Priorities

On the books, Newton revenues and expenditures are “balanced” at approximately $300 million, but we are seriously underfunding maintenance and repair of public buildings and infrastructure by $30 million/year. Retiree benefits are also underfunded by over $20 million/year.

In addition to this underfunding, the gap between current revenues and expenses in the Operating Budget is growing rapidly — with costs rising at double the rate of revenues.

In other words, Newton is facing serious, largely disguised deficits in both its Operating and Capital Budgets. The adverse effects of these twin budget deficits are multiplied by our failure to communicate the often hidden trade-offs that are made year-in and year-out during the budget process.

Since Newton’s economic situation and revenue/spending trade-offs are not broadly accepted and the City is coping with the effects of the economic downturn, we continue to put off investments in long-term needs. We fail to acknowledge the real deterioration in Newton’s service levels and infrastructure. Some of this deterioration is already visible to the eye: the physical conditions of our schools, roadways, sidewalks, public parks, and municipal buildings, and increases in class size in our schools. Some of this deterioration is less visible but is no less troubling: the increased work load of school principals unrelated to education, the understaffing of management throughout the City, the extent of underfunding of future retirement benefits and the underinvestment in water and sewer lines.

The Priorities:

Newton is currently facing significant financial and management challenges that require clear-eyed and energetic leadership. To overcome these multiple failings, the Mayor and the Board of Aldermen need to focus on: 

1. Spending Less by being More Productive and Efficient: The current municipal budget is large ($131 million in 2010 forecasted to grow to $145 million in 2016). Opportunities for cost savings from continuous improvements in service delivery exist, even though almost 10% (90 persons) of the relevant work force has been cut since 2001. These opportunities include reducing the costs of employee compensation (discussed below) and fully taking advantage of the potential of further outsourcing, consolidations, regionalization, automation, and technology innovation.
   
   
2. Containing the Growth in Total Employee Compensation:  Newton needs to moderate the average, long run growth rate of employee salaries and benefits to match the average, long run growth rate of City revenues, while maintaining a level of total compensation sufficient to recruit and retain excellent personnel. In particular, in the past we have committed ourselves to employee benefits that are beyond the city’s ability to fund. If the rise in compensation costs cannot be moderated, then a combination of steep increases in productivity or decreases in the scope and quality of services will inevitably be required. A policy that matches employee compensation to City revenues would mean no real income growth for City employees as long as inflation continues in the 2% - 3% range. Yet, the real growth in income for most of Newton’s residents would be similarly constrained, so it makes sense that the compensation for our City employees be responsibly controlled.
   
   
3. Investing More in Roads and Buildings: Holding Newton North High School aside, Newton’s current spending on the maintenance, renewal, and replacement of our municipal buildings, schools, roadways, equipment, parks and recreational facilities is half of what is required to deliver the quality and scale of public services that the City has historically provided. Until recently with increased debt related to the new high school, Newton has essentially limited the amount of debt it would borrow; debt service has generally not exceeded 3% of City revenues.  This has led to a persistent under spending on infrastructure. As a result, Newton’s per capita debt was approximately half the level of other comparable communities with AAA bond ratings. In the last two fiscal years, Newton debt service has increased to nearly 5% of revenues — largely a result of school financing — but even after this increase Newton’s debt service is substantially below the 7.4% of revenues recorded by comparable communities in 2007. Newton can raise tens of millions of additional dollars by borrowing to fund capital investment without necessarily jeopardizing its credit rating.
   
   
4. Encouraging Responsible Development: To ensure the economic vitality, diversity, attractiveness and value of Newton’s commercial and village centers, Newton needs to fix its permitting function which is badly broken. A streamlined zoning approval process that encourages appropriate mixed, residential and commercial uses will also help enlarge Newton’s tax base and increase affordable housing.
   
   
5. Increasing Appropriate User Fees:  Current tax-based revenues should continue to be used to cover the costs of public services. Newton’s user fees should be used to cover the selective use of services outside the boundaries of core community services, especially those that are linked directly to individual users and can be charged by volume. Simultaneously, Newton should provide waivers and scholarships to low income residents. Fee-for-service opportunities include Pay-As-You-Throw trash collection (which could bring in $2 - $6 million in annual revenues) and community recreational, educational, and cultural programs including, but not limited to, Gath Pool and Crystal Lake, summer camps, and playing fields.
   
   
6. Introducing a New Performance Management System:  Newton needs to thoughtfully set long- and short-term goals for itself. We should rigorously measure achievement against these goals. We need to institute systems of accountability that both motivate and guide the behavior of managers and employees toward the achievement of these goals. We must create a culture that is forward looking, proactive, focused on objectives, and dedicated to continuous improvement. Mayor Setti Warren has embraced this critical priority of re-engineering municipal operations by developing a new, more analytically rigorous and results oriented approach to performance management. 
   
   
7. Overhauling the Capital Planning and Budgeting Process: The capital plan needs to be grounded in a long-term vision for Newton and an explicit set of investment priorities. We need an up-to-date inventory of the condition and maintenance needs of municipal buildings. We need a capital asset management plan that ensures preventive capital maintenance. The capital and operating plans need to be clearly linked with a “reserve for depreciation” in the operating budget. The Mayor needs to provide the Board of Aldermen with a full menu of capital projects so they can systematically examine the trade-offs of proposed investments. Mayor Warren has begun this process and the Board of Aldermen need to support his efforts.
   
   
8. Improving Communications with Residents: In both municipal and school operations, there has been a reluctance to communicate the on-going choices and trade-offs the City faces, which, in turn, invites gridlock and leads to a propensity to make only small changes from the status quo. A more direct and more recurring communication of the choices Newton faces in preparing and living with a balanced Operating Budget needs to be a primary goal. Both the Mayor and the Board of Aldermen need to make it clear that Newton won’t simply be able to do more with less. We will have to choose and our residents have a right to participate with ‘open eyes’ in that decision making process.

Newton Public Schools: We have an obligation and a responsibility to our children. As a member of the Board of Aldermen, I have encouraged and supported the School Committee as it provides our children with an excellent education in a cost-effective manner. Newton’s current educational model is not sustainable. We invest nearly 60% of the City’s Operating Budget, or $167 million annually, in our schools. Salaries and benefits account for over two-thirds of school expenditures. With City revenues projected to grow at only 2.3% through 2016, but with the current educational model requiring 6% increases annually to maintain itself — something must change to succeed in the current economic environment. We must therefore ask whether excellence in the schools can be better preserved by exploring major changes in the delivery of education rather than by remaining locked into a century-old educational model. To this end, Newton needs to launch a “re-engineering” initiative for the schools — staffed by citizen experts, school officials, teachers, elected officials, and parents — aimed at finding ways to achieve its historically high level of quality at a lower cost. This could involve, among other possibilities, introducing technology-based distance learning in our high schools similar to that already adopted by many of Boston’s leading universities and collaborating with neighboring schools districts in selected, low enrollment, high impact electives in math, languages, and the social sciences.

Tough Choices: In the absence of new revenues, which are extremely unlikely in the near term, Newton faces inevitable choices pertaining to reductions in the scope and scale (and quality) of municipal and school services. Prior to any reduction, however, the new Mayor and the Board of Aldermen need to identify what services Newton residents value the most and then work to build consensus around a more focused, more innovative, and more economically sustainable vision for the City.

Tax overrides and debt exclusions will inevitably remain important options in Newton’s financial future. But there are essential preconditions to be met before Newton’s leaders can justify asking for citizens to increase their taxes and earn sufficient public trust for such a request. These preconditions include implementing gains from the new revenue sources and savings from efficiencies and finding they cannot fix the operating and capital budget deficits. Also, a tax override to help fund current operations only makes financial sense when the City has already employed a broad range of productivity and efficiency enhancements and is on a slope of continuous improvement. Without such an economic dynamic at work, an override is just a one-period injection followed by an even larger funding gap in the succeeding years.