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2019 Financial Summit

December 3, 2019Danvers Board of SelectmenDanvers School CommitteePeabody Institute Library Board of TrusteesDanvers Finance CommitteeDanvers Planning Board

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2019 Financial Summit Agenda

I. IntroductionII. Community IndicatorsIII. Financial Indicators & BenchmarkingIV. Wrap Up

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Introduction

• Financial Summit launched in 2016• Opportunity to step back / focus on trends• Added Community Indicators in 2018• Chance for staff & major boards to deliberate

• Financial Highlights from the past year• Added $1.5m to General Stabilization at May ATM• BOS Adopted Financial Policy Guidelines (June 2019)• Achieved AAA credit rating from Standard & Poor’s• Saved $500k on first round ($20m) in Smith School Debt• Authorized $4.2m to pay off Electric’s unfunded pension liability• Received FY 2019 Free Cash Cert. of $5.6m on 11/26/2019



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Source: Census.gov

Year Source Figure2010 U.S. 2010 Census 26,4932011 2007-2011 ACS Survey 26,3032012 2008-2012 ACS Survey 26,5682013 2009-2013 ACS Survey 26,8992014 2010-2014 ACS Survey 27,0752015 2011-2015 ACS Survey 27,4002016 2012-2016 ACS Survey 27,5582017 2013-2017 ACS Survey 27,5272018 2018 Census Population Estimate 27,7272019 5 Year AVG Increase = .61% 27,896

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2019 Financial Summit – Population Estimates

Community Indicator – Population Estimates: Total Population

2018 = 27,727Background: Population and demographic change can directly affect municipal revenues, as some taxes are collected on a per capita basis, and some grants are distributed according to the population. Sudden changes in the community, up or down, could signal significant problems.

Trend/Analysis: Currently, the town’s population is relatively stable with a modest upward trend.

Outlook: It will be increasingly important that the Town better understand the demographic changes occurring within the population, as these factors, such as average household size, or the number of school-aged children, are more likely to have budgetary ramification than the modest growth of the total population will.

Source: UMass Donahue Institute, Total Population Estimates, 1930-20186

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Year over Year Rate of Change

Massachusetts Essex County Danvers

Community Indicator – Population Estimates: Under 18 & 65 Plus

Background: These two population cohorts are picked out due to these two groups generally requiring more services than the average working individual.

Trend/Analysis: The data we see in Danvers is mostly consistent with regional and national changes. The town is experiencing an increase in the over 65 population. It is interesting to note the data shows a slight decline in U18 as a percentage of overall population, given increased school enrollment.

Outlook: Both of these population cohorts must continue to be monitored closely.

Source: US Census Bureau

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2000 2010 2017

U18 Danvers 65+ Danvers U18 County 65+ County U18 MA 65+ MA

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Community Indicator – Income Estimates: per Capita Income

Background: Per Capita income is used as a measure of a community’s ability to pay taxes, and debt in particular. Credit agencies compare per capita income with per capita expenditures to determine if a community’s tax burden is increasing, which may contribute to its ability to meet its financial obligations.

Trend/Analysis: Interestingly, the data shows a dip in 2014 and 2015 before moving upward in 2016 and 2017. This is likely affected by the increasing number of residents under 18 and over 64, who tend to have lower personal incomes than working individuals.

Outlook: It is expected that this estimate will continue to trend upwards over the next decade.

Source: US Census Bureau, ACS 5-Year Data

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2013 2014 2015 2016 2017

Danvers Essex County Massachusetts

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Community Indicator – Income Estimates: Median Household Income

Background: Household income estimates are used to draw a host of conclusions about the economic health of a given area or population.

Trend/Analysis: This table shows that over the last 20 years the median household income has been stable, and higher than both the county and state estimates. While this shows a small dip in 2017, we project this number to rise over the coming years, and a trend we believe is evident in other income data we’re monitoring.

Outlook: Rising household income is generally a positive indicator of community health, but could reduce the community’s economic diversity if not managed appropriately.

Source: US Census Bureau, Census 2000, 2010, and ACS Data

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2000 2010 2017

Danvers Essex County Massachusetts

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Community Indicator – Income Estimates: 2012-2017 Income Breakdown

Source: US Census Bureau, ACS Data

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

Income per Capita Household Median 25-44 Years 45-64 Years 65 Plus Married-couples wChildren

2012 2017

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Community Indicator – Income Estimates: Income Distribution

Background: To get a deeper understanding of what may be happening within the Town’s population regarding changing income, we looked at how income is distributed among the population. This estimate divides the population into five income groups (from lowest to highest) so that approximately 20% of the population is in each group.

Trend/Analysis: While we see that the upper portion of the community is doing well, more interesting is the stability of the distribution across the first four quintiles, representing approximately 80% of the population.

Outlook: Staff will continue to investigate these findings.

Source: US Census Bureau, ACS 5-Year Data

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

2010 2011 2012 2013 2014 2015 2016 2017

<20% 20-40% 40-60% 60-80% Top 5%

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Community Indicator – Economic Estimates: Unemployment & Local Jobs

Background: The unemployment rate (blue) and the number of jobs (orange) in the community are considered together as they are closely related. These estimates relate directly to business activity and personal income. Rating agencies use these to measure our ability to attract future economic development.

Trend/Analysis: Like most of Massachusetts, Danvers is experiencing historically low unemployment and appears to have recovered from the adverse effects of the last recession.

Outlook: While these are reliable indicators, most projections of unemployment for the region predict a flatlining or even a slight reversing of this trend in future years.

Source: Massachusetts Department of Employment and Training

15,000

20,000

25,000

30,000

35,000

40,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2015 2016 2017 2018

Local Jobs Unemployment Rate County MA Rate

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Community Indicator – Housing Sales: Number & Price of Transactions

Source: The Warren Group13

399 41

6

404

337

461

373

431

354

317

311

291 32

4

308 33

8

390

463

467

454

452

497

351

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Number of Annual Sales:• Through Oct 2019 = 351• 5 year Average = 467 sales• 10 year Average = 398 sales

Average Sale Price:• Through Oct 2019 = $459,000• 5 year Average = $390,870• 10 year Average = $352,630

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

County State

• Since the end of the last recession, more than a decade ago, the economy has experienced its most prolonged period of expansion in American history.

• However, it is beginning to show its age - manufacturing continues to shrink, business spending is contracting, and job openings have dipped. State forecasts point to very modest growth over the first half of 2020.

• While Massachusetts has typically outperformed other regions of the country, it is crucial to assess whether we are prepared for a hypothetical downturn.

• Efforts like the downtown zoning work will help ensure the community has sustainable local development opportunities in the coming years.

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Community Indicator – Summary



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Financial Condition Analysis

Cash Solvency Budgetary Solvency

Long-Run Solvency

Service-Level Solvency

Measures of Financial Condition


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2019 Financial Summit – ICMA “Constant Dollar” Calculation

Source: U.S. Bureau of Labor Statistics17

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Operating Revenue 72,446,335 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832

CPI-U (1982-84=100) 236.132 244.256 246.326 251.067 255.296 256.999 260.800 266.429 275.402 280.943

CPI-U, 2019 Base Year adj. factor 1.1898 1.1502 1.1405 1.1190 1.1005 1.0932 1.0772 1.0545 1.0201 1.0000

CPI-U, 2019 Base, % adj. constant dollars 118.98% 115.02% 114.05% 111.90% 110.05% 109.32% 107.72% 105.45% 102.01% 100.00%

Revenue adjusted to Constant Dollars 86,194,547 86,211,061 90,624,227 91,462,149 93,686,859 96,922,914 99,603,163 100,585,132 100,167,124 101,699,832

2010 2019

2019 Financial Summit – Financial Indicators & Benchmarks

Financial Indicators (13 areas)• Financial Indicators measure trends across key areas using

credit rating agency terminology (strong, stable, weak)• Revenue (5 indicators)• Expenditure (3 indicators)• Reserves (2 indicators)• Liabilities (3 indicators)

Benchmarks (10 + Mass.)• Same benchmarks as in previous years, selected for:

• Geographic proximity to Danvers (and Boston)• Community Population• Grand List Composition

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Financial Indicator 1 – Property Tax Revenues

Background: The property tax levy is the revenue category that directly impacts every residential and commercial property in Town and is therefore shown with its own indicator.

Trend/Analysis: The long-standing practice of Danvers has been to provide level or expanded services without the use of a Proposition 2 ½ override or debt exclusion. As shown, when factoring for constant dollar, the actual increase in tax revenue is often less than 2.5%.

Source: Danvers Tax Recap / MA DLS Databank

Outlook

• Stable

Outlook: Much like overall revenue, it will be crucial to the long-term fiscal health of Danvers to manage expenditures within the constraints of Prop 2 ½. This becomes difficult when fixed costs increases exceed 2.5%.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Prior Year Levy Limit 54,116,618 56,077,728 58,288,759 60,355,458 62,546,370 65,016,430 67,839,074 70,394,408 72,783,734 75,516,164 2.5% (Proposition 2 1/2) 1,352,915 1,401,943 1,457,219 1,508,886 1,563,659 1,625,411 1,695,977 1,759,860 1,819,593 1,887,904 New Growth 608,195 809,088 609,480 682,026 906,401 1,197,233 859,357 629,466 912,837 794,896 Property Tax Levy Limit 56,077,728 58,288,759 60,355,458 62,546,370 65,016,430 67,839,074 70,394,408 72,783,734 75,516,164 78,198,964 Actual Tax Levy 56,031,976 58,243,194 60,347,100 62,526,780 64,756,756 67,349,955 70,286,547 72,654,228 75,354,881 78,154,410 Unused Levy Capacity 45,752 45,565 8,358 19,590 259,674 489,119 107,861 129,506 161,283 44,554 Constant Dollar Factor 1.190 1.150 1.141 1.119 1.100 1.093 1.077 1.054 1.020 1.000 Property Tax Revenue (Constant $) 66,665,219 66,991,262 68,827,876 69,967,224 71,262,211 73,624,794 75,715,159 76,612,143 76,870,997 78,154,410

Benchmark – Property Tax Revenues

Source: MA DLS Databank20

Benchmark – Average Single Family Tax Bill

Source: MA DLS Databank21

Source: MA DLS Databank

Benchmark – Assessed Values By Class

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Financial Indicator 2 – State Aid

Background: State Aid is made up of several categories, most predominantly being Chapter 70 (Education) and Unrestricted General Government Aid. Bond rating agencies view state revenue as a more volatile funding source.

Trend/Analysis: This indicator proves that the bond rating agencies are right to have concern about a community’s reliance on State Aid. As seen in the table, state aid decreased during the Great Recession and has begun slightly decreasing as a % of overall revenue in each of the past three years.

Source: Danvers Tax Recap / MA DLS Databank

Outlook

• Stable

Outlook: It will be important for Danvers to continue to monitor the fiscal health of the State as well as the overall economy to guard against unanticipated declines in this revenue source.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Net Operating Revenue 72,446,335 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 State Aid (Cherry Sheet) Revenue 8,182,276 7,755,124 7,587,770 9,305,380 9,707,273 10,013,551 10,220,626 10,587,904 10,603,363 10,483,842 Less: MSBA Reimbursements (708,449) (694,026) (694,026) (694,026) (694,024) (694,024) (694,024) (694,024) (462,221) (212,709) Net State Aid Revenue 7,473,827 7,061,098 6,893,744 8,611,354 9,013,249 9,319,527 9,526,602 9,893,880 10,141,142 10,271,133 State Aid as % of Operating Revenue 10.3% 9.4% 8.7% 10.5% 10.6% 10.5% 10.3% 10.4% 10.3% 10.1%


Benchmark – State Aid as % of Total Revenue

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Financial Indicator 3 – Local Receipts

Background: Local Receipts represent the other major revenue category and includes revenue such as motor vehicle excise, building permits, and hotels and meals taxes.

Trend/Analysis: Danvers has historically been ultra conservative in estimating these receipts when setting the tax rate. The result is above average free cash in strong economic times and safety against negative results when the economy downturns. As fixed costs rise, however, the need to more fully estimate these receipts may be necessary which would have a direct impact on free cash.

Source: Danvers Tax Recap / MA DLS Databank / Town Financials

Outlook

• Stable

Outlook: The Town has benefited from a strong economy in recent years. Any type of economic downturn would greatly impact the key drivers of local receipts.

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Revenue Source 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Net Operating Revenue 72,446,335 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 Local Receipts 8,940,532 9,648,880 12,216,923 10,597,760 11,364,276 11,992,959 12,648,685 12,840,623 12,695,519 13,274,290 Local Receipts as a % of Operating Revenue 12.3% 12.9% 15.4% 13.0% 13.3% 13.5% 13.7% 13.5% 12.9% 13.1%

Financial Indicator 4 – Economic Growth

Background: ICMA and GFOA consider Building Permit Fees and New Growth as being indicative of economic growth.

Trend/Analysis: There is not a direct correlation of building permits and new growth, however, one (1) year after a significant increase in building permits we generally see an increase in new growth. Both are key revenue sources that can add to the Town’s financial flexibility but overreliance can prove costly when the economy turns,

Source: Danvers Tax Recap / MA DLS Databank / Town Financials

Outlook

• Stable

Outlook: Building permit fee revenue and new growth have both been reliable funding sources but would face a decline in an economic downturn.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Net Operating Revenue 72,446,335 74,953,172 79,457,767 81,735,894 85,134,281 88,662,441 92,461,834 95,388,731 98,191,542 101,699,832 New Growth 608,195 809,088 609,480 682,026 906,401 1,197,233 859,357 629,466 912,837 794,896 Building Permit Fees 152,001 306,480 430,775 471,338 494,546 663,871 712,980 768,629 599,799 682,451 Total Economic Growth Revenue 760,196 1,115,568 1,040,255 1,153,364 1,400,947 1,861,104 1,572,337 1,398,095 1,512,636 1,477,347 New Growth % 0.84% 1.08% 0.77% 0.83% 1.06% 1.35% 0.93% 0.66% 0.93% 0.78%Building Permit Fees % 0.21% 0.41% 0.54% 0.58% 0.58% 0.75% 0.77% 0.81% 0.61% 0.67%Economic Growth as % of Operating Revenue 1.05% 1.49% 1.31% 1.41% 1.65% 2.10% 1.70% 1.47% 1.54% 1.45%


Benchmark – New Growth as % of Prior Year Levy Limit

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Financial Indicator 5 – Uncollected Property Tax

Background: Uncollected property taxes are the amount of the levy yet to be paid by the taxpayers. A high figure could show an issue with the residents’ ability to pay, as well as challenges with tax collection efforts.

Trend/Analysis: The steady increase from 2011 to 2014 was addressed by the Treasurer/Collector and Town Counsel and recent years have showed a declining uncollected percentage. The FY2019 number of 1.8% is the lowest in at least a decade.

Source: Danvers Tax Recap / MA DLS Databank / Town Treasurer/Collector

Outlook

• Strong

Outlook: The affordability of property taxes coupled with the effectiveness of the Treasurer/Collector’s Office combine for a solid outlook for this indicator moving forward.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Property Tax Levy 56,031,976 58,243,194 60,347,100 62,526,780 64,756,756 67,349,955 70,286,547 72,654,228 75,354,881 78,154,410Overlay Reserve for Abatements and Exemptions (695,985) (704,514) (690,940) (676,495) (761,632) (865,802) (850,555) (792,715) (897,376) (843,260) Net Property Tax Levy, less Overlay Reserve 55,335,991 57,538,680 59,656,160 61,850,285 63,995,124 66,484,153 69,435,992 71,861,513 74,457,505 77,311,150Uncollected Taxes as of June 30 1,389,168 1,507,856 1,578,738 1,957,784 2,412,524 1,765,335 1,982,707 1,699,714 1,741,212 1,428,508 Uncollected Taxes as % of Net Property Tax Levy 2.5% 2.6% 2.6% 3.2% 3.8% 2.7% 2.9% 2.4% 2.3% 1.8%

Financial Indicator 6 – Expenditures per Capita

Background: Expenditures are being converted to constant dollars, similar to “Revenue. They are then calculated per capita to determine the costs incurred per resident.

Trend/Analysis: The largest dollar increases are generally found in the school budget, but categories that outpace Proposition 2 ½ have generally been the Retirement Contribution and Benefits & Insurance.

Source: Town Financials / Census (ACS 5-Year)

Outlook

• Stable

Outlook: Several categories, mostly fixed costs, are increasing at a rate higher than 2.5%. The issue will need to be addressed on an ongoing basis through either increased revenue, cuts elsewhere in the budget, or innovative approaches to the fixed costs.

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Category 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*General Government 2,700,114 2,698,261 2,719,061 2,842,413 2,909,901 3,303,550 3,207,512 3,337,272 3,430,652 3,467,543 Education (including Essex) 31,100,257 32,483,473 33,782,787 35,459,478 35,825,212 37,977,094 39,247,140 40,459,335 41,809,730 43,265,032 Public Safety 9,591,082 10,185,237 10,182,459 10,536,264 10,473,264 10,841,753 10,843,317 11,264,696 11,925,470 11,882,793 DPW (Tax Supported) 9,907,056 10,168,240 9,239,665 9,935,284 10,562,422 11,145,259 10,036,037 11,052,933 10,771,168 10,917,790 Land Use & Community Services (including Recreation) 1,387,719 1,451,494 1,459,753 1,471,841 1,566,494 1,617,997 1,842,783 1,666,642 1,767,308 1,950,048 Peabody Institute Library 1,153,843 1,178,425 1,186,617 1,190,589 1,220,062 1,247,858 1,281,331 1,282,971 1,297,956 1,381,617 Retirement Contribution (Tax) 3,964,796 3,680,583 3,859,140 4,030,812 4,444,222 4,605,919 4,977,259 5,354,574 5,762,422 6,186,175 Debt Service 3,964,001 4,120,841 4,790,222 5,669,824 5,454,769 5,415,417 5,505,055 5,568,456 5,162,351 6,002,641 Benefits & Insurance 9,069,493 9,603,384 10,029,973 10,753,164 10,863,017 11,258,516 11,577,433 12,150,525 12,958,226 13,547,052 Net Operating Expenditures 72,838,360 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 Constant Dollar Factor 1.190 1.150 1.141 1.119 1.100 1.093 1.077 1.054 1.020 1.000 Expenditures in Constant $ 86,660,967 86,920,464 88,105,827 91,634,221 91,689,614 95,557,463 95,354,582 97,156,686 96,794,344 98,600,691 Population 26,493 26,303 26,568 26,899 27,075 27,400 27,558 27,527 27,727 27,896 Expenditures per Capita 3,271 3,305 3,316 3,407 3,387 3,487 3,460 3,530 3,491 3,535 *Pending completion of the FY2019 independent audit


Benchmark – Total Expenditures per Capita

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Financial Indicator 7 – Salary & Wages

Background: Since it is comprises more than 50% of the total budget, Salary & Wage costs increasing as a percentage of expenditures could show an unsustainable trend and lead to higher pension and other post-employment costs in the future.

Trend/Analysis: The percentage of salary & wage costs as part of total expenditures has remained remarkably consistent over the past several years. The percentage is, in fact, lower in 2019 than it was in 2010.

Source: Town Financials / Danvers Public Schools

Outlook

• Strong

Outlook: Monitoring this indicator is critical when contemplating collective bargaining options and additional positions in the budget.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*Net Operating Expenditures 72,838,360 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 School Salaries (less grants) 24,088,475 25,323,962 25,658,613 26,675,051 28,013,432 29,328,550 30,651,608 31,452,264 32,748,296 33,831,791 General Government Salaries 16,721,813 17,533,713 17,342,997 17,971,221 18,063,868 18,935,411 19,043,959 19,789,218 20,714,373 20,758,473 Salaries & Wages as % of Expenditures 56.03% 56.71% 55.67% 54.52% 55.30% 55.21% 56.14% 55.61% 56.34% 55.36%*Pending completion of the FY2019 independent audit

Financial Indicator 8 - Benefits

Background: Heath care benefits represent a significant share of the Town’s operating costs, and this analysis understates the true cost because it does not include the OPEB liability.

Trend/Analysis: The benefits as a percentage of salaries indicator has increased each of the past three years. While Danvers has been successful in negotiating below-trend renewal rates, this is still an indicator worth monitoring closely.

Source: Town Financials / Danvers Public Schools

Outlook

• Stable

Outlook: With health care cost increases trending between 8-10% annually, “successful” 5% renewals and minor plan changes would not be sustainable in the long-term.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*Employee Benefits 8,599,060 9,151,653 9,537,043 10,594,590 10,346,615 10,728,684 11,041,202 11,329,241 12,089,925 12,613,549 School Salaries (less grants) 24,088,475 25,323,962 25,658,613 26,675,051 28,013,432 29,328,550 30,651,608 31,452,264 32,748,296 33,831,791 General Government Salaries 16,721,813 17,533,713 17,342,997 17,971,221 18,063,868 18,935,411 19,043,959 19,789,218 20,714,373 20,758,473 General Govt & School Salaries 40,810,288 42,857,675 43,001,610 44,646,272 46,077,300 48,263,961 49,695,567 51,241,482 53,462,669 54,590,264 Benefits as % of Salaries & Wages 21.07% 21.35% 22.18% 23.73% 22.45% 22.23% 22.22% 22.11% 22.61% 23.11%

*Pending completion of the FY2019 independent audit


Benchmark – Health Care Costs as % of Total Expenditures

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Financial Indicator 9 – Reserves & Free Cash

Background: Stabilization Funds and Free Cash are widely-accepted indicators of a community’s ability to plan long-term and face unforeseen fiscal challenges.

Trend/Analysis: Free cash has been used effectively to pay for capital projects on an annual basis, mitigating the need to borrow.

Source: Danvers Tax Recap / MA DLS Databank / Town Financials / Town CAFR

Outlook

• Strong

Outlook: The Town will continue to estimate revenue conservatively and monitor spending in order to accrue Free Cash. Attention will also be paid to growing General Stabilization.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*Net Operating Expenditures 72,838,360 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 Free Cash Certified as of: ** 7/1/2008 7/1/2009 7/1/2010 7/1/2011 7/1/2012 7/1/2013 7/1/2014 7/1/2015 7/1/2016 7/1/2017Certified Free Cash (DOR) ** 5,541,821 3,860,866 3,083,190 2,408,514 2,924,780 2,554,469 5,162,836 6,147,819 6,574,983 7,180,539 Fiscal Year Appropriated FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019Amount Appropriated (2,653,000) (2,862,756) (1,904,700) (1,241,125) (1,996,900) (2,149,673) (2,458,284) (3,291,228) (3,968,876) (4,955,953) Net of Free Cash after Appropriation 2,888,821 998,110 1,178,490 1,167,389 927,880 404,796 2,704,552 2,856,591 2,606,107 2,224,586 General Stabilization Fund 466,863 1,118,592 1,141,970 718,192 729,791 720,097 728,724 1,034,221 1,048,317 1,571,770 Education Stabilization Fund 129,289 100,045 366 395 25,457 50,558 75,711 76,698 77,751 79,494 School Building Stabilization Fund 6,907,741 6,500,176 6,106,404 5,404,587 4,840,310 4,475,174 4,109,879 4,264,587 4,886,642 5,980,319 Total Stabilization Funds 7,503,893 7,718,813 7,248,740 6,123,174 5,595,558 5,245,829 4,914,314 5,375,506 6,012,710 7,631,583 Free Cash & Stabilization Funds as % of Net Operating Expenditures

14.3% 11.5% 10.9% 8.9% 7.8% 6.5% 8.6% 8.9% 9.1% 10.0%

*Stabilization Funds are pending completion of the FY2019 independent audit.**Due to timing of when Free Cash is certified, Free Cash certified as of 7/1/17 was used to appropriate for FY2019.

Financial Indicator 10 – Unassigned Fund Balance

Background: Unassigned Fund Balance (UFB) is calculated by our independent auditors on an annual basis. UFB includes the General Stabilization Fund, but not the School Construction Stabilization Fund, which is included in the “committed” fund balance. The Town has a policy to maintain UFB between 8-12% each year.

Trend/Analysis: The Town has maintained UFB in the desired range in relation to Total General Fund Expenditures for six consecutive fiscal years, a positive indicator for bond rating agencies.

Source: Town Financials / Town CAFR

Outlook

• Strong

Outlook: The Town will aim to maintain UFB in this range. The long-term plan would be to increase General Stabilization to a point where it alone accounts for the minimum target number of 8%.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*Unassigned Fund Balance 3,073,418 2,271,697 3,572,172 5,511,075 7,965,218 8,982,083 10,182,856 11,336,407 8,805,525 10,948,773 Total General Fund Expenditures 82,820,719 84,864,857 87,003,125 92,730,151 94,324,010 88,730,227 90,717,865 102,872,396 103,789,401 108,825,095 Unassigned Fund Balance as % of Total General Fund Expenditures

3.7% 2.7% 4.1% 5.9% 8.4% 10.1% 11.2% 11.0% 8.5% 10.1%

Financial Indicator 11 – Pension Liability

Background: Retirement benefits are administered by the Danvers Retirement Board. Danvers is currently using a schedule that will have the pension liability met by 2035. The most common way to measure a Town’s pension liability is the “funded ratio” of pension assets divided by pension liability.

Trend/Analysis: The Town has remained in the 55% to 65% funded range in the past 10 years. PERAC considers 60% funded to be a warning indicator. For systems that under 60% , PERAC tracks performance against the State system (PRIT) and could potentially force underperforming systems to invest through PRIT.

Source: Danvers Retirement Actuarial Studies

Outlook

• Stable

Outlook: The Town anticipates annual increases to the pension assessment of approximately 8% for the next 8 years.0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2009 2010* 2012 2014 2016 2018

Pension Liability - Percent Funded

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2009 2010* 2012 2014 2016 2018Pension Assets 75,217,536 84,017,923 83,875,130 89,955,182 102,550,595 113,315,313 Pension Liability 126,644,696 130,372,380 143,155,432 162,199,777 175,743,235 193,531,449 Percent Funded 59.4% 64.4% 58.6% 55.5% 58.4% 58.6%* In 2010, valuations switched to even calendar years

Source: PERAC (10/1/2019)

Benchmark – Pension % Funded

* Member of Essex Regional Retirement System

** Member of Middlesex Retirement System

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Source: PERAC (10/1/2019)

Benchmark – Pension % Funded

* Member of Essex Regional Retirement System

** Member of Middlesex Retirement System

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Town Pension % Funded Valuation DateInvestment Return

AssumptionFiscal Year Amortization

CompletedStoneham 74.7% 1/1/2018 7.25% 2024Reading 73.8% 1/1/2017 7.65% 2029Wakefield 65.3% 1/1/2018 7.50% 2036Danvers 58.6% 1/1/2018 7.50% 2035Salem 57.4% 1/1/2018 7.38% 2031Beverly 57.3% 1/1/2018 7.35% 2033Lynnfield* 53.4% 1/1/2018 7.50% 2035Peabody 52.3% 1/1/2018 7.75% 2036Andover 48.6% 1/1/2018 7.00% 2035Burlington** 47.9% 1/1/2018 7.50% 2035North Reading** 47.9% 1/1/2018 7.50% 2035Average 57.9% N/A 7.44% 2033

Financial Indicator 12 – OPEB Liability (Other Post-Employment Benefits)

Background: Providing health care benefits to retirees has a long-term cost, which GASB requires to be accounted for similarly to pension liabilities. The Town has an independent actuarial study performed every two years to determine the liability and prepare a schedule for how to pay down the liability.

Trend/Analysis: While under no legal requirement to establish an OPEB trust fund and begin growing this reserve, it is considered a best practice and an important indicator for ratings agencies. The graph illustrates the progress the Town has made in increasing the annual funding amount to the OPEB Trust. It measures the percentage of the existing year’s ADEC covered by the Trust and the actual contributions for that year.

Source: Town OPEB Actuarial Studies / Town Financials

Outlook

• Weak

Outlook: Despite the Town’s efforts to address this liability, it is still a significant liability. Efforts must continue to be made to reduce the OPEB liability through additional, sustainable funding sources and other factors.

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2011 2012 2013 2014 2015 2016 2017 2018 2019OPEB Trust Balance (Formerly OPEB Reserve) 1,445,769 1,755,217 2,170,986 2,648,772 3,151,537 3,758,041 4,572,294 5,534,965 6,648,458 OPEB Trust Increase 334,004 309,448 415,769 477,786 502,765 606,504 814,253 962,672 1,113,492 Pay As You Go - Total Contributions 4,909,728 5,354,000 5,727,000 4,416,414 4,606,106 4,963,794 5,667,829 5,709,970 6,271,587 Annual Determined Employer Contribution (Formerly ARC) 13,595,000 14,548,000 14,954,000 13,202,899 13,805,307 12,415,120 13,153,123 12,013,271 14,558,889 Percent of Single Year ADEC Funded 47% 49% 53% 54% 56% 70% 78% 94% 89%

Financial Indicator 13 – Debt Service

Background: Properly managed debt can enhance financial flexibility in current and future operating budgets, allowing the Town to acquire long-term assets without requiring overrides of Proposition 2 ½. Conversely, debt establishes fixed obligations for subsequent years which may impact the ability of the Town to address future needs through the operating budget.

Trend/Analysis: The Town’s debt policy establishes that the annual general fund debt service will not exceed 10% of the Town’s annual net Operating Budget. The Town has consistently stayed well below this figure, which is a positive indicator for ratings agencies.

Source: Town Financials

Outlook

• Strong

Outlook: The Town will continue to examine borrowing capacity in the short and long-term. It will be critical to continue to be able to utilize Free Cash and potentially the operating budget, for funding capital outlay.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*Debt Service 3,964,001 4,120,841 4,790,222 5,669,824 5,454,769 5,415,417 5,505,055 5,568,456 5,162,351 6,002,641 Less: MSBA Reimbursements (708,449) (694,026) (694,026) (694,026) (694,024) (694,024) (694,024) (694,024) (462,221) (212,709) Total Debt Service 3,255,552 3,426,815 4,096,196 4,975,798 4,760,745 4,721,393 4,811,031 4,874,432 4,700,130 5,789,932 Net Operating Expenditures 72,838,360 75,569,937 77,249,677 81,889,668 83,319,362 87,413,363 88,517,867 92,137,404 94,885,283 98,600,691 Debt Policy Ceiling 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%Debt Service as % of Expenditures 4.47% 4.53% 5.30% 6.08% 5.71% 5.40% 5.44% 5.29% 4.95% 5.87%*Pending completion of the FY2019 independent audit


Benchmark – Debt as % of Operating Budget

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Ongoing Operating Budget Pressures

Expenditure Category FY20 Approp. Trend Impact

Retirement Contribution $6.6m 8% for 7 years; then 4% $450k

Health Care $12.4m 4.96% = 3 year avg. $850K

Danvers Public Schools $42.3m 3.1% = 3 year avg. $1.2m

Essex Tech $2.5m 9.5% = 3 year avg. $150k

This table highlights several operating budget costs that are, have been, and/or will continue to increase at a rate higher than 2.5%, which in turn creates pressure points that must be relieved by either increased revenue or reductions to other spending areas.

For the upcoming budget (FY 2021), tax levy capacity ($2m) + projected new growth ($600k) = $2.6m, which are the funds available to maintain service levels across the Town, Schools, and Library.

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Current & Future Capital Projects

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New Public Works Yard

• DPW @ Hobart, Burroughs, N. Putnam, Sylvan, Canal

• W/S at 7 Canal Street is a temporary solution

• BOS adopted as FY 2020 priority (prelim. exam.)

• CIP placeholder from 10 years ago was $25m

School Renovations

• Smith School - $31m; set to open in 2021

• Highlands Roof - $2.9m; completed in 2019

• Riverside Roof – TBD• Three elementary schools

last renovated early 1990s

Quality of Life

• Lebel’s Grove Development• Sandy Beach Enhancement• Hay Barn Renovation• Rail Trail Expansion• Open Space Acquisition• Dredging & Bank

Stabilization

Looking Ahead

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“Dig the well before you are thirsty.”- Chinese Proverb

• Finalizing healthcare changes for FY 2021• Updating Electric PILOT for first time since 1995• Conducting hours of operation analysis• Begin moving OPEB / Capital from Free Cash to Levy• Continue to grow General Stab. Fund as primary reserve• Maintain compliance with all Town financial policies• Strengthen the Town’s long-range capital planning • Maintain the Town’s AAA Credit Rating!


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More information and source data can be found below:

U.S. Census American Community Survey (ACS)https://www.census.gov/programs-surveys/acs

U.S. Bureau of Labor Statisticshttps://www.bls.gov/

Massachusetts Municipal Databankhttps://www.mass.gov/municipal-databank-data-analytics-including-cherry-sheets

Town of Danvers Comprehensive Annual Financial Reportshttps://www.danversma.gov/certified-annual-financial-reports/

https://www.census.gov/programs-surveys/acs

https://www.bls.gov/

https://www.mass.gov/municipal-databank-data-analytics-including-cherry-sheets

https://www.danversma.gov/certified-annual-financial-reports/

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