June 6, 2005
ROMNEY ADMINISTRATION TOUTS FINANCE TOOL FOR CITIES, TOWNS
Website and legislation to help communities keep an eye on costs, plan for the future
Secretary of Administration and Finance Eric Kriss today announced an online tool to assist municipal budget writers make more accurate and complete decisions on salary, wage and benefit compensation. Additionally, the Administration will file legislation which would require that collective bargaining agreements receive formal approval by a municipality’s legislative body.
Developed jointly by the Executive Office for Administration and Finance (A&F) and the Division of Local Services, the Municipal Stability Factor is a user-friendly website that allows municipal officials to change local revenue and expenditure assumptions to better gauge revenue and expense levels to more effectively plan their budgets.
A city or town’s municipal stability factor is a measure that assesses a community’s sustainable growth rate after paying for health insurance and pension costs. The factor is determined by trending past revenue and expenditure results into the upcoming fiscal year, helping budget writers to detect early warning signals that could spell trouble for a community’s bottom line.
For example, if a community’s municipal stability factor is two percent but the community is proposing salary increases of four percent, the community would be spending in excess of its stability factor. Continued spending at this rate would necessitate a tax increase or spending cuts.
“Given the relatively stable long-term recurring revenue growth rates of four to five percent for most of our communities, the real challenge is controlling expenditures, particularly health insurance costs,” said Kriss. “My goal is that the Municipal Stability Factor will serve as another source of information for municipal decision-makers to use as they determine their priorities and balance the competing needs within their budgets.”
The Municipal Stability Factor was created as a result of regular meetings the Romney administration holds with local officials regarding municipal budgets. During these meetings many local officials indicated that state aid reductions in the early 2000s turned budgeting for the future into an uncertain process.
An A&F analysis of state aid showed that state aid grew by 4.6 percent on average from Fiscal Year 1991 through Fiscal Year 2004. However, over this period the annual growth rate of state aid to cities and towns varied widely due to the Commonwealth’s tax structure, which is highly sensitive to broader economic trends.
Communities that did not count on continued high rates of growth in state aid tended to build significant reserves and fared better during economic downturns, such as the one that occurred during Fiscal Year 2003 and Fiscal Year 2004. Conversely, communities that built budgets dependent upon significant increases in state aid experienced budget deficits during the most recent fiscal years.
As an analytic tool, the Municipal Stability Factor website will be particularly helpful when communities deliberate over the affordability of multi-year collective bargaining agreements. Comprising on average 70 percent of a community’s total expenditures, municipal salaries and benefits have the largest impact on a city or town’s bottom line.
To enhance the level of review that municipal salary and benefits packages receive, the Romney administration will file legislation tomorrow requiring a community’s legislative body to approve all municipal collective bargaining agreements. Allowing a more complete review of an agreement’s principal terms and costs will help communities to better project their future costs and add stability to the budgeting process.
The Municipal Stability Factor is available online at:
http://www.dls.state.ma.us/
http://www.mass.gov/eoaf/
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