Additional Information about Newton Finances

January 31, 2024

Dear Peirce Community, 

This has been an extremely difficult time for everyone.  Sifting through the information and getting to the truth has been frustrating when we receive drastically different accounts of the ongoing teacher contract negotiations. The one absolute is that there is a monetary gap between what the NTA (Newton Teachers Association) is asking for and the money the School Committee has been provided by the Mayor’s budget for the City of Newton. As of last night there seems to be some promising movement towards a resolution and hopefully this gap is closing through compromise.  

Throughout this process, there has been differing opinions on whether there are more city funds available for NPS (Newton Public Schools), which would have to be appropriated by the Mayor.  PTO leadership and PTO board members have been speaking to many people in an effort to better understand city finances and whether there is more money that can be allocated to NPS, and we would like to share what we have learned from several meetings with City Councilors and independent municipal bond experts.   

The overall budget: 

  • Newton has what’s known as a strong mayor system by charter. The mayor writes the budget and city councilors have little control. Even if the city council votes “no” on the budget, it still goes into effect on July 1 of the next fiscal year. 
  • Proposition 2 ½, a state law, limits municipalities from raising the property tax levy limit by more than 2 ½ percent each year. 
  • New growth within the city provides additional tax revenue in a given year.
  • The mayor and NTA have different assessments regarding the total revenue brought in yearly by the city.
    • The mayor assesses the city’s revenue growth rate at 3.5%
    • The NTA assesses the city’s revenue growth rate at about *4.27%
    • There are others who assess in between those amounts 
  • Questions around free cash and overlay surplus: There are differing opinions around whether the mayor is being too conservative when drawing up the budget because the city has free cash — money that was allocated in the budget and never used — each fiscal year.
  • From 2005-2022, there has been a huge range of free cash from $3.8 million to $28.9 million. Unusually high interest rates have resulted in higher levels of free cash recently. 
  • The city depends on the free cash for items not in the annual budget such as: snow and ice removal, overtime for firemen (due to a shortage of firemen and requirement that a certain number be on duty), road repairs, investments in capital such as turf fields and unforeseen expenses, such as the recent Albermarle Street bridge repair, etc.  About $5-10 million of free cash is already spoken for every year.  
  • Free Cash is not a reliable ongoing source of revenue and fluctuates from year to year therefore this money is earmarked for one time expenses such as infrastructure and curriculum, it should not be used for an ongoing expense. 
  • This year, there was an unusually high amount of money as a result of a large cash settlement with Eversource (a.k.a “Overlay Surplus).  70% of this $26 million surplus has been promised to NPS to support one time expenditures and settling the contract.  Due to the large amount of money, this has been pledged to be spread out over years and can be used toward the teacher’s contract.  Yet, it still is a finite amount of money like Free Cash and is not a reliable ongoing source of revenue. 

*The 4.27% figure may not be exact.  The point is there is a difference between the mayor’s assessment and the NTA assessment.

Newton’s bond rating and “rainy day” fund:

  • Newton has a Triple A bond rating, the highest credit rating an entity can receive from a ratings agency, which lowers the city’s cost of borrowing. 
  • Putting money aside in a “rainy day fund” is a requirement to maintain Newton’s Triple A bond rating. Newton needs to maintain 5% of the  total operating budget to satisfy the ratings agencies. The fund is a requirement to maintain our Triple A bond rating from the ratings agencies.  The fund currently has $24 million, which represents about 5.3% of the annual budget and it is only to be used for a catastrophic event.
  • Last year the city’s CFO decided to fund at 6%. 
  • Not everyone on the City Council agrees this is a prudent use of money and some believe that Newton is, in essence, paying for the Triple A bond rating. 
  • There have also been arguments made that Newton can stretch out its payments for its pension liability. Unfortunately, for years Newton failed to fund its pension obligations, which means that today’s residents are bearing the costly burden of previous neglect. State law mandates that municipalities fully fund the pension by 2040, but Newton is on track to fund it by 2032. The payment schedule is dictated by the Newton Pension Board, which has autonomy from the mayor to set the payment rate. (This means that the mayor cannot require a slow down in the pension funding timeline.) Last year, Chris Brezski, Susan Albright and other city councilors negotiated and fought hard to bring down the rate the city funded the pension from 9% to 6.6%, which freed up money and saved NPS from making some of the more drastic cuts that were proposed through the budgeting process.
  • There are some who believe we should further reduce the amount by which we fund the pension each year to free up even more money for the schools. This doesn’t appear to be a viable option as the Pension Board made it clear that it would not approve a further reduction/extension at this time. Note also that the city had to make a financial concession to the Pension Board in exchange for the reduction in pension funding.

In conclusion, there are arguments to be made that more funding is available at the margins, but according to the City Councilors that we have spoken to, it would not be enough to fill the monetary gap in negotiations between NPS and the NTA.  There are other means for yielding more funds in the future, such as an override, however that is not a viable option at this time and is very difficult to get passed.  We are hoping, based on communications shared by both sides last evening, that all sides are working to close the gap through compromise and that a contract can be settled upon that is acceptable to the teachers.

All the best,

Peirce Leadership
Jordana Bluestein & Jaime Mason, Peirce PTO Co-Presidents
Abby Blake & Erica Chamberlain, Peirce PTO Co-Vice Presidents