FY2023 Salem City Budget

I am pleased to present the proposed FY2023 operating and capital budgets for the City of Salem and the Salem Public Schools. The proposed expenditure plans recognize that the coming fiscal year presents unique challenges and opportunities for our community.

As we continue the recovery from the COVID-19 pandemic, the uncertainty of the future course of the virus, as well as the scope of state and federal resources to address it, is complicated by a larger economic picture impacted by global conflicts, historic supply chain and labor issues, and rapidly rising interest rates and prices. Against this backdrop we must also consider the impacts of inflation on energy costs, materials and supplies, and wages, not to mention the unavoidable increase in fixed cost centers with which the City must contend. These contextual challenges are exacerbated by near level funding of our school aid from the state, increased state assessments, aging infrastructure, and a housing market where costs and values are rapidly escalating.

There are reasons for optimism, however.

I am proud to say that the pro-active measures we used locally to safeguard, strengthen, and rebuild our local economy during the pandemic have worked. Our revenues are rebounding, and our local economy is coming back stronger than ever. During the pandemic Salem had a net zero loss in businesses and our storefront vacancy rate decreased to 4%. Our local unemployment rate has returned to its pre-pandemic level. We weathered the fiscal challenges without having to draw down substantially from our reserve funds or tap heavily into our levy capacity.

Indeed, Salem should be proud of our record stabilization levels, bond rating, and considerable levy capacity. We have also enjoyed a low average tax bill increase relative to our region and to the considerable increases Salem endured prior to this administration. Lastly, while net state aid has been reduced and Salem is being disproportionately and negatively treated under the new Chapter 70 formula, we do have the benefit of one-time relief funds from the American Rescue Plan Act (ARPA), the Bipartisan Infrastructure Investment and Jobs Act, the Elementary and Secondary School Emergency Relief Fund, and other federal and state sources that we are working to creatively leverage and apply to one-time needs related to recovery or to investing in our capital needs.

All of this is thanks in large part to a collective partnership between local elected officials to see our way through the early stages of this pandemic as a team united in our efforts to address the impacts of this virus on our community. The professionalism and commitment of City staff, including the early actions taken to support businesses and embrace investment in our city, as well as our thoughtful approach to managing municipal finances all played a hand in our efforts to date to weather pandemic related challenges. Our collaborative partnership with the City Council, small business owners, private and public partners and our neighboring municipalities in the region has helped us to meet our needs and grow back stronger than ever.

The proposed FY2023 Salem budget is $188,157,262, a change of 3.4% over the FY2022 budget. Fixed costs, such as health insurance, pension and retirement payments, insurance, debt payments, and state and other government assessments, account for about $1 of every $3 in the budget and will increase by roughly $2.5 million in FY2023, accounting for around 40% of the budget increase.

Our schools’ budget is $68,747,963, an increase of $2,150,044 or 3.2%, over the FY2022 school budget. This does not include school-related costs that appear elsewhere in the budget, such as school employee health insurance increases, unemployment costs, debt for school building projects, and so forth. When those factors are included, a substantial amount of Salem’s budget is tied to our schools and our students, easily the largest single area of spending.

The enterprise fund budgets will increase by $335,929, or 1.7%, over the FY2022 enterprise funds budget, due to increases in assessments for these services and the need for ongoing infrastructure maintenance and upgrades. Ordinances have been submitted to you establishing the water and sewer rates necessary to fund these budgets.

The FY2023 Capital Improvement Plan (CIP) is also included as part of this budget, as are the associated bond orders to fund these capital investments. I am proud that we instituted a practice of including a forward-looking capital plan in our budget each year as a responsible and transparent way of planning for future obligations while meeting present-day needs to best serve Salem residents.

One point you will notice for FY2023 is a larger reliance on “pay-as-you-go” or short-term capital outlays, as well as retained earnings for water and sewer capital and ARPA allocations, all over traditional bonding. This is because rising interest rates make borrowing less cost effective at the current moment, even with our historically high bond rating. This has the additional benefit of lessening our long-term debt service payments. Highlights in the capital plan include $2.5 million in sidewalks, crosswalks, and roads, over $1 million in school building upgrades, signature park projects including the Willows Pier and the next phase of the Pioneer Village/Camp Naumkeag project, a major enhancement of the Mayor Jean Levesque Community Life Center kitchen facility, over $250,000 for new public safety vehicles, and the first phase of a much-needed overhaul of our critical police and fire radio communication system.

From having around $35,000 in our stabilization fund when I took office in 2006, we today have over $14.2 million in that fund thanks to permanent, prudent finance policies that we have worked collectively with the Council to put in place.

Despite the past financial difficulties we faced, Salem remains dedicated to policies that foster economic growth, to stable financial management practices, and to sustainable and transparent budgeting. Since 2006 we have implemented professional financial management standards and our debt payment as a share of the budget has been reduced by 33%. We have been able to accomplish this by leveraging hundreds of millions in grants, as well as PILOT, SILOT, and other tax agreements, and by being responsible, thoughtful, and prudent with tax dollars. Over the last 16 years, the average single-family tax bill in Salem increased by half as much as it did in the 16 years before 2006.

In our budgeting practices, the taxpayers of Salem have always been foremost in mind, and FY2023 is no different. This budget recognizes and respects the impact of property taxes on our residents, especially as many are suffering from the financial hardship afflicting many Americans today. Salem’s average tax bill change over the last decade has been well below the average for our region and bolstered by the adoption of as many exemptions and abatements as practical, particularly focused on our neediest taxpayers, including lower income residents, seniors, veterans, and those living with disabilities, as well as through increasing the share of the cost burden being exported to visitors and non-residents through fees and excises. Salem has never sought a Proposition 2-1/2 override and we continue to tax below our allowable levy limit. For FY2023, we will continue to maintain excess levy capacity – in the amount of $6.2 million – a further demonstration of our prudence and care with taxpayer dollars.

Despite the overwhelming impact of the pandemic on our budgetary situation, it does not diminish the other external influences with which we still must also contend. Whether it is housing needs, fears about growth, the opioids epidemic, changing demographics, or a changing climate, our community is facing many challenges that require strategic and sensible leadership. Indeed, in some respects the pandemic and ensuing economic downturn only exacerbated some of these challenges, such as the need for affordable and available housing.

On the financial side, we continue to see challenges with the state not fully funding their obligations for charter school reimbursements and the existing PILOT with the South Essex Sewerage District failing to adequately compensate our community for hosting this regional facility. Most egregiously this year, an embedded flaw in the state’s school aid formula means that Salem will effectively be level funded in Chapter 70 funds for our schools: where other Gateway Cities are seeing an average increase in Chapter 70 funds of around 13%, Salem’s increase is just 1%. Aid is increasing to all other Gateway Cities by between $1.6 million and $35.8 million; in Salem, our aid is only increasing by $248,340. Rising health care costs are impacting both the public and private sector and we continue to face the challenge of OPEB and pension liabilities, not to mention costly sick-leave buybacks, agreed to decades ago, but impacting our retirement stabilization fund now.

We have worked hard to tackle these challenges by allocating funds to reserve and stabilization accounts to plan for the future and by taking actions like entering into the Group Insurance Commission and annually reassessing the cost-effectiveness of that choice. However, the financial challenges presented by these fixed cost centers are still very real and have a real effect on our budget. Despite those pressures and despite the economic setbacks of the past year, the FY2023 budget maintains our dedication to fiscal responsibility while making important investments to strengthen our community.

I am proud of our collective efforts to limit impacts on Salem taxpayers while also providing much needed services to constituents. This is possible due to our joint attentiveness to City finances, as well as our ongoing efforts at identifying efficiencies in the delivery of services.

Our fiscal practices have resulted in not only affirmation of our historic high AA bond rating for the last nine years in a row, but also our regular receipt – for fourteen years in a row – of recognitions and awards from the Government Finance Officers’ Association, a national agency that provides professional guidelines for government budgets and fiscal practices.

In its most recent affirmation of the AA bond rating, issued just this month, S&P Global Ratings specifically cited Salem’s “robust and strong economy…consistent positive financial operations…[and] strong financial management conditions, including conservative budgeting and long-term financial planning.”

Lastly, another key factor in enhancing our local economy and contributing to new revenues to help meet the projected budget deficit are the public and private investments we continue to see in our community. These projects enhance our short- and long-term economic growth, create much needed housing, add to our tax base, and generate jobs. We are projecting the value increase of new growth for FY2023 at around $1 million; that is $1 million less burden on existing Salem taxpayers. Without responsible new growth we cannot provide the services and improvements that our constituents rightly demand and deserve. Given the reliable increase in fixed costs to the City and the financial challenges of the past year, a reflexively anti-growth position is equivalent to endorsing substantial tax increases on Salem homeowners and reduction in critical City services like public safety and public works. With appropriate new growth comes much needed housing, commercial enterprises with jobs, and new revenues to support the needs of Salem taxpayers and local government.

In FY2023 we will continue to strive to exceed the service level expectations of our constituents, while simultaneously ensuring fiscal prudency in all expenditures. The mission of City government in Salem is to provide open, honest, and pro-active services effectively and efficiently, focusing on the needs of today, with a vision for the future. To accomplish this, the proposed budget aligns operations with short-term and long-term strategic goals and objectives, while maintaining necessary fiscal controls and a careful attention to our financial forecasts in our budgeting.

Balancing the City’s budget in a normal year itself is no easy task and I appreciate the hard work and cooperation our department heads have put into the preparation of this year’s budget. I cannot say enough about the efforts made by our Finance Department especially. The department’s work ensured that the budget was ready for submission and in compliance with the high standards we set for ourselves pursuant to GFOA Distinguished Budget guidelines. We are one of only a handful of Massachusetts communities who annually qualify for both a Certificate of Excellence for our Comprehensive Annual Financial Reporting and a Distinguished Budget Presentation Award from the GFOA. New this year, in furtherance of the GFOA’s prioritization of improving transparency in public budgets, we are proud to offer a “Budget in Brief” summary that quickly highlights the most important parts of the FY2023 City budget.

The proposed FY2023 budget continues our balanced and responsible approach to City finances. It invests in the critical services that make Salem a vibrant city and one with schools in which we can all take pride – in short, a stronger, more livable city for all.

Kimberley Driscoll, Mayor