After unexpected state aid increase, Select Board approves revised FY24 budget

In a special Select Board meeting Thursday, members unanimously approved amendments to the Town’s FY2024 budget after Governor Maura Healey announced her budget recommendation including about $2.3 million more in state aid than Lexington had expected to receive.

Though the Select Board had approved a recommended FY24 Town budget two weeks ago, both school and municipal leaders struggled for months to balance their departments’ budgets while meeting community needs. Even with the opening night of Town Meeting less than three weeks away, local leaders agreed that in a year when the budget was so tight, the Town needed to immediately incorporate the unexpected aid into its FY24 budget despite the inconvenience of such a major last-minute change.

“Given the challenges that we had this year, and the difficulty in balancing the budget, and the fact that both the school department and the municipal departments had to make some very difficult choices and not really fund what their budget asks for, we thought it was very important to go back and acknowledge this new revenue and revise the fiscal ’24 proposed budget” to account for the new aid, Assistant Town Manager for Finance Carolyn Kosnoff said on Thursday.

Healey, who was elected governor in November, released her proposed state budget last week. Though Healey’s budget is not final, and must still be deliberated by the Legislature, Town leaders noted that the Legislature has not historically decreased governors’ recommended budgets. As a result, they felt comfortable making revisions to Lexington’s own budget based on Healey’s recommended budget figures. 

Most of Lexington’s unexpected state aid comes from a dramatic increase in Chapter 70 funding, which is earmarked to support public schools. Healey’s proposal would fully fund the Student Opportunity Act, and her administration has said the proposed budget would constitute the largest percentage increase to this funding in more than two decades. 

In a memo to the Town Manager, Superintendent Julie Hackett wrote that the MA Director of School Finance attributed Lexington’s Chapter 70 aid increase – from about $15 million to more than $17 million – to Lexington’s enrollment growth this year, after a few years of declines, and the Town having less funding for students in its recommended budget than the state formula called for after several years of exceeding its target contribution, among multiple other factors. While the Town had predicted an increase from FY23’s Chapter 70 aid of about $200,000, local Chapter 70 increased by about $2.5 million in total.

On Thursday, Kosnoff explained that Lexington has contributed the maximum amount to its “foundation budget” school funding since 2018, receiving minimum state aid from Chapter 70 based on its resources compared to other communities. While last year, the state contributed $60 per student in Lexington, after contributing $30 per student for several years, this year the state aid amounts for $370 per student – “a pretty extraordinary amount” that the Town could not have anticipated in its regular budgeting process, Kosnoff said.

Lexington is likely to continue receiving at least this amount in base funding going forward, Kosnoff added, as state aid rarely decreases from prior years.

During Tuesday’s School Committee meeting, Chair Sara Cuthbertson said the increase was “fantastic news,” adding, “it’s nice to have some good news for once on the budget front.”

During a public comment period on Tuesday, Lexington Education Association President Avon Lewis praised other educators and the School Committee for advocating in support of the change.

“This $2.5 million is the direct result of a coalition of thousands of ordinary citizens from across the state who made it possible for the Student Opportunity Act and the Fair Share Amendment to pass, including you, the School Committee, who passed resolutions of support,” Lewis said. “I’m also delighted to hear that the additional revenue Lexington is getting is going to be put into the operation of the schools and not into yet another rainy day fund.”

Though the unexpected state aid overwhelmingly consists of education funding, Lexington uses a budgeting process for all revenue, including state aid, that allocates approximately 74% of state aid to the school department and about 26% to the municipal department. Consequently, about $1.7 million of the unexpected aid will go to the school department, while about $600,000 will go to the municipal department. (A decrease in the Town’s expected fuel costs also gave the municipal side about $75,000 in additional revenue to work with, Kosnoff added.)

In the memo, Hackett wrote that the school department anticipated using the funding to hire additional staff as the district continues to negotiate a new contract with the LEA. Negotiations have been ongoing for the past year, and educators have publicly appealed for increased compensation, preserving weekly elementary half-days and more manageable workloads throughout the school district’s budgeting and contract negotiation processes. Educators and union members, including Lewis, have also asked the Town to draw from its savings for capital projects to meet some of these needs.

Due to negotiations not yet being concluded, “it would be difficult for me to tell you how we intend to use these funds, but I can tell you that we are going to need additional Full Time Equivalents (FTE) to address current unmet needs in our schools,” Hackett wrote. If the school district increases staff positions, Town Meeting would need to approve budget adjustments in the fall to fund additional employee benefits.

The school department still plans to create an additional Special Education Reserve Fund proposed to support increased special education needs, as well as funding its existing Special Education Stabilization Fund, as previously reported.

On the municipal side, Kosnoff said that the Town would use its additional funding to pay for program improvements it could not previously fit into the budget, including a Human Resources assistant focused on managing benefits and Center Streetscape maintenance.

Kosnoff added that the Town had removed free cash, or unrestricted one-time revenue, from its operating budget, replacing it with some of the state aid. The Town previously planned to allocate about $400,000 in free cash toward bridging the municipal budget shortfall despite a long-term fiscal strategy of setting aside free cash into a savings account to help blunt the tax burden of paying for a new or renovated high school in a few years. 

At the Select Board’s meeting, multiple members said they wished Town finance staff had also used some of the state aid to replace American Rescue Plan Act (ARPA) funding Select Board members had approved to fund a composting pilot program. 

Town Manager Jim Malloy said Town staff did not explore this option because they treated the composting pilot as a one-time expense and focused on allocating the additional funding to ongoing operating expenses.

Select Board Chair Jill Hai, along with other board members, stressed that while the board only approved one-year pilot funding, they hope to incorporate funding to continue the pilot into future years’ budgets.

“I had hoped that maybe that [the composting pilot] was something that we could switch to funding with municipal budget, as opposed to ARPA, because that gives us the ground on which to build in a future budget,” Hai said. “I do hope that this is a successful pilot, and that we will be looking to see it in the budget the following year.”

Malloy said that he and the Department of Public Works director have discussed potentially funding composting in future budgets in part from any savings generated by reduced trash tipping fees over time.

Select Board members and finance staff said they plan to review the revenue allocation model used to divide revenue between school and municipal departments in the Town’s budgeting process within the next few months, ahead of the FY25 budget process.

“Those conversations need to start, like, now,” Select Board Member Suzie Barry said. “We can’t wait til summer; we can’t wait til fall.”

Town Meeting Members can expect to receive an updated Brown Book, or budget book, today, Kosnoff said. Town Meeting begins March 20.