearly not temporary to weather inevitable economic downturns and to minimize cyclical cuts in services and employees, the Town needs to perfect its capacity to create financial plans and budgets that address the ongoing aspect of structural deficit. Quick fixes to ongoing deficit contribute to long-term financial problems.
Well, would you look at that. Long range financial forecasting used to create plans, in advance, to address long term fiscal issues. Why can’t we do things like that?*
I bring this up, because at this week’s Board of Selectman’s meeting, auditor Tom Scanlon gave a glowing review of where Grafton was fiscally at the close of FY2016. Scanlon reported that the town was being run impeccably. He was asked by Brook Padgett about whether Grafton was running a structural deficit.
Scanlon’s response was curious. He responded that Grafton was not running a structural deficit because we were not using one time revenues, such as Free Cash, to balance our budget.
Now, this is true. Strictly speaking, if you define a “structural deficit” that way, then yes, we are not running one. The reason that you would be using one-time revenue to fund on-going expenses would be that your on-going expenses had finally exceeded your income growth.
But here’s the thing that Scanlon’s penetrating analysis didn’t address: Do you know why our on-going expenses have not exceeded our revenue since 2014?
I’ll give you a second to think about it.
Wait for it…
Wait for it…
Do you have it?
BECAUSE WE PASSED AN OVERRIDE.
Our ordinary, regular and completely foreseeable expenses have grown at over 3% since the override. The schools, which constitute 66% of our budget, have grown over twice our yearly income for several years (and that’s the lowest rate of increase in a decade). Our income is limited to 2.5% plus new growth. We spend more than we take in every year. Do you know what saved us? The override money.
But there was Padgett anyway, chuckling while Scanlon told him there was no structural deficit. Fine, have it your way.
Last night, the Finance Committee was told that five school department employees, administrators, teachers and staff, will be let go to balance this year’s budget because we were unable to forecast $344,000 in additional healthcare cost that we didn’t foresee. That’s five families who rely on paychecks that won’t have them as of September. That’s a lot of kids who rely on those employees for their education. Those kids are out of luck. Those employees are out of luck. Those families are out of luck. One might say that’s the case because we eschew long term planning.
Oh, by they way, as of one year from now we’ll have zero (ZERO) excess levy capacity, according to the Town Administrator.
But tell me more about how we’re in great financial shape.
*Answer: We don’t want to. Admitting reality is, at this point, akin to local treason. If you thought telling the GTA they were wrong was hard, try telling the entrenched local government and their whole crew that they have it wrong. Yikes.