by Tom Riddell

Northampton Resident, retired Smith College Professor & Class Dean

The mayor has called a Special Meeting of the City Council for Monday, August 5.  As a result of an increase in the city’s year end revenues, she is requesting that the City Council rescind its approval of an override vote on the November election ballot.

In the mayor’s August 1 letter to the City Council, she discusses the increased revenue and repeatedly defends the city’s current approach to fiscal management, ignoring the fact that her approach is nearly guaranteeing a yearly reduction of school services and personnel.

Where does the “unanticipated” revenue come from?

This excess revenue is a result of high interest rates and higher than expected excise and hotel taxes. The bulk of the unanticipated revenues (actual revenues in excess of estimated revenues) were from interest on existing cash balances, about $2 million. The excess revenue from motor vehicle excise taxes and hotel/motel taxes was about $300,000. (The exact numbers presumably will be revealed at the Special Meeting on August 5th.)

The mayor labeled this revenue a “pleasant surprise.” Her surprise seems, well, surprising.

The mayor says the increased revenue is “Thanks to Treasurer/Collector Kris Bissell who identified and took advantage of a new, higher-interest rate yielding banking vehicle that became available as interest rates reached a 23-year high.” But how could it be surprising when these high interest rates were well known to anyone who has a bank account. In fact, the guaranteed returns from those higher interest rates in certain instruments should have been fairly predictable. The fact that the mayor labels these as a “pleasant surprise” is disingenuous at the least.

The mayor repeatedly mentions the Massachusetts Department of Revenue to defend her approach to fiscal management, writing the city’s fiscal management “is a testament to our collective commitment to responsible fiscal management and strategic planning, guided by policies recommended by the Massachusetts Department of Revenue (DOR).” But the mayor is using a rhetorical and budgetary trick, and it’s resulted in a drastic underfunding of the schools.

Here’s why the mayor is deliberately underestimating revenue and how that approach underfunds the schools and other city services.

When Northampton deliberately underestimates revenue projections, any revenue in excess of those low projections become “undesignated fund balances” at the end of the fiscal year. Once certified by the Department of Revenue, they miraculously become “one-time revenues,” ready to slide right into various stabilization funds and other forms of surplus, adding to the “mountains of cash” that the city has already accumulated.

If Northampton were to accurately estimate revenues, those revenues would be considered “recurring,” and could be used to fund recurring expenditures – like the schools. This means that the schools would not be sacrificed annually to burgeoning surplus accounts but could be funded reliably each year. Obviously, there would be less surplus at the end of the year, a reduction that our extremely healthy – and for a city of our size, unusually large – surplus funds can withstand.

These choices are a reflection of priorities.

The mayor’s priority is to stockpile money in various stabilization funds and other forms of surplus while underfunding the schools.

The community’s priority is to use the city’s revenue to finance critical recurring expenditures – like schools.

In her letter to the City Council, the mayor tries to defend the purposeful underestimating of revenues to accumulate stabilization funds.

• “While this surge is positive, the fluctuation also underscores the inherent volatility of undesignated fund balances, which is why DOR does not recommend using them for recurring expenses.”

The mayor is saying that next year we might not earn so much interest on our cash balances (the “mountains of cash”). Yes, interest rates are volatile. We know that. But if the city anticipated that next year’s revenues were going to be different, they could make adjustments in the budgeting process. In fact, if the city knew that revenues couldn’t cover recurring expenditures, it could plan to have fewer undesignated fund balances in the following year so that schools could be adequately funded.

Again, there’s a choice to be made. Pick your priority – fund the schools or continue to add to the city’s savings. We know the choice favored by the mayor.

In her letter, the mayor explains that she is rescinding the override vote previously approved for November (which presumably she understands might not pass). In her view, that means merely postponing another override vote.

• “The unexpected gains provide support to the Fiscal Stability Stabilization fund, prompting me to recommend that we postpone the override. An override will still be necessary eventually. But these additional funds will allow me and our experienced finance team to monitor the economic trends for the next few months, including what the Federal Reserve does with interest rates, and to navigate past the presidential election and its associated uncertainties before deciding when the next override referendum should be placed on the ballot.”

But before we consider another override vote, our city must answer some essential questions.

At the 6/17 Special Meeting of the City Council, the arguments made by Councilor Quaverly Rothenburg and her panel of experts focused on exactly this issue. Here are the critical questions they raised:

· How does the city estimate and identify its revenues?

· Is it appropriate to use sizeable and deliberate “undesignated fund balances” to support various stabilization funds and other forms of surplus year after year?

· Can the city do a better job of accurately estimating its projected revenues, identifying them as recurring revenues, and using them to support recurring expenditures?

· Should the city keep shortchanging the schools and funding other priorities?

Or to put it simply: Do we want to fully fund our schools or build mountains of cash?

Perhaps it’s time to revisit, reconsider and reconfigure the decade old Fiscal Stability Plan that’s driving the city’s budget. It’s clearly not working very well for all of the city’s priorities. It’s a broken game plan.

August 5, 2024