On Sunday I posted some questions about the state of the 2015 City Finances and budget. I followed it up with an email to City Hall. I thank the Manager and CFO Conor Baldwin for taking the time to respond and to explain the reserves and current fiscal state of this years budget, which appears to be pretty strong.
Here is the response from CFO Conor Baldwin.
Thank you very much for your email and for giving me the opportunity to address some of the questions you have raised regarding the city’s reserve position and our revenue projections for FY15. As you are likely aware, periodic updates on financial forecasts and collections are provided to the City Council, but I would be happy to address your specific questions as best possible.
When we speak of the “General Reserve Fund,” in public or before the City Council we are referring specifically to the General Stabilization Fund of the City, which is the city’s single largest source of liquid reserves. The account balance is currently just under $11 million. The city does, however, maintain a number of other special-purpose stabilization funds which are considered separate for accounting purposes. The General Laws of the Commonwealth, Chapter 40 § 5B, allow municipalities to establish these stabilization funds which are created to be used for specific purposes. Currently, Lowell maintains a Pension Assessment Stabilization Fund, a Salary Stabilization Fund, a School Construction Stabilization Fund, and a newly created Capital Debt Service Stabilization Fund. The aggregate total balance of all these special purpose funds is $1.4 million.
The Department of Revenue, as well as rating’s agencies like Standard and Poor’s, also consider the City’s free cash and excess levy capacity as part of our reserves. When a community sets its levy below the limit, the difference between the levy and the levy limit is commonly referred to as excess levy capacity. This is an additional amount the community could, but chose not to, levy. For fiscal year 2015, our levy limit is $128,838,969 and the 2015 tax levy is $117,457,260.91.Our current excess levy capacity, therefore, is $11.4 million. The concept of excess levy capacity is not a part of the Proposition 2 ½ law, however, excess levy capacity is an important factor in municipal finance, and should be a consideration in any discussion on reserves.
The paragraph to which you refer from the FY15 budget referred to our reserve position at the time of writing, which was approximately May of calendar year 2014. The sentence reads, “Stabilization Fund Balances at $12 million,” which included all of the aforementioned stabilization funds. However, $3 million from the Pension Stabilization Fund was used to support the spike in the fiscal year 2015 pension assessment. The sole purpose of the fund itself was to mitigate the increased pension assessment, so that money is therefore no longer available and is not counted in our discussion of reserves. As you may remember, funding was also used from the Salary Stabilization Fund at the end of fiscal year 2014 to fund retro payments due to union employees as their contracts were settled.
Regarding the revenue projections, all estimated local receipts for fiscal 2015 were approved by the Department of Revenue in December of 2014 when the City of Lowell set the FY15 tax rate. Through the end of February, we have collected $20.7 million in all local receipt categories, out of a total budgeted amount of $25.9 million. We anticipate finishing the year well on track with our projections. The Administration is very conservative in budgeting revenues, especially in the local receipts category. However, as you are likely aware, local receipts accounts for only 7.8% of the city’s $350 million total annual revenue.
I hope this addresses the questions raised in your email. Please let me know if you would like to talk further.