Five-year forecast shows capital fund pressure; staff flags transfers to highway fund and options for new revenue

Town staff told the Budget and Finance Commission on March 19 that a five-year financial forecast indicates increasing pressure on the capital program and highway fund, driven by lower state-shared revenues and rising recurring costs.

“There are really three main issues causing the capital fund to go negative,” a staff presenter said, citing a decline in state-shared revenues, continuing inflationary pressure on personnel and O&M costs, and highway fund pavement-preservation needs that exceed HEERF revenues. The presentation showed the capital fund turning negative in year five of the forecast under current assumptions.

Staff said general fund recurring revenue growth was modeled conservatively at roughly 1–5% in most sales-tax categories and that construction sales-tax activity is expected to remain subdued because of reduced developable land. The forecast assumes limited new full-time-equivalent positions (FTEs) over the period and includes modest annual employee benefit increases and step increases for sworn police personnel.

Key forecast points presented by staff included: - The town relies heavily on local sales tax and state-shared revenue; a drop in either materially reduces available surplus that historically funds capital projects. Staff noted state-shared revenues will not fully recover to fiscal year 2024 levels until about fiscal year 2028 under the baseline forecast. - Highway fund pavement-preservation needs are forecast at roughly $3–3.2 million per year (up from about $2 million historically); total transfers needed into the highway fund over the five-year period were cited as about $13 million (not including the current fiscal year). Staff said those transfers primarily come from the capital fund, which is in turn funded largely by the general fund. - The draft capital plan includes a budgeted $5 million cash contribution toward a police facility in fiscal year 2027; staff did not assume associated debt issuance in the baseline forecast because facility scope and financing decisions are unresolved.

Commissioners asked if new tax categories or annexation were being considered to improve revenue; staff said they were evaluating options and have a public outreach plan but that no new tax categories had been approved by council. Staff also noted the regional RTA “RTA Next” initiative and state-level proposals (including discussions about how electric vehicles affect gas-tax collections) are external factors that could affect the highway fund and were being monitored.

Staff concluded that the forecast is a planning document, not an appropriations schedule; the town manager’s recommended budget will set appropriations and appear later in the budget process.