Fac Report

______________________________________________

FINAL REPORT TO THE MAYOR MAY 8, 2009 CITY OF SOMERVILLE, MASSACHUSETTS

______________________________________________

FINANCIAL ADVISORY COMMITTEE Ronald Bonney, Jr.

Geoffrey L. Hargadon

Daniel J. Richards Barry R. Sloane

Samuel R. Tyler

1

LETTER OF TRANSMITTAL May 8, 2009

To the Honorable Joseph A. Curtatone, Mayor: As the members of the City of Somerville’s 2009 Financial Advisory Committee (FAC), we are pleased to present this Final Report, which sets out our recommendations for the long-term financial sustainability of the City of Somerville, Massachusetts. We transmit this Report in fulfillment of your mandate to us to: “Establish recommendations on cost-savings and revenue-producing measures in light of the declining economic conditions and pending reductions in local aid and receipts. Recommendations should promote efficiency, create cost-savings, and enhance revenues.” Since our Committee first convened in January 2009, we have reviewed a wide range of information about the City of Somerville’s municipal operations. Members of the Committee reviewed workforce and bargaining unit composition, wages and benefits data, and additional financial documentation that included revenue and expenditure trend analysis, annual reports, bond prospectuses, debt and capital schedules, and past municipal budgets. This information formed the foundation for the recommendations contained in this report. An underlying theme of these recommendations is our strong support for administrative flexibility in both the design and management of all municipal operations. Our key recommendations include the following actions: Health Care Costs: ¾ Bring employee health insurance contributions in line with those in surrounding municipalities ¾ Bring retiree health insurance contributions in line with those in surrounding municipalities ¾ Adopt M.G.L. Chapter 32B: Section 18; Medicare extension plans with mandatory transfer of eligible retirees ¾ Encourage a move away from an Indemnity Plan while ensuring comparable coverage through other cost-effective options ¾ Issue a Request For Proposals (RFP) for a sole health insurance provider ¾ Pursue a broad range of plan design changes with the potential of reducing costs while maintaining coverage and quality of care ¾ Determine and quantify the potential benefits and costs-savings of joining the Commonwealth’s Group Insurance Commission (GIC) ¾ Support legislative authorization for cities and towns to have the same administrative authority to change plan design as exercised by the Commonwealth since 1955 (plan design encompasses changes in deductibles and co-pays) ¾ Initiate an education program for retirees of the benefits of the HMO plan ¾ Work to bring all employee health insurance contribution ratios to a uniform level 2

User Fees, Permits, Licenses, Fines: ¾ Implement across-the-board increases in fees, fines, licenses, and permits to fund a higher share of the true costs, direct and administrative, of providing city services (cost recovery) ¾ Implement city-wide residential permit parking ¾ Increase rates and extend hours of operations for metered parking ¾ Increase fees for visitor and residential parking permits ¾ Increase fines for parking violations Competitive Sourcing: ¾ Determine and pursue internal opportunities for competitive sourcing between city employees and private vendors ¾ Explore feasibility of competitive sourcing for services now provided by private vendors Regionalization of Services: ¾ Determine and pursue regionalization opportunities with other communities and the Metropolitan Mayors Coalition ¾ Explore options for group purchasing (interagency and intercommunity) to achieve cost savings Indirect Cost Recovery: ¾ Implement indirect cost methodology for Water and Sewer Enterprise Funds. (Future consideration should include indirect cost recovery for external grants and the School Department.) Wages and Salaries: ¾ Implement salary freezes for non-union and union employees, including school employees to prevent layoffs and reduce expenditures ¾ Implement furlough options with non-union and union employees, including school employees to prevent layoff and reduce expenditures Pay-As-You-Throw (PAYT) Trash Disposal and Single Stream Recycling: ¾ Pursue PAYT and single stream recycling in Somerville to achieve environmental and economic benefits Capital Asset Options: ¾ Sell the Powderhouse School to assist in financing future capital projects ¾ Incorporate economic factors and quantification of long-term development potential into the City’s future capital assets sale/lease plans Rezoning Business Districts: ¾ Continue to prioritize rezoning and up-zoning of business districts to encourage commercial development and economic activity Technological Efficiencies: ¾ Pursue technological solutions that lead to efficiencies and cost savings 3

Having fulfilled our mandate to the best of our ability, we offer these recommendations with every confidence that you will give them your most thoughtful consideration. It has been a privilege to assist the City in this important and urgent task. We have enjoyed working with several members of your management team and have been very impressed with their expertise, experience, and dedication to the City of Somerville. Thank you for giving us this opportunity to work with you in your continuing efforts to improve public services and the quality of life for every resident of the City of Somerville. Sincerely,

Ronald Bonney, Jr.

Geoffrey L. Hargadon Daniel J. Richards

Barry R. Sloane

Samuel R. Tyler

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TABLE OF CONTENTS

LETTER OF TRANSMITTAL ..........................................................................................................2 TABLE OF CONTENTS ....................................................................................................................5 COMMITTEE MEMBERS ................................................................................................................6 INTRODUCTION................................................................................................................................7 1. 2. 3. a. b. 4. 5. 6. 7. 8. 9.

Health Care Costs: .........................................................................................................12 User Fees, Fines, Licenses, Permits:..............................................................................15 Municipal Restructuring: ...............................................................................................16 Competitive Sourcing: .................................................................................................. 17 Regionalization of Services: ......................................................................................... 18 Indirect Cost Recovery: .................................................................................................18 Wage Freeze: .................................................................................................................19 Pay-As-You-Throw (PAYT) Trash Disposal and Single Stream Recycling:................20 Capital Asset Options: ...................................................................................................22 Rezoning Business Districts: .........................................................................................23 Technological Efficiencies: ...........................................................................................24

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City of Somerville, Massachusetts Financial Advisory Committee COMMITTEE MEMBERS Ronald Bonney, Jr. Geoffrey L. Hargadon Daniel J. Richards Barry R. Sloane Samuel R. Tyler

President, Bonney Automotive; Executive Member, Somerville Chamber of Commerce Sr. Vice President of Investments, UBS Financial Professor of Economics, Tufts University President and Co-CEO, Century Bancorp President, Boston Municipal Research Bureau

CITY OF SOMERVILLE STAFF Edward Bean Janice Delory Jessie Baker Richard Tranfaglia Robert Collins Matthew Dias

Finance Director Chief of Staff Aide to the Mayor Personnel Director Chief Labor Counsel Budget Analyst

This committee of community, business, academic and public finance experts convened regularly from February 2009 – April 2009. Throughout their service and deliberations, members wrestled with the difficult challenge of balancing the public’s desire for high-quality governmental services against their collective willingness to pay for those services (i.e., their appetite for increased fees, fines, permits, taxes, etc). In some circumstances, the committee’s efforts to meet that challenge took them in directions not anticipated at the outset of this review. Along the way, members of the Committee – assisted by presentations by the City’s staff – undertook lengthy discussions and analysis, as well as brainstorming sessions. The result was the creation of a substantial body of analytical material that shaped the Committee’s final recommendations.

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INTRODUCTION Given the current economic climate and an ongoing, long-term shift in the balance of revenue collection and distribution between the Commonwealth and its municipalities, most observers (including this committee) agree that the financial environment for all Massachusetts municipalities – including the City of Somerville – has fundamentally changed. The economic downturn that has overtaken our financial system and economies around the globe has hit the State of Massachusetts and its cities and towns like a perfect storm. In just a matter of months, state revenues have been decimated, surpassing even the most pessimistic estimates. Investment incomes (and income on deposits) have plummeted to depths unseen since the 1930’s and once prosperous, shovel-ready development and capital infrastructure projects have been all but abandoned. Despite significant efforts by leaders at every level of government, the end still is not in sight. During the current fiscal year (FY2009), the State of Massachusetts already has had to implement significant mid-year reductions in its financial assistance commitments to cities and towns. In January, Governor Deval Patrick reduced his FY2009 state aid commitments by $128 million, causing cities and towns to reduce services and, in some cases, implement employee layoffs and furloughs. In Massachusetts, where Proposition 2 ½ limits the ability of local governments to raise property taxes, state aid is a crucial component in funding core operating expenses at the local level, including police, fire, schools, and public works services. Local aid accounts for 32% of Somerville’s revenue base. The $128 million reduction has translated into an FY2009 $2.9 million revenue shortfall that the City of Somerville must cover on its own dime and with little notice. As Somerville and other cities and towns struggle to cope with FY2009 revenue deficits in state aid, they must also cope with the fact that they have very few alternative options to generate additional revenue. Somerville’s main sources of revenues are: Taxes (Real Estate & Personal Property, Motor Vehicle Excise, and Payment in lieu of taxes (PILOT), State Aid, and Local Receipts (fines, licenses, permits, fees). REVENUE BY SOURCE 100,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000

7

M is ce lla ne ou s

Fe es

Pe rm its & Li ce ns es

Fo rf ei ts Fi ne s

&

A id S ta te

P en al tie s

&

Ta xe s

In te re st

0

To make matters worse, cities and towns already have had to deal with a long-term loss in state aid. The latest FY2009 cuts come on top of a decline that dates back to FY2002: even before the $2.9 million reduction, the City of Somerville still was far below its established and customary levels of local aid contributions from the State in the early 2000s.

$100,000,000 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $-

State Revenue Taxes Fees & Fines

2000

2001

2002

2003

2004

2005

2006

2007

2008

In addition to the reduction in state aid revenue, cities and towns like Somerville have faced increases in fixed costs that, in key areas such as health care, gas, and energy, have far outpaced the overall rate of inflation. Health Care Costs: ¾ At $2.3 trillion, the United States spends 4.3 times the amount we spend on national defense for health care ¾ Health care is the fastest growing component for all employers – public or private ¾ In Somerville, costs expected to increase on average 8.5-10.5% every year Utilities: ¾ Fuel, gasoline, and other utility increases impact the City as they do residential and commercial customers ¾ 3 years ago gas crested at $2 gallon; June 20008 national average was over $4 gallon On top of revenue shortages and increases fixed costs, Somerville and other municipalities must address the harsh reality that a sharp economic downturn actually generates higher demand for public services that is generated in periods of economic growth. Specifically, the demand for such municipal services as housing, eldercare, libraries, after-school and summer recreation programs, fire and community policing have intensified recently and will continue to increase as long as the economy is in decline. As more and more residents experience troubles in their own lives (layoffs, furloughs, small business closings, etc), they tend to rely more on, and demand more from, local government providers and the services they render. Thus, cities and towns facing major revenue shortfalls have relatively few options when it comes to cutting costs. The City of Somerville is similar to other municipalities in that the greater bulk 8

of its expenditures occur in a small handful of major cost centers. Services such as police, fire, education, and public works make up over 60% of the City’s operating budget, while wages and benefits (which crosscut each departmental budget) account for almost 78% of all City expenditures. To put this in perspective, the operating budget for the departments of culture and recreation and general government administration make up only 9% of the City’s budget. So when cities and towns find themselves short on revenue, as they do now and as they will for years to come, the natural place to cut costs is where the majority of the money and resources are located; personnel (salaries and benefits) and expensive services (public safety and education). Other 3%

General Govt. 7%

Public Safety 19%

Education 29%

Culture & Recreatio 2%

Public Works 12%

Debt Service 5% Pensions 8%

Health Insurance 15%

So even at a time of unprecedented fiscal vulnerability for Massachusetts residents, cities and towns like Somerville face a seemingly impossible task of maintaining increasingly expensive services for a population that is increasingly at risk and increasingly in need, but doing so with far less money from traditional revenue sources than at any time in recent history. The FY2010 Budget Outlook and Future Challenges In terms of both its size and its impact on core services, the $2.9 million budget deficit in FY2009 was only a preview of what is likely to be prolonged and serious financial pain in FY2010 and beyond. Merely to stay afloat over the next few years, cities and towns will need to embrace unprecedented levels of decisive management actions and flexible service delivery ingenuity. This Committee firmly believes that, for the foreseeable future, cities and towns will undergo successive years of financial instability and depletion of state aid and local receipts. In fact, the problems are expected to be so widespread that the state may have to rethink the size of its own commitment to big-ticket programs such as its healthcare coverage plans, and even to education funding. On May 5th, several economic specialists testified before state officials on Beacon Hill that an already horrendous situation actually is worsening. Their message, as reported in the Boston 9

Globe, was to “prepare for at least four years of budget problems, foreshadowed by dire records: State revenues declined 35 percent this April over last year, the worst ever. The fall in state revenues for this year, projected to be $3 billion less than budgeted, will probably also be the steepest in state history.”*

Short of the state tapping one-time reserves to offset expected revenue losses in FY2010, cites and towns will be left to fend for themselves. Because of this, significant reforms at the state level in terms of diversifying local revenue options are essential to give cities and towns better tools to manage their own revenue streams and, as a result, have the resources to continue providing core services in the face of unprecedented economic decline. Until that happens, cities and towns like Somerville must, to the best of their own ability, achieve any and all available cost savings, efficiencies, and additional revenues on their own. It should be noted that, in recent years, the City of Somerville, already has proven extremely adept in seeking out innovative best practices and cost efficiencies throughout its governmental operations. In fact, Somerville has become a leader in Massachusetts and across the country in terms of cutting-edge ideas; from a city-hosted resident information line to computerized tracking of services and performance measures tied to the City’s annual operating budget. Because of this, Somerville already is among the leanest and most efficient municipalities in terms of its per-capita cost for service delivery.

*

Viser, Matt, “State budget to be 'doom and gloom' for years to come,” Boston Globe, 5/6/2009

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As indicated below, Somerville had the lowest total receipts per capita in FY2007 of all Massachusetts municipalities with populations of 50,000 or higher.

1 ,7 6 4

1 ,8 8 7

1 ,8 9 6

2 ,0 5 6

2 ,0 9 9

2 ,2 1 1

2 ,2 4 4

2 ,2 4 4

2 ,2 6 0

2 ,1 5 2

1 ,9 1 8

2,000

2 ,3 1 6

2 ,3 7 6

2 ,4 7 8

2 ,4 1 5

2,500

2 ,6 0 5

2 ,6 2 9

2 ,6 9 2

3,000

2 ,6 0 8

Per capita general fund expenditures are the lowest of any MA city with 50,000+ population

3 ,0 1 2

3 ,0 2 0

3,500

2 ,9 5 0

3 ,5 8 3

4,000

3 ,4 6 7

FY07 General Fund Expenditures Per Capita for 50,000+ Population Cities Source: Massachusetts Department of Revenue Municipal Databank/Local Aid Section http://www.dls.state.ma.us/Allfiles.htm

1,500

1,000

500

D TO QU N IN C PL YM Y OU TH L YN FR N AM IN GH BR OC AM KT W ON O RC ES T W ER AL TH W EY AM M OU PE T H AB OD CH IC Y OP E M E AL D TA E N UN H A TON VE R F A H IL L LL RI VE ME R D S O FOR D ME RV IL LE NE

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BO

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G E ST ON

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Implementation of the recommendations contained in this report will require strong executive leadership as well as the understanding and full endorsement of the City’s legislative bodies. Maintaining the necessary level of cooperation and commitment will not always be easy, but it will be essential if the City is to remain functional and financially solvent for the foreseeable future.

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RECOMMENDATIONS The following recommendations reflect the Committee’s strong and emphatic support for administrative flexibility in the design and management of all City programs and departments. In addition, it is imperative that the Administration grasp the sense of urgency with which we put forth these recommendations. The Committee believes that the economic conditions have yet to stabilize and the destruction done to state revenues will affect local aid contributions for several years to come. In order to continue providing services and maintain its quality of services, the City of Somerville must drastically reduce spending and increase revenues.

1. Health Care Costs: Lost in the concern over the faltering State budget is a painful fact that confronted cities and towns well before the national recession: The annual rate of growth of health care costs for municipal workers has soared past the rate of inflation. Over time, increases in health insurance costs have begun to squeeze out investments in other important city programs, including public safety, public education and public works.

% Change by Year for Benefits, Cost of Living, and State Aid 25%

23%

20%

15% 9%

10%

8%

8%

Revenue

8%

Cost of Living

6% 6%

5%

4%

4%

3% 2%

1%

3%

4%

Benefits 3%

4%

3% 2%

0% -3%

-3%

-5% -6%

-10% 2001-2002

• • •

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

Benefits have risen by an average of 8% yearly; Cost of living has risen by an average of 3.1% yearly State aid has fallen by an average of 1% yearly.

In Somerville, anticipated growth in the cost for healthcare threatens the City’s ability to continue providing its current level of core services. Currently, health insurance costs are over 15% of annual operating budget expenditures, which is high by comparable standards in other Massachusetts cities. Projected expenditures for health insurance are expected to top $33 million in FY2010, which exceeds the annual budget appropriation.

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In fact, if changes to the City’s array of health benefits to its employees and retirees are not implemented in time to have an impact on the FY2010 budget, the projected increase in health insurance cost will, for the first time, consume the entire amount of tax revenue growth allowed under the Proposition 2 ½ levy limit ($2.3 million). HEALTH INSURANCE INCREASE PROPERTY TAX INCREASE/LEVY $6,000,000

Health insurance increase now exceeds allowable levy growth for the first time in the City's history

$5,000,000

$4,000,000

$3,000,000

$2,000,000

$1,000,000

$-

2007

2008

2009

2010

2011

2012

2013

$(1,000,000)

• The allowable Prop. 2 ½ Levy limit for FY2010 = $2.3 million. • Estimated health care expenses for FY2010 will increase by $2.6 million. • For the first time in City history, projected cost increase will now exceed all of the allowable levy growth The City of Somerville currently offers five plans to approximately 2,500 city and school employees and retirees: 1) Blue Cross Blue Shield Elect Preferred (PPO); 2) Blue Cross Blue Shield Major Medical (indemnity plan); 3) Blue Cross Blue Shield Network Blue (HMO); 4) Harvard Pilgrim (HMO); and 5) Tufts Health Plan (HMO) to active and retired employees. On the City side, employee contribution rates range from 1% for the indemnity plan to up to 20% for HMO and PPO plans. The non-bargaining unit is at 20% as well as the administration. Most unions are at 15%. All School Department bargaining units currently contribute a maximum of 15%. The contribution ratios provided to current and retired city employees appear to exceed the

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market standard throughout the Commonwealth in regards to their available plans, particularly for the City’s retirees and those participating on the City’s Indemnity plan (99/1%). City/Town Contribution Rates to Indemnity Plans 60

52 50

# of Cities/Towns in Range

41 40

30

21 20 14

10 4 1

1

0 49% or less

50-59%

60-69%

70-79%

80-89%

90-99%

100%

Source: Benchmark Titles Salary Survey, FY07 - Massachusetts Municipal Personnel Association,

In addition, the City also is behind the curve in terms of adopting Massachusetts General Law, Chapter 32B: Section 18; which relates to Medicare extension plans and the mandatory transfer of retirees to Medicare supplement plans. Passed in 1991, the law allows a city or town, by local option, to require all Medicare eligible retiree to enroll in a Medicare supplement plan. The plan, of course, is required to be of equal value to the retiree’s existing coverage – so there is no lapse in coverage as a result of the action. Significant savings can be achieved by moving costs from the city or town to the Federal government – today the City pays 100% of these costs, for example, whereas down the line they could pay 80%. The City of Springfield reportedly saved over $5 million in FY2006 by adopting Section 18, and plans to save around $8 million over the next three years as a result of adopting this law. Other cities and towns that already have adopted this action include: Brookline; Cambridge; Chelmsford; Malden; New Bedford; Peabody; Quincy; and Worcester. In order to maintain the integrity of services provided to its residents, the City of Somerville must recognize that significant reforms are necessary in the health benefits and plans offered to current and former employees. We recommended that the following reforms be implemented: ¾ Bring employee health insurance contributions in line with those in surrounding municipalities ¾ Bring retiree health insurance contributions in line with those in surrounding municipalities

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¾ Adopt M.G.L. Chapter 32B: Section 18; Medicare extension plans with mandatory transfer of eligible retirees ¾ Encourage a move away from an Indemnity Plan while ensuring comparable coverage through other cost-effective options ¾ Issue a Request For Proposals (RFP) for a sole health insurance provider ¾ Pursue a broad range of plan design changes with the potential of reducing costs while maintaining coverage and quality of care ¾ Quantify the potential benefits and costs-savings of joining the Commonwealth’s Group Insurance Commission (GIC) ¾ Support legislative authorization for cities and towns to have the same administrative authority to change plan design as exercised by the Commonwealth since 1955 (plan design encompasses changes in deductibles and co-pays) ¾ Initiate an education program for retirees of the benefits of the HMO plan ¾ Work to bring all employee health insurance contribution ratios to a uniform level

2. User Fees, Fines, Licenses, Permits: More often than not, today’s municipal user fees and fines fail to capture the true costs of capital, staff, and benefits required to provide the associated services. Yet the services provided, and the behavior promoted, through these fees, fines, licenses and permits often contribute to a safer, better quality of life for residents, as well as enhanced economic development and activity. In FY2008, fees and fines (including fees for permits written by inspectional services, licenses granted by the health department, and the parking meter, resident parking, and bus stop and handicap parking fines monitored by the traffic and parking department) contributed approximately $10,000,000 to Somerville’s General Fund revenue. $100,000,000 $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $-

State Revenue Taxes Fees & Fines

2000

2001

2002

2003

2004

15

2005

2006

2007

2008

In light of declining state aid and the downward tilt anticipated for economically sensitive local revenues (building permits and condo conversations), an increase in fees and fines has the ability to relieve a portion of the overall burden on the City of Somerville’s shortage of revenues. A sizable portion of the fee and fine revenue base is drawn from City’s Traffic and Parking Department. This department is responsible for enforcing municipal parking regulations, such as residential permit parking and parking meters. Due to its dense concentrations of people and vehicles, its distinctive geographical location (at the center of the Harvard, MIT, and Tufts triangle, and in close proximity to downtown Boston and Logan Airport;), its bustling squares (Ball, Davis, Magoun, Teele, and Union), and its burgeoning economic development districts (including Assembly Square and East Broadway) Somerville is in a prime location to foster and stimulate economic activity through best-practice parking policies and procedures. The cities of Boston and Cambridge have already increased parking meter rates and extended the hours of operation for metered spaces in select areas. Research suggests that higher meter rates and extended hours of operation in areas of intense economic activity lead to higher parking-spot turnover and, as a result, increased economic activity. Although rate increase are always hard for residents and businesses to accept as conducive to increased commercial activity, Somerville needs to prioritize the rezoning of its parking polices within economic and business districts both to foster economic activity and generate additional revenue. These fee and fine increases, although small in comparison to the City of Somerville’s larger revenue items such as the property tax or the motor vehicle excise tax, amount to a significant portion of the total General Fund. Therefore, the Committee recommends that the City: ¾ Implement across-the-board increases in fees, fines, licenses, and permits to capture the true costs of capital, staff, and benefits required to provide the associated services (cost recovery) ¾ Implement city-wide residential permit parking ¾ Increase rates and extend hours of operations for metered parking ¾ Increase fees for visitor and resident parking permits ¾ Increase fines for parking violations

3. Municipal Restructuring: The concept of municipal government restructuring has a lengthy history in Massachusetts and across the nation. Here in the Commonwealth, government consolidation, regionalization, and competitive service delivery are often met with strong resistance despite the considerable savings that can be achieved through proper implementation. Due to prevailing economic conditions, this Committee strongly recommends that all restructuring options be examined for their potential to achieve cost savings while allowing communities to maintain service levels in response to declining revenues.

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More recent thinking has stressed the positive benefits of intergovernmental agreements and cooperation as a way to reduce costs and, perhaps more now than ever, help to offset the impact of the economic decline. If there are less expensive or more efficient ways for the City of Somerville to provide services – and this Committee sees ample evidence that such efficiencies do exist – the City must not ignore them. There are many possible scenarios in which local governments provide specific or select services via a contractual or shared regional arrangement. Recent examples in the municipal sector include fire departments, water, sewer, ambulance, inspections, and custodial services, as well as many more.

a. Competitive Sourcing: Competitive Sourcing is a common best practice in the private sector that requires an analysis of whether a given function or output is provided more efficiently through in-house services or by an outside vendor. This practice has been adopted successfully by a number of cities throughout the country including Indianapolis, Indiana and Springfield, Massachusetts. For the City of Somerville, the adoption of Competitive Sourcing would involve the encouragement of both public employee units and private companies to bid on the delivery of selected municipal services. Successful implementation could result in improved city services, significant cost savings, and better prioritization of resources, including those service areas in which city employees win the bid. However, significant planning and administrative efforts must occur before any attempt at competitive sourcing, as there are formidable challenges for the finance, personnel, legal, and purchasing departments. Competitive Sourcing: submitting in-house operations to competitive bidding by for-profit contractors, non-profits, and governmental departments. Savings achieved in 2 ways: ¾ Lower Cost: bidding process can generate contractors who complete projects with greater efficiency and lower cost. Money budgeted for project completion is used to pay private contractors.

•

Braintree held bidding competition for line striping; private contractors bid a lower price than current division

• •

City division responded with lower cost contract than the private contractors Work was kept in-house at a lower cost

¾ Non-Monetary Cost: Government can leverage public assets (land, permits, legitimacy) to receive goods and services from outside agencies for free or at discounted rates.

•

Arts Council, with only a small staff, produces large ArtBeat festival by offering private vendors and performers space in Davis Square and managing and motivating groups of volunteers and community partners to participate

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Competitive Sourcing should not be seen either as a method for eliminating municipal jobs or of privatizing municipal functions. The Committee recommends that the City: ¾ Determine and pursue internal opportunities for competitive sourcing between city employees and private vendors ¾ Explore the feasibility of competitive sourcing for services now provided by private vendors

b. Regionalization of Services: One approach to municipal government restructuring is through the amalgamation of government services by a group of cooperating cities and towns. Most municipalities are too small to enjoy the benefits of economies of scale on their own, yet they recognize the opportunities for cost savings and increased efficiencies through regionalization of service delivery. The most common examples are regional school districts and regional E911 dispatch systems, but municipalities should look for other opportunities such as regional 311 and emergency communication systems. In Massachusetts, Essex County conducted a feasibility study that indicated significant cost savings associated with a Regional E911 dispatch center. Recently, Essex County received a $6.8 million grant to fund construction of its center. Earlier this year, the City of Somerville requested a $150,000 grant from the Executive Office of Public Safety and Security to study the feasibility of a Regional Emergency Communications Center (REC). The grant was awarded to the City in March 2009, and, with the help of Boston Metropolitan Area Council (MAPC), Somerville currently is drafting an RFP for a multicommunity REC. Participating communities include: Somerville, Boston, Cambridge, Chelsea, Revere, Quincy, Winthrop, Medford, Melrose, Malden, and Everett. Additional communities have since signaled interest including Belmont and Brookline. The Committee therefore recommends that Somerville: ¾ Determine and pursue regionalization opportunities with other communities and the Metropolitan Mayors Coalition ¾ Explore options for group purchasing to achieve cost savings

4. Indirect Cost Recovery: Costs involved in conducting any government operation or business transaction can be categorized in two ways: as direct costs or as indirect costs. Indirect costs are commonly referred to as facilities and administrative costs. Administrative services such as technological support and legal services provided to the Water and Sewer Enterprise funds, for example, are services that can be provided more efficiently through a central source (legal or IT services). 18

Typically, these services are funded through the City’s General Fund revenues, but the Water and Sewer Enterprise funds currently do not reimburse the General Fund for its shared cost of benefiting from these services. The City must create an indirect cost methodology to relieve the burden on the General Fund and ensure that full cost recovery for all funding sources is achieved when possible. The Committee therefore recommends that the City: ¾ Implement indirect cost methodology for Water and Sewer Enterprise Funds. (Future consideration should include indirect cost recovery for external grants and the School Department)

5. Wage Freeze: Public-sector budgets are generally labor intensive in terms of cost, and Somerville’s budget is no exception. Salaries and wages are among the most significant expenditures the City makes each fiscal year. In fact, direct personnel costs (salaries and benefits) make up 77 percent of the FY2009 operating budget. In order to prevent cutting services in the face of declining revenues, the City should negotiate a wage freeze with all union and non-union personnel – including the School Department. This freeze will mirror what workers in other local governments will be experiencing, and certainly tracks with the experience of many in the private-sector as well. Governor – 5,000 executive staff 5 day furloughs; additional 700 jobs cut Boston – Over 565 layoffs (212 teachers; 67 police officers) New Bedford – 200 layoffs (38 fire; 38 police) Brockton – 75 layoffs expected (30 police; 20 fire; 22 city hall) Lawrence – 19 layoffs and 40 day furloughs

Faced with flat or declining compensation in their own lives, local taxpayers should not be asked to subsidize public employee salary increases – especially at a time of potential service reductions. The Committee therefore recommends that the City: ¾ Implement salary freezes for non-union and union employees, including school employees to prevent layoffs and reduce expenditures ¾ Implement furlough options with non-union and union employees, including school employees to prevent layoffs and reduce expenditures

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6. Pay-As-You-Throw (PAYT) Trash Disposal and Single Stream Recycling: Cities and towns across the country have embraced PAYT and/or single stream recycling for its ability to environmental and economic benefits. Single stream recycling has proven successful in increasing recycling rates and, therefore, decreasing solid waste tipping charges. The adoption of the PAYT program can help cities like Somerville deal with increasing amounts of waste, low levels of participation in recycling programs, and rising disposal costs.

There are many challenges, however, to implementing a new PAYT trash disposal program in any city or town. Some Massachusetts municipalities have met a great deal of resistance from residents and local businesses. More often than not, these challenges are overcome by strong and effective leadership, open and transparent communications, and better public education regarding the extensive environmental and economic benefits that can be achieved.

The Mass DEP reported that approximately 124 municipalities in Massachusetts have some form of PAYT. Four of the 124 have populations over 50,000, including: ¾ Brockton (pop. 98,000) – residential PAYT since 2001 ¾ Malden (pop. 56,340) – commercial PAYT since 2001, residential since 2008 ¾ Taunton (pop. 55,976) – residential PAYT since 1996 ¾ Worcester (pop. 176,000) – residential PAYT since 1993

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We believe the benefits can be broken down as follows: Economic Benefits: ¾ Saves money in the long-run and often in the short-run as well ¾ Reduces the amount of money that Somerville currently pays for waste removal and disposal services for about 30,000 households ¾ Gives residents a direct economic incentive to reduce waste ¾ PAYT shifts as much of the actual costs of waste hauling and disposal to the individual disposers as possible ¾ Single stream recycling often results in lower trash tonnage and associated hauling and tipping costs Environmental Protection: ¾ PAYT and single stream recycling have demonstrably reduced trash tonnage in cities where adopted ¾ If constituents pay for trash removal relative to the amount of trash produced, they are more aware ¾ Better awareness results in more attention paid to what is thrown away and what is recycled ¾ PAYT will increase the recovery and reuse of recyclables ¾ Single stream recycling increases recycling rates by making recycling more convenient for consumers In the City of Brockton, which began a residential PAYT trash disposal program in 2001, a significant reduction in tonnage has been reported. As stated, a reduction in tonnage leads to environmental and economic benefits.

PAYT in Brockton – Results from First Three Years Solid Waste Tonnage Before and After PAYT % Change Year 1 Year 2 Year 3 SW -31.40% -6.55% -1.13% Recycling 127.00% 11.00% 6.00%

700

37388.93

35000 28453.27

Tons

30000

600 26703.5

26406.14

25000

500 400

20000

300

15000 10000

200

5000

100

0

0 FY01

FY02*

FY03

* PAYT started Oct 1, 2001 Solid Waste

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Bags Sold

FY04

Bags Sold (000s)

40000

Single stream recycling collection programs are becoming very popular with local governments in many parts of the U.S. In the past, most community recycling collection programs featured source separation - meaning that residents did some of the sorting of materials before delivering them in bins for curbside pick-up. Now, however, many cities and towns are converting to systems that allow residents to put all recyclables, no matter what material, into the same container. Commonly, the new container is a wheeled cart much larger than the previous recycling bins and appropriate for automated curbside pick-up. However, automated curbside pick-up is not yet feasible in such dense communities like Somerville, yet single stream recycling can still be achieved using traditional recycling haulers. The benefits of single stream recycling also include both environmental and economic positive outcomes. Benefits include greater tonnage collected for recycling (can also result in revenue depending on commodities markets and revenue-sharing agreements with recycling facilities), higher landfill diversion percentages, and cost savings through automation, improved worker safety, and more. Single stream recycling is underway in select neighborhoods in Boston, as well as in Amesbury, Newton, and Quincy. According to the Massachusetts DEP, about 30 municipalities have converted to single stream from dual stream in the last twelve months. In order to achieve its environmental goals as well as meet the fiscal constraints of an expensive service delivery system, the Committee recommends that the City: ¾ Pursue PAYT and Single Stream Recycling in Somerville to achieve environmental and economic benefits

7. Capital Asset Options: In personal finance and in private enterprise, downsizing and asset liquidation must always be considered as potential strategies for managing costs or coping with declining revenues. The same is true in municipal finance, and the City of Somerville currently has several underutilized properties that should be considered for sale or lease. A sale or lease agreement would generate additional revenues for the City and - although proceeds from the sale of a municipal asset cannot directly be used to supplant revenues in the General Fund – these revenues can be used to reduce debt service or earmarked specifically for other capital projects. In addition to the City’s ongoing capital and infrastructure needs, a serious December, 2007 fire at the City’s largest elementary school – the East Somerville Community School – presents a host of long-term challenges in terms of the City’s capital assets and financial needs. The 3alarm blaze caused major structural and mechanical damage to the building and displaced approximately 600 grade K-8 students and 62 staff to alternative locations throughout the city. Fortunately for school’s staff and students, the City of Somerville had several underutilized properties within close proximity to the fire (the majority of which are located within two blocks of the former school site – the Capuano, Edgerly, and Cummings schools). Still, the City of Somerville lost its biggest school building in the middle of a school year and must now rebuild the school as rapidly as possible and under less than optimal economic conditions. Building and financing public school construction under any circumstances presents a host of challenges, let alone during the most significant financial decline in more than 75 years. 22

The Committee therefore recommends that all future development potential for City-owned property be considered hand in hand with alternative property disposal scenarios – ensuring that the City retains underutilized capital assets if long-term prospects are favorable, while selling those that do not. In addition, the Committee also notes that the sale of capital assets is not a quick and easy fix for municipalities. It should be done only under the right conditions, for the right funding options, and with the utmost consideration for the future prospects of the surrounding neighborhood and overall vision of the city or town. The Committee also notes the inherent challenges associated with a municipality renting property, such as maintenance and legal responsibilities. These should be taken into any consideration before entering any lease agreement. The Committee recommends that the City: ¾ Sell the Powderhouse School to assist in financing future capital projects ¾ Incorporate economic factors and quantification of long-term development potential into the City’s future capital assets sale/lease plans

8. Rezoning Business Districts: In the face of a deepening economic recession, municipal efforts to update outdated zoning policies are more important than ever. The mission of any municipal planning office is to facilitate development of an appropriate mix of uses, protect and enhance the physical environment, and shape the character of the city or town by implementing zoning ordinances. Specifically, zoning is a power that allows municipalities to regulate the size and density of development and the use of land. Somerville, almost more than any other community in the Commonwealth, is well-positioned for significant economic and commercial development over the next decade despite the economic downturn. Realizing the city’s full potential for sustainable development will, however, require forward-thinking zoning policies. Major developments such as Assembly Square, Union Square, and the coming of MBTA’s Green Line extension are just a few examples of projects that require decisive action and firm commitments in terms of zoning polices and procedures. With well-structured opportunities for community input throughout the process, proper rezoning can revitalize local economies, restock the tax base, and meet a community’s needs for residential housing, for retail facilities, and for jobs. In Somerville, the City’s 18-month planning and community outreach exercise to rezone the Union Square and Boynton Yards districts provides a striking example of the positive impact that rezoning can have on community’s long-term financial viability.

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Union Square, the focal point of the rezoning effort, is directly accessible from Route 28, and less than two miles from downtown Boston. It will be the site of a future Green Line MBTA station, and also is within half of a mile of numerous Bus routes.

Good zoning practice also mandates regular updates to capitalize on emerging development potential. As external factors (demographics, market demand, resources and infrastructure) change over time, it is important that the City plan ahead and anticipate the need for updated zoning. The City should, therefore: ¾ Continue prioritizing the rezoning and up-zoning of business districts to encourage commercial development and economic activity

9. Technological Efficiencies: The public sector must continue to update outdated technology systems that lead to inefficiencies in the use of staff time as well as limiting accessibility and provision of public services. Initial capital outlay to update systems will be more than offset by the resulting gains in operational efficiency. In FY2009, the City undertook a host of technological improvements resulting in savings and efficiencies: Implemented Copper Line Audit: Reduced city’s copper lines by about 70% Terminated Novell Netware: Reduction in annual license and maintenance needs Implemented Storage Array Network (SAN): Centralized City’s storage capacity Re-Negotiated ISP Contract: New vendor doubled the City’s bandwidth capacity and a new fail-over link for redundancy while reducing costs Implemented Desktop Virtualization: Citrix client/server solution/virtual desktops added without purchasing additional hardware

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It is imperative, therefore, that Somerville continues to examine the use of technology to achieve cost savings, to identify future efficiencies, and to ensure that the best, most up-to-date and most efficient systems are in place for service delivery, auditing, and planning purposes. These efficiencies and cost savings have never meant more in terms of their impact on the City’s bottom-line and its ability to continue providing core services. The City should continue to: ¾ Pursue technological solutions that lead to efficiencies and cost savings

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