Introduction
The adoption of the budget for fiscal year 2007 was again a difficult process for Kittery residents, and school and town officials. Striking a balance between the preservation of services, high quality of life and spending is difficult at best. This challenge increases substantially when elected officials and residents do not have a clear understanding of current reality and a shared vision for the Kittery Community as a whole. In acknowledgement of this dilemma, the town council and school board assembled a team comprised of the chairperson of the town council and school committee, the town manager and the school superintendent. The team was charged with the task of reviewing school and town services, programs and budgets to determine current realities and to make preliminary short and long-term recommendations that could
improve the delivery of services while making them more cost effective. In short, the team would be looking at ways to strengthen the sustainability of the Kittery Community. To reflect this goal the team has been named Sustainable Futures Team or SFT.
The SFT was assisted by Planning Decisions, Inc. (PDI) to complete Phase One of the project: Data/Trends Evaluation and Projections. The PDI Team included noted economist Chuck Lawton and intern Andrew MacDonald. PDI gathered data, examined economic and demographic trends and performed an analysis of school and town budgets. Next, PDI took the data and trends and applied key economic indicators and variables to see what would happen if the current course was not altered; in other words, preservation of the status quo. PDI brought its findings back to the SFT where it was evaluated, revised and put in the context of the operation of the town. During this analysis, the SFT discussed ways in which outcomes projected by the trends could be altered to produce incremental to large positive differences on the tax rate,
delivery of programs and services and quality of life. PDI helped SFT define several alternatives that with additional study and public input could significantly impact school and town trends.
This report contains the data and findings of Phase One of the work that the SFT was charged with doing. It provides a framework for community discussion and further study. It is important to understand that this is not a list of changes that will or have been implemented, but an opportunity to begin a community-wide dialogue. The SFT learned through the information contained in this report that if nothing is done, Kittery will not be able to sustain the programs, services and quality of life that it now enjoys. In fact, to date there are already quantifiable losses in services as a result of budgetary constraints. The choice before the Kittery Community is to begin to take comprehensive, proactive steps to secure its own sustainability or continue a pattern of narrow-focused, reactionary decisions that will continue
to erode services. Phase Two of this process will expand the work of SFT to involve a broader coalition of residents. Your commitment to and participation in this process will insure that any future decisions made will reflect the values and goals of the Kittery Community as a whole.
Data and Trends: Evaluation and Projections
The purpose of this report is to provide elected officials and residents with an overview of the factors that are contributing to town spending with special emphasis on education. It provides a starting point for community discussion about potential changes that could result in a more affordable and sustainable community while preserving the quality of school and municipal services. The report consists of three sections of data collected and applied by Planning Decisions Inc. The final section outlines proposed next steps for moving the project into Phase Two. The four sections are as follows:
I. Current Reality: This section defines Kittery’s current reality in the context of spending, tax rates and revenue patterns. It emphasizes the impact of education funding on the total town budget. The first grouping of charts illustrates the town’s demographic information, including household, enrollment and valuation figures, as well as state aid for education. Second, it looks at the way these trends affected the town’s spending, revenue and tax rate. The information in this section simply describes past trends.
II. Future Conditions Based on Current Reality: This section projects the current trends into the future. The figures highlight household and valuation growth at continued levels, as well as the continued decline in school enrollment. The charts show what Kittery’s future spending, revenue and tax rate would look like if it maintains its current course.
III. Alternative Futures: This section begins to discuss specific outcomes projected by the trends that could be altered to produce incremental to large positive changes on the tax rate, delivery of programs and services and quality of life. PDI helped SFT define several alternatives that with additional study and public input could significantly impact school and town trends/outcomes.
IV. Next Steps / Recommendations: This report illustrates Kittery’s financial situation in the context of past trends and projects and future implications of town policies. It projects spending and tax rates based on major economic and demographic forces. It will be most effective if elected officials and residents use it to understand how future choices will impact municipal spending, the tax rate, the quality and diversity of programs and services provided. It is important to understand that this report is a collection of numbers. The numbers do not present an opinion for or against a certain course of action; they simply provide an understanding of the financial consequences of spending and policy decisions.
An effective use of this report will be to engage the community in a dialogue about what the Kittery Community values and desires. Once this common vision is established, the contents of this report can be applied to determine the cost of certain policy and/or spending decisions. For example, if the community places a high value on having a drug-free community, the expenses associated with a paid substance abuse counselor in the schools, money for enforcement activities and money for prevention programs, such as after school activities, etc., would be viewed as the necessary cost or “tax benefit” associated with achieving this value/goal. Conversely, if the community did not value small class size in the schools then the expense of additional teachers could be reduced proportionally to the new
maximum number of students in each class. This approach reframes the annual budget debate so that people are discussing real issues rather than a concept of reduced or increased taxes. It also holds the citizenry more accountable for the decisions that it makes.
In order to move toward this community dialogue and decision making process the following have been identified as next steps:
§ Implement Phase Two of the project which will evaluate all alternative futures as they are identified without bias.
§ Expand SFT to include a core group of community members.
§ Contract with PDI. to provide assistance as needed to the SFT when evaluating alternative future scenarios.
§ Collaborate with the new “Community Now!” initiative, which will be working on mobilizing the Kittery Community around its assets and strengths in order to better define community values and goals and increase proactive citizen involvement and delivery of services.
§ Hold a minimum of two community (public) workshops to receive feedback from residents about potential alternative futures.
§ Generate a final report for Phase Two that will include recommended alternatives, economic evaluation of such alternatives and summaries of community feedback, both general and specific to recommended alternatives. It will also outline the action steps for Phase Three: Implementation.
I. Past Trends
Section I of this report describes demographic and fiscal trends since 2000.
A. What Drives Municipal Spending?
The demand for municipal services is driven largely by the number of households in the town and the number of students enrolled in town schools. In Kittery, over the recent past, the number of households has been increasing and the number of students enrolled in municipal schools has been declining.
1. An Increasing Number of Households
Since, 2000, the number of households in Kittery has increased from 4,078 in 2000 to 4,289 in 2007, an increase of approximately 5% annually,
Source: 2000 Census and town assessor’s report on the number of residential properties.
2. Increasing Property Values, Particularly Residential Property Values
The value of taxable property in Kittery has increased from approximately $668 million in 2000 to $1,371 million in 2007. Much of this increase occurred in 2003 as a result of an overall revaluation. The share of property value represented by residential properties increased from 72% in 2000 to 81% in 2007.
3. Declining Enrollment
Enrollment in Kittery schools has declined 15% from the 2001 high of 1,244 to a total of 1,081 in 2006.
4. Indices of education cost drivers.
The consequence of these two trends—increased valuation and declining enrollment—has been a decrease in total state aid for education. Indexing the values of state aid per student and town valuation per student in fiscal year 2000 to 100 and following their changes over the subsequent years illustrates this change graphically. Valuation per student has more than doubled (from 100 to 232) ($0.55 million to $1.27 million), while education aid per student has dropped to less than half its original value (100 to 46) ($1,988 to $911). As a result of this reduced state education aid, the local share of education cost has naturally risen.
5. State education aid
State education figures were reported by the Maine Department of Education. State aid has declined 72% since 2000 due to increased valuation and declining enrollment.
In sum, the most important drivers of Kittery’s fiscal standing are the growing number of households, the increasing town valuation and the declining number of students enrolled in public schools. These trends have resulted in decreased state education aid and a consequent increase in the local tax burden.
B. Kittery’s spending and taxes
Section B describes the ramifications of the trends outlined in Section A. It shows the increases in spending at the household and per student level and the Town’s growing reliance on property taxes.
1. Total spending
From 2000 to 2007, total spending in Kittery has increased from $16.8 million to $23.2 million, an increase of approximately 38%. Municipal spending increased from $6.7 million to $9.5 million, an increase of approximately 42%, while education spending increased approximately 36% from $10.1 million to $13.7 million.
2. Spending per household
Spending per household combines the actual town budget with census household information to give an individualized picture of town spending. The chart divides spending into educational and municipal categories. Education spending per household grew at 4% annually, reaching $3,187 in 2007, while municipal spending per household increased at 5% annually, reaching $2,215 in 2007. Total spending grew from $4,122 in 2000 to $5,402 in 2007.
3. Educational spending per student
Education spending per student rose from $8,382 in 2000 to $12,687 in 2007, a 43% increase. The rise in education spending per student resulted from higher spending on education and lower enrollment. Higher spending per student coupled with decreased state education aid puts a higher burden on property taxes. Spending per student includes the instructional, support and building costs of the school system.
4. Revenue Trends
Over the 2000 to 2005 time period, total revenue has averaged 102% of spending, indicating the maintenance of prudent reserves. Declining state aid and higher school spending have led to an increased dependence on property tax revenue. Property taxes currently account for 77% of town revenue, up from 69% in 2000.
5. The tax rate
The town’s tax rate is determined by dividing property tax revenue by valuation. The 2003 revaluation caused a jump in town valuation, resulting in a dramatic drop in the tax rate, from a high of 18.8 mills in FY 2002 to a rate of 11.7 mills in FY 2005.
In sum, part B shows that while municipal and educational spending increased 38% between 2000 and 2007, valuation grew at an even faster pace. The resulting property tax rate declined after the revaluation, but the pressure on property taxes remains. The next section will detail the likely consequences of continuing current spending trends.
II. Future trends, status quo
Section II examines the fiscal consequences of a continuation of the trends examined in Section I.
A. Cost Drivers
Part A of Section II projects the demographic changes that drive town spending. It examines household growth patterns, valuation projections, and enrollment projections.
1. Continuing Growth in the Number of Households
Household trends are reported from the State Planning Office and show a continued growth of approximately 5% annually. At this rate, the number of households in Kittery will approach 4,500 by 2014
.
2. Alternate Projections of Property Values
Projections of future property values, particularly in the short run, are notoriously difficult, depending on business cycle, interest rate as well as demographic changes. The chart below illustrates the difference that will result over time in total property values in Kittery if they grow at a rate of 3% per year and if they grow at a rate of 8% per year.
3. Enrollment Projections
Enrollment projections come from the most recent PDI report dated March 2006; they are based on birth rates and population trends. The recent drop is projected to level off at just over 1000 students, a 17% decline since 2000.
In sum, Part A shows an increasing number of households in Kittery, the likely parameters of valuation growth and a continuing slow decline in school enrollment. The increase in the number of households will increase demand for municipal spending while valuation growth and lower enrollment will continue to reduce state education aid. Part B shows the ramifications of these trends.
B. Finances and spending
Part B projects spending, revenue, and tax rates if Kittery continues on its current course.
1. Projected total spending
Projected total spending represents the sum of total projected municipal spending and total projected educational spending. We determined the former through household projections and municipal spending per household calculations.
Municipal spending per household has consistently increased at 3% annually, so the projected municipal spending multiplies the 3% increase in spending per household by the Planning Office’s household projections. We project municipal spending to rise from its current $9.5 million to $14 million in 2014, a 47% total increase.
We projected educational spending on a per-student basis. Education costs per student have risen 5% annually since 2000, so we projected educational spending by multiplying the rising cost per student by the enrollment figures. We project educational spending to rise from its current $13.7 million to $18.3 million in 2014, a 34% increase. Educational spending, then, will increase despite declining enrollment.
Total spending is the sum of educational and municipal spending, and will rise from the current $23.2 million to $32.3 million in 2014, a 39% increase.
2. Projected Revenue
Projected revenue is based on projected spending. It assumes continued revenue at 2% above spending. Revenue will increase from $23.6 million now to $32.9 million in 2014. The graph also shows Kittery’s increasing dependence on property taxes for its revenue. If Kittery’s current trends continue, property taxes will rise from 78% of revenue to 87% in 2014.
3. Projected tax rate
If status quo spending patterns continue and valuation increases at an annual rate of 3%, the tax rate will rise to around 17 mills. If valuation increases at 8% annually, the tax rate will hover around 12 mills. In sum, continued dependence on property taxes puts pressure on tax rates, and any slowdown in valuation growth will result in higher property tax rates.
III . Preliminary Areas Recommend for Further Analysis in Phase Two:
A. Municipal
· Regional public safety dispatching
· Increase use of online internet services
· Integration of volunteers with the existing workforce (ex. environmental education)
· Delivery of services
B. School
· Class size
· Delivery of programs and services such as facility maintenance, and food services.
· The regionalization of specialized curriculum content
· Consolidations of grades and school closures
C. Municipal & School Collaboration
· Merger of the town and School financial management systems
· Development of a technology integration plan
| 
