Town finance update: water fund posts small gain; town projects $11M baseline deficit, board warns override likely in 2 years

Jeff O’Neil, town director of finance, briefed the board on water/sewer fund performance and the town’s overall fiscal outlook.

Water/sewer fund: O’Neil said FY25 revenues were about $22.6 million (100.77% of budget) and expenditures about $22.0 million (98% of budget), producing an unaudited increase to retained earnings of roughly $600,000 and an estimated retained‑earnings balance of about $1.3 million, or 5.95% of the fund. He cautioned the figures are unaudited and that the town expects certified retained‑earnings numbers in October. O’Neil said the fund’s mid‑term goal is closer to 10% of annual expenditures, and staff recommended waiting several more months of operating data and the retained‑earnings certification before scheduling a rate hearing; he suggested the board consider a January hearing with a target effective date in March if a rate increase is needed.

Budget outlook and projected deficit: Finance staff and the town manager presented a baseline projection for fiscal 2027 that modeled a 4% increase in operating costs and included a 2.5% levy increase and current excluded debt. On that baseline, they estimated an operating gap of about $11 million. The presenters emphasized the figure is a working projection, not a final budget. Staff presented a worst‑case illustrative scenario showing roughly a 10% across‑the‑board reduction would be needed to close the gap without using reserves; presenters and several board members said such reductions would be unacceptable because they would cut core services including public safety, leaf pickup, weekend library hours and other widely used functions.

Staff and the manager discussed tools to reduce the deficit and the timing of decisions. They said the town can use reserves (free cash) to smooth near‑term gaps, but that the longer‑term solution will likely require an override in a future year. The manager and finance director said an override is likely in fiscal 2028 (two years out), estimating an illustrative range of $10 million to $14 million based on current assumptions; they added the town expects new tax revenue (new growth) from major projects in coming years that will offset part of the need. Staff recommended continuing to restrict nonessential spending, pursue fee increases where appropriate and evaluate targeted measures (for example, a separate public safety funding question) rather than a single large general override if the board chooses to split policy priorities.

Why it matters: the water fund’s modest replenishment improves short‑term resilience. However, the larger town projection shows structural budget pressure that staff say will require near‑term decisions about fees, personnel and possibly a future override to avoid significant service reductions.

Next steps: Finance will seek retained‑earnings certification in October and recommended a follow‑up water/sewer update in November; staff proposed a January rate hearing date if a rate increase is necessary for March implementation. The manager said the town will continue internal budgeting work, seek fee adjustments where reasonable and present options for the board to consider in the months ahead.