City officials got some unexpected good news from taxes generated by new development in the current fiscal year, but City Manager George Proakis said he remains cautious about the good financial times continuing.
Tuesday night, Proakis updated the City Council about the current year’s budget, Fiscal Year 2024, and presented the Fiscal 2025 Preliminary Budget Overview. The revenues in FY24 came in $5.3 million above the projection when the budget was made last spring. However, the current bottom line for next year’s Watertown budget (FY25) is a $2.4 million shortfall.
The budget was made with certain assumptions, including level State Aid, a 2.5 percent increase on the Watertown tax levy, and $4 million in new growth. The expenditure assumptions include a 2.5 percent increase in the budget for the municipal departments (including Police and Fire departments), and a 3.5 percent increase in the Education budget.
The priorities of the FY25 budget will be decided by the City Council in a series of upcoming meetings where the Budget Priority Guidelines will be set.
With the added revenue, the FY24 budget will be $199.8 million, and in FY25 it will cross the $200 million mark, said Proakis, who said the projected budget for the fiscal year starting July 1, 2024 will be $205.3 million.
Proakis said he will be treating the additional funds in the FY24 budget as one-time funds, and will not count on them to continue year after year. The largest portion of the increase came from real and personal property taxes, most of which come from new developments — also called new growth. The original new growth projection was $6 million when the budget was passed, and is now projected to be $10.6 million when the fiscal year closes at the end of June.
“What happened this year was that projects in the pipeline finished, completed, under construction, and moved faster than we thought. That doesn’t mean we are building money into our base that we are going to have for many years to come,” Proakis said. “What it means is some of the money we thought we were going to have in ’25, ’26 and ’27 is showing up a little bit earlier.”
A lot of new construction projects have not started, so Proakis is being conservative for the next three years. In his projections, Proakis removed $500,000 from the projections, so FY25 is projected to have $4 million in new growth instead of $4.5 million, and FY26 and 27 each have projections of $3.5 million instead of $4 million.
Most of the unexpected additional revenue in FY24 will go to three accounts. Proakis showed the City Council a budget amendment that he plans to submit that would add $1.8 million apiece to three accounts: the Watertown Square Plan stabilization fund, the Capital Project stabilization fund, and the Council’s reserve fund.
Watertown has borrowed the most in its history, Proakis said, due to the three elementary school projects and the new high school. Creating some buffers in the cost of upcoming projects —including the Watertown Square redesign, park improvement projects, and the three elementary school projects — will help avoid additional borrowing, Proakis said.
With municipal loans, the biggest interest payments come during the years following the issuing of the bonds. Proakis said that the biggest debt will occur in FY27 and FY28, after the City borrows money for the high school project.
While the price of the high school has been a challenge, Proakis said he does not anticipate having to borrow any more than the most recent estimate of $150 million. This is due to a few factors. Some of the subcontractor bids came in under budget, and the City is applying for a 30 percent federal rebate for the solar photovoltaic panels to be installed at the new school. There is also hope for more assistance from the State. Legislation currently being considered at the State House would provide $100 million for communities like Watertown that have experienced significant cost increases due to construction cost escalation since the project was approved by the Massachusetts School Building Authority. Under the MSBA rules, the per-square-foot reimbursement remains fixed after a project is approved.
While the projected FY25 budget has a deficit of $2.4 million, Proakis said the picture looks better in the years after that, with a $661,000 surplus forecast for FY26 and an $83,000 surplus in FY27.
Proakis closed his presentation saying that he is cautiously optimistic about Watertown’s financial standing, and that he and his staff will have to “sharpen their pencils” to close the $2.4 million gap.
See the 2025 Preliminary Budget Overview slides by clicking here.