Worcester to Foot Bill for Millions in State Aid Cuts
Monday, December 03, 2012
Since the 2013 fiscal year began on July 1, the Commonwealth's tax revenues have failed to meet projections for four straight months, leaving Bay State revenues over $250 million off the mark. An automatic income tax cut set to kick in January 1 has already been axed, and Governor Deval Patrick's administration has sent word to begin scaling back budgets for the current fiscal year and to build cutback into the FY2014 budgets officials are currently developing.
Covering for State Cuts
While no official announcement has been made regarding so-called 9C cuts, which are instituted when the Governor and his administration determine that revenue will not meet the levels required for the spending authorized in the state budget, City Manager Michael O'Brien wants to prepare for the worst at Worcester makes its final budget adjustments prior to setting the tax rate for the current fiscal year.
"Due to the collapse of State revenues through this point in the fiscal year it is anticipated that the state will enact 9C cuts and reduce unrestricted local aid to cities and towns," O'Brien said in a letter to the City Council.
"While the amount is not known at this time, we are assuming the cut will be at least the amount that was not included in the Governor's original budget submission in January 2012 ($2.5M)."
But by jumping out in front of the potential cuts now, said O'Brien, the City will be much more likely to be able to keep its FY2013 budget intact if and when the call comes down from Beacon Hill that the state aid dollars will not all be making the trip down the Mass Pike to Worcester. That's because the Commonwealth's second-largest city has been outperforming the Bay State at large this year.
"The City's favorable bond rating and positive market access in a recent bond offering has generated premium revenues in excess of original estimates," O'Brien said. "This $2.1M in additional revenue will help to offset the loss of state aid for FY13."
For the first time in more than a decade, two of the three independent credit rating agencies upgraded Worcester's municipal bond rating this fall. Standard & Poor upgraded the City by two grades from A- to A+ and Moody's from A1 to Aa3 with a positive outlook. Fitch Ratings reaffirmed their rating of AA- with a stable outlook.
Elsewhere in its budget, the City has so far been conservative in its estimates for local revenues associated with federal Medicare programs in the Worcester Public Schools due to ongoing changes to the reimbursement system's structure.
"At this time, we expect these revenues to exceed original estimates by $1M," said O'Brien.
Finally, new construction and annual increases will allow for an additional $1.48 million in estimated property tax revenue, allowing the City to close its forecasted gap and preserve Worcester's unused tax levy capacity at $10.4 million.
Yet the City's preemptive budget moves are based on estimates and predictions, which may or may not match actual cuts.
"Should the anticipated 9C cuts from the Commonwealth exceed this amount, we may have to make additional budget adjustments prior to year end," O'Brien said.
In addition to the expected $2.5 million reduction in state aid, the City also has to compensate for a number of reductions to state funding for Worcester Public Schools. Charter school reimbursements have been reduced by $418,385 while charter school assessments have increased by $172,249, resulting in net decrease of $528,527 to city revenues for the FY2013 school budget.
O'Brien has recommended that the City increase its contribution to the Worcester Public Schools by a like amount to cover the half-million dollar shortfall so the school system can continue its operations this year as if the state-level cuts had never happened.
Schools Could Still Face Issues
However, Worcester Public Schools Superintendent Melinda Boone expressed concerns about the effects budget issues at both the state and federal level could have on the City's schools in the next 12 months in a letter to the City Council last month.
If Congress fails to reach a budget deal before year's end and goes over the fiscal cliff, Boone said the school district anticipates approximately $1.7 million in reductions due to sequestration, which will affect the FY2014 budget allocations. Meanwhile, the floundering state budget only adds to the district's problems.
"Our dependence on the state budget makes our ability to provide high quality programs vulnerable to fluctuations in state revenues," Boone said.
Adding to future school budget concerns is the expiration of all the Worcester Public Schools' collective bargaining contracts by August 31, 2013, for which each 1 percent increase in employee salaries will require an additional $2.2 million, and the substantial technology upgrades required to replace all 7,500 Windows XP computers in the district which will reach end of life in 2014.
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