City of Lewiston, Executive

Department
EDWARD A. BARRETT
City Administrator
PHIL NADEAU
Deputy City Administrator

March 29, 2011

Honorable Mayor and Members of the City Council:

The attached budget is submitted in accordance with the applicable provisions of the
Charter of the City of Lewiston. While it presents a complete spending plan for the
coming year and could be adopted as presented, it should more appropriately be seen
as a starting point for review and deliberation and as a vehicle for the presentation and
discussion of numerous issues. To that end, this discussion highlights significant
changes to the current year’s budget and addresses some of the on-going fiscal and
operational challenges the City faces over the coming several years.

FISCAL CLIMATE

The City continues to confront the most challenging fiscal climate in recent history.
While the overall economy has begun to show slow signs of recovery, that recovery is
not yet reflected in governmental revenues. The continued impact of the economy on
state revenues, coupled with on-going policy decisions by the state to disproportionately
reduce the revenues it shares with local governments, continues to negatively affect the
City’s finances. The economy has also led to increased service demands in certain areas
while dramatically reducing new construction and development activities. This has
stressed both the expenditure and revenue sides of the budget. The impact of the
economic climate will be magnified in the coming year through continued draconian
reductions in state revenue sharing, a minor decline in taxable assessed value, further
reductions in investment income, and cost increases in certain expenditure categories.
Based on the initial budgets submitted by the various departments, the projected gap
between revenues and expenditures for FY12 was $4.9 million, an improvement over
last year’s amount of just over $7 million.

The proposed budget continues the effort to reduce the City’s reliance on one-time
revenues such as undesignated fund balance. It also modestly begins to restore funding
for capital items that should appropriately be funded in the operating budget, thus
reducing the need to borrow for them. For the first time in many years, this budget is
based on current revenues fully supporting current expenditures.

City Revenues

Total General Fund revenues are projected to decrease by 5.2%, or about $692,000, an
improvement over last year’s decline of about 15% or $2.3 million. Most of this decline

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is the result of eliminating the use of undesignated fund balance, which contributed
$700,000 toward last year’s revenue budget.

Significant changes in revenue include: a $137,000 reduction in state reimbursements

under the business equipment tax exemption program as the state continues to reduce
the percentage of lost personal property tax revenue that is reimbursed to the City by
10% per year until it reaches 50%; a $15,000 reduction in investment earnings based
on current trends; a $44,000 decline in charges for various services reflecting a drop in
building permits and other categories; a $17,000 drop in fines and forfeitures, again
based on current trends; and the elimination of $190,000 from the sale of recyclables
due to the scheduled move to single-stream recycling. (Note, however, that this decline
is offset by savings in the expenditure budget.)

Revenue Budget Comparison

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State Support

State revenue sharing is projected to increase by $235,000 given the slight increase in
this account requested in the Governor’s budget. Note that last year the City lost about
$1.5 million in revenue sharing; this year, that amount has grown to $2 million.
Although revenue sharing will increase slightly, the state will retain a larger percentage
of total sales and income taxes than it is in the current year. If fully funded, this $2
million would reduce our property tax rate by about $1.10. State road assistance grants
are also anticipated to increase by $55,000, reflecting an improvement in state-wide gas
tax collections.

One area where state provided revenues are uncertain is General Assistance. Numerous
changes have been proposed in the General Assistance program. Some of these
changes could reduce our expenditures; others may increase them. Of greatest concern
is the Governor’s proposal to reduce the reimbursement level for high expenditure
municipalities from 90% to 75%. We reached the 90% level late in FY10 and anticipate

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reaching it again both this year and next. The proposed budget is based on the current
program and reimbursement levels. If the reimbursement is reduced to 75% without
other changes to reduce our overall expenditures, this will require that $42,000 be
added to the budget.

GENERAL FUND BUDGET

The proposed General Fund expenditure budget is $43,479,181, a 1.12% increase from
the current year. A key element in the proposed budget is refinancing the City’s pension
obligation debt, both to achieve a lower interest rate and to extend the term by four
years, relieving pressure on the annual budget. Under this proposal, debt service
payments will decrease by an estimated $1,160,604. If this proposal is not approved,
FY12’s debt service payments would increase by $830,633 and the overall tax rate
would be increased by an additional 64 cents.

Major Budget Factors

A number of factors affect the General Fund expenditure budget as well as those of our
Enterprise Funds. As of June 30, 2011, all six of the City’s bargaining agreements will
have expired. Four require the continuation of longevity step increases beyond the end
date of those agreements. As a result, we have budgeted for this. In addition, we are
proposing that non-union employees and employees of the other two bargaining units
also continue to receive steps. We estimate that this will cost approximately $105,000.

After several years of relatively stable employee health insurance costs, we incurred a
15% increase in January 2011 and are projecting another 10% increase next January.
This has increased the budget by about $332,000. Maine State Retirement has also
increased the City’s percentage contribution for covered employees at a cost of about
$101,000. Please note that unlike the retirement system for state employees, our
system is funded at above the 90% level. This increase is intended to avoid the future
growth of any unfunded liabilities.

The street paving budget has been increased by $121,000 to $370,000, still far below
the Public Works Department’s request of $1.1 million. This is, however, a first step
toward increasing the amount of paving supported by the operating budget. I anticipate
supplementing this amount through borrowing, although at a smaller level than last
year.

A final major factor affecting the budget is the requests that have been received from
the various joint agencies. While several of them have requested funding at or below
last years’ level, some have requested increases. Most significant among these are: an
increase of $35,818 from the Lewiston-Auburn Transportation Committee to support
continuation of the revised and expanded public transit system route structure, the cost
of which was partially offset this year through the use of fund balance; and an increase
of $49,891 from LA 911 associated with an additional information services position.
These two requests total $85,709. Joint agency budgets will be presented at a joint
Lewiston/Auburn Council meeting scheduled for April 11th.

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Expenditure Reductions

The proposed budget recommends reductions totaling $3.97 million, or 8.4%, from the
amounts requested by the City’s various departments. In general, we have attempted
to make reductions that will have limited immediate impacts on the services the City
provides to our citizens. Unlike last year, we are not recommending that any current
services be eliminated or considerably reduced. At the same time, the impacts of the
reductions made in the current year and those included in this proposed budget may
result in residents experiencing longer wait times for service or feeling other marginal
impacts. The continued low level of funding for certain capital items, most specifically
street and sidewalk reconstruction and overlay, will require additional resources in future
years to avoid long-term problems and increasing citizen dissatisfaction.

Increase/Decrease in Recommended Budgets

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As was the case last year, every line item in each department’s budget has been
carefully reviewed, capital expenditures reduced, and vacant positions eliminated where
possible.

Major changes in departmental budgets include: a $37,769 (13.5%) reduction in the

Executive department’s funding due to the allocation of a percentage of the Deputy
Administrator’s time to the additional duties he has assumed with the elimination of the
Human Resource Director’s position last January; a $77,535 reduction in Finance as a
result of the next phase of that department’s reorganization; and an $87,199 drop in
Social Services based on this year’s trend in actual general assistance payments. Areas
of increase include: a $17,500 increase in Legal based on this year’s expenditure trends;
$27,989 in City Clerk primarily due to the primary election scheduled for June 2012; a
$215,524 increase in Public Works, primarily due to an increase in the appropriation for
street paving; and $42,803 in Recreation, primarily due to costs associated with the
Multi-Purpose Center. The remaining City Departments are recommended for funding at
or very close to last year’s levels.

City Hall• 27 Pine Street • Lewiston, Maine • 04240 • Voice Tel. 207-513-3121 • Fax 207-795-5069 •
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Unlike last year, the proposed budget does not recommend eliminating currently filled
positions.

Expenditure Budget Allocation

3.0% 6.1%
8.9% G. Gvt
12.8% Police
5.6%
Fire
Other Safety
8.2% Pub Works/Serv
Soc. Services
12.3%
Cultural & Rec
Debt Service
0.8% Intergov.
Retirem ent
20.5%
Insurances
15.8%
Other Misc.
3.5% 2.6%

School Department

The proposed FY12 School Department budget calls for a $1,486,812 or 2.9%, increase
in expenditures. This increase is offset by a $1,390,234 increase in revenues, primarily
state General Purpose Aid, and a $704,050 surplus carry forward. This is the final year
that Recovery Act funding will be available. In addition, while the state has once again
lifted the restriction on the required local match that the City must provide for schools,
that requirement is scheduled to return in FY13. The Council should, therefore, keep in
mind that the use of carry forward and the potential reintroduction of a required local
match could have a significant impact on school and city finances in FY13.

New Program Budgets

One change to the budget process this year is the separate submission of new program
funding requests outside of departmental base budgets. This approach clearly identifies
any additional services, new personnel, or non-replacement equipment that departments
are seeking. In addition, it allows us to clearly identify any programs or services that
were cut last year that departments would like to see restored in the coming year.

The majority of new program requests were submitted by Public Works. They include:
$10,000 to continue the spring clean-up program, including curbside collection of wood
and yard debris; $3,892 to support the installation and removal of Christmas decorations
on Lisbon Street; a $3,000 restoration in the account for purchasing flowers for
downtown to partially restore an $11,000 cut for the current year; $29,000 for a
maintenance contract for Gas Light Park; and $600 for construction materials to repair

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winter sandboxes located at various City facilities. None of these are currently
recommended for funding; however, each of them deserves Council review and
consideration.

Capital Requests

General Fund Departments requested slightly more than $3.1 million in operating capital
expenditures. These generally represent smaller capital items or on-going capital
purchases such as fleet replacement. Of this amount, $970,970 is recommended. In
general, only those capital expenditures that are mandated or required have been
funded. Significant areas of reduction include: street resurfacing (from $1,100,000 to
$370,000), vehicle replacement (from $1,295,000 to $299,500), Landscaping & Trees
(from $55.949 to $7,000), and various building improvements at the Armory from
$60,820 to $0. A complete list of items recommended for funding is attached. Please
note that many of the items requested will be necessary and should be funded when the
economy and the City’s fiscal posture improves.

General Fund departments have also requested approximately $7.1 million in major
capital expenditures in the Capital Improvement Program recently accepted by the
Council. Of this, approximately $4.6 million is recommended for general obligation bond
funding. Given the overall budget and financial situation, it is clear that not all of these
bond projects will be funded and that bonding may be required for some of the critical
items proposed in the operating budget. In addition, I anticipate that we will
recommend an overall level or borrowing below the $4.6 in the approved capital
improvement plan. Significant capital projects that will likely be bonded include: street
reconstruction ($810,000); property acquisition/demolition ($200,000); Gendron
Business Park Phase II ($200,000); Androscoggin River Greenway ($464,000); landfill
cover ($200,000); and replacing the heating system at Public Works ($250,000). The A-
L Airport has requested $250,000 related to renovating and expanding the terminal. This
amount has been removed from the operating budget and is under consideration for
bonding.

Our street and sidewalk programs continue to be funded at or below historic levels while
asphalt prices have increased, reducing the amount of work that can be completed. We
will see the effects of this for a number of years as we struggle to keep up with paving
needs and sidewalk rehabilitation requests.

TAX LEVY LIMITATIONS (L.D. 1)

Under L.D. 1, the City can increase its property tax levy by two major factors: the ten
year statewide average growth in real personal income and the growth in our property
tax base due to new value. The state has set the income growth factor for next year at
1.66%, a decrease from the current year’s 1.78%. The property growth factor, based
on new property added to our tax rolls for FY10 (the prior tax year is used for this
purpose), is 1.62% compared to this year’s 1.28%. In total, therefore, the City’s
property tax levy could increase by 3.28%, up from last year’s 3.06 %.

L.D. 1 also allows us to adjust for any net increase or decrease in Municipal Revenue
Sharing. The City experienced a $240,998 decrease in Municipal Revenue Sharing
between calendar years 2009 and 2010, the allowable measuring period. As a result,
the L.D. 1 limit may be additionally increased by this amount.

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In total, L.D. 1 allows us to increase our tax levy for FY12 by 3.28% plus $240,998. In
addition, the City has operated below the L.D. 1 limit in prior years and the formula
allows future levy increases to be netted against prior levies that have been under the
limit. Taking all of this into consideration, the L.D. 1 levy limit for FY11 is $34,173,203.
The proposed levy of $30,865,354 is $3,307,849 below the L.D. 1 limit.

GNP-IPD

Section 6.06 (f) of the City Charter requires that the percent increase of the City budget
not exceed the percent increase in the Gross National Product Implicit Price Deflator for
the 12-month period ending September 2010. The percent increase in the GNP-IPD for
this period is 1.325%, slightly below last year’s 1.93%. The percentage increase in the
overall proposed City budget (City & School) is 2.09% or .765 points above the GNP-IPD
limit. If the final approved budget exceeds the 1.325% limit, the City Council will have to
waive this limitation by a super majority vote. To reduce the budget to stay within the
limit would require total expenditure reductions of about $719,000.

County Tax

The County tax is proposed to decrease 1.0% to $2,256,622. This decrease is due to a
drop in Lewiston’s State Adjusted Assessed Value that has reduced the percentage of
the County budget that Lewiston must pay. This is an automatic pass through to the
property tax.

Assessed Value

Based on preliminary estimates, Assessing anticipates that our assessed value for the
coming year will decrease by just over $21 million or 1.18%. This erases the slight gain
we saw in this year’s budget. The Assessing Department is continuing its work, and this
value estimate should be seen as tentative and subject to change over the next few
months.

Tax Rate

The proposed budget estimates a tax rate of $26.35, an increase of 95 cents, or

approximately 3.8%, from the current year. In detail, the City tax rate increases by 84
cents while the school’s increases by 11 cents. Note that 20 cents of the City increase
and all 11 cents of the school increase is a direct result of the anticipated decline in the
City’s assessed value. If our value had remained the same, the 95 cent tax increase
would be reduced to 64 cents.

ENTERPRISE FUNDS

The City operates three enterprise funds – Water, Sewer, and Stormwater. The
following provides a summary of each fund’s revenues, expenditures, net operating
results, and cash balances projected to June 30, 2011.

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 OPERATING SUMMARY
ENTERPRISE FUNDS

Projected
Fund Revenues Expenditures Net Ending Cash

Water $4,527,613 4,661,356 (133,743) 194,084

Sewer 5,093,550 5,029,615 63,935 151,098
Stormwater 2,235,600 2,336,320 (100,720) 1,532

The water and stormwater utilities are projected to operate in the red next year, with
about a 3% revenue shortfall for water and a 4.5% shortfall for stormwater. Both
utilities are projected to end the year with sufficient cash on hand to cover the projected
deficit. The sewer utility will operate with a small positive balance of about 1.3% of
revenues. Given this, we are not recommending any utility rate increases for the
coming year, although they may be required for FY13.

Water Utility

We are estimating the Water utility will operate at a small deficit for the current year.
This deficit can easily be covered by its cash balance, which began this year at $362,666
and is projected to end the year at $327,827. Given this and the 15% rate increase
implemented this year, we are recommending that rates not be increased. Lewiston’s
water rates remain among the lowest in Maine.

Quarterly Water Rates

Data from Maine PUC
[$ for 2000CF (~15,000 Gal)] March 2011

400
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200 Bangor
Auburn $42.67 Portland
150 $51.91 $60.30
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City Hall• 27 Pine Street • Lewiston, Maine • 04240 • Voice Tel. 207-513-3121 • Fax 207-795-5069 •
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We are also seeing a long term trend of reduced water consumption as residents and
businesses gradually implement water conservation measures. While the volume of
water sold is declining, the costs of providing water continue to increase as we work to
upgrade and maintain an old infrastructure and meet the requirements of the Safe
Drinking Water Act.

Budgeted utility revenues are projected to increase modestly by just less than 1%
reflecting the full year impact of the current year’s rate increase. Expenses are
projected to increase by $201,853, or slightly more than 4.3%. Utility payroll remains
virtually unchanged while benefits are up almost $75,000, 18.6%, due to the same
factors influencing the General Fund. Debt service will increase modestly by about
$24,000, or 1.2%. Operating expenses are up $89,495, or 8.2%. Virtually all of this
increase is associated with additional energy and chemical costs associated with the new
UV treatment plant located at Lake Auburn.

Capital outlay is proposed to decline $10,000 to $245,000, with $160,000 dedicated to

meter replacement in an effort to move closer to meeting the Maine Public Utility
Commission’s requirements for meter testing and replacement. This program will also
assist in maintaining utility revenues since meters tend to under-read as they age.
Funding is also recommended for a ¾ ton van, a ½ ton 4x4 pickup, a 60 inch zero turn
mower, and a work order and asset management software package to be jointly
purchased with the sewer utility.

The LCIP includes a $1,223,000 water bond for transmission and distribution main
replacement/rehabilitation.

Sewer Utility

The sewer utility has been in a cash deficit since fiscal year end 2009, when the actual
ending cash balance was a negative $149,342. The FY11 budget anticipated only a
small deficit, and, based on current projections, the utility will end the year with a
positive balance. While the utility’s revenue is projected to decline by about $50,000
(1.2%), expenditures are projected to drop by almost $118,000. We are, therefore,
projecting that the sewer utility will operate on a positive basis for the coming year.
While we initially anticipated that a rate increase might be required for FY12, it now
appears that no increase is necessary.

Expenses will decline by about 2.3%. Personnel and benefits are up, again primarily
due to benefit cost increases we have seen City-wide. Debt service is up by about
$30,000. Operating expenses are up by about $48,000, primarily due to the costs of
power and insurance. The budget anticipates a major reduction in Lewiston’s share of
operating the treatment plant. Based on flow records, our share of this joint facility will
go from 58% to 56%, a $205,000 reduction. Capital outlay is also down by $52,000.
Capital purchases include the shared work order and asset management software
($15,000); upgrading of three sewer lift stations ($60,000); and replacing the camera
system that is used to televise sewer lines ($45,000).

Several bond projects are proposed for the coming year. These include: sewer line
rehabilitation ($250,000); interceptor line inspection and rehabilitation ($150,000); and
the Oak Street ($375,000) and Jepson Brook ($1,250,000) separation projects.

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Stormwater Utility

The City’s Stormwater Utility has been operating in a deficit since fiscal year 2009 and is
anticipated to continue to do so. This deficit has been offset by fiscal year 2008’s
ending cash balance of almost $370,000. Unfortunately, this cash balance is projected
to disappear in its entirety by the end of FY12 given a projected $100,000 deficit for the
coming year. Since stormwater rates were increased this year, we are not
recommending that they be increased. An increase does, however, appear inevitable for
FY13 given the continuing clean water mandates that must be addressed.

Overall utility revenues will remain the same for the coming year. Expenses will
increase by about $101,000 or 4.5%. Payroll and benefits are up about $72,000, again
due to benefit cost increases and some reassignment of labor. Debt service is up
$36,000 reflecting borrowing required to meet the requirements of the Clean Water Act
by addressing combined sewers. Operating expenses are down slightly while capital
outlay is up by $13,000. Capital projects include replacing stream crossing culvert on
River ($60,000) and Webster ($80,000) and an allowance of $15,000 for emergency
repairs. A number of other needed drainage improvements were requested by the
department but are not recommended for funding given the current financial shape of
this fund and our desire to avoid a rate increase.

POSSIBLE ADDITIONAL REDUCTIONS AND ADJUSTMENTS

Recognizing current economic concerns, I anticipate that additional changes will be

discussed during the budget process. While some positive adjustments to expenditures
and revenues are possible, any significant changes will require cutting or reducing
capital expenditures, programs, or personnel. We stand ready to prepare information
on any alternatives that Council would like to explore as well as any other alternatives or
suggestions that may arise as the budget process moves forward.

FUTURE CONSIDERATIONS

Our economy and the City’s fiscal position remain precarious. While the recession is
officially over, this has not resulted in any dramatic improvement in local unemployment,
business growth, or economic development. The general consensus is that recovery will
remain slow and take years.

As shown by the Governor’s proposed budget, it is unlikely that the unprecedented cuts
in revenue sharing will be even partially, let alone fully, restored in the near term. It is
more likely that the revenue sharing we will see in the future will be the result of annual
legislative decisions than of statutory formula. In effect, what was once ours by “right”
will more likely become an annual appropriation for which we must compete with
numerous other demands and priorities.

While we will see an increase in state support for schools in the coming year, this
support falls far short of the 55% standard set by a voter referendum adopted some
years ago. While the School Department wisely held back a portion of Recovery Act
funds to help in the FY12 budget, that $700,000 will not be available in FY13. We will
also potentially be faced with the challenge of meeting required local share in the future.

City Hall• 27 Pine Street • Lewiston, Maine • 04240 • Voice Tel. 207-513-3121 • Fax 207-795-5069 •
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On a more positive note, the proposed budget, in concert with the refinancing of the
City’s Pension Obligation Bonds, moves the City toward a more sustainable fiscal footing
by eliminating the use of undesignated fund balance for operating purposes. For the
first time in many years, this budget makes use of only current City-side revenues to
meet current expenses.

As we anticipated last year, the City’s financial and budgetary situation reached bottom
in FY11 and has begun to stabilize in FY12. If the economic recovery continues and
gains momentum, we will begin to see an upturn in state and local revenues and an
increase in private investment in buildings, equipment, and employment. In the interim,
and even if the economy continues to improve, we must take steps to control expenses
and become more efficient while maintaining organizational effectiveness.

CONCLUSION

The annual budget is the primary policy document produced by the City each year. Our
attention during the review process must focus on issues of significant concern that are
directly affected by raising and allocating resources. This proposed budget addresses
these issues by attempting to control costs for existing services while maintaining their
basic viability. It is not, however, a perfect document.

Recommendations are included in this budget that would not appear were it not for the
City’s current fiscal and economic situation. These include continuing to underfund
needed infrastructure projects, most notably road and sidewalk paving and
reconstruction, and deferring certain other capital purchases, all of which will have to be
addressed at some point in the future. In certain other instances, we will have to
closely watch the effects of personnel changes and reductions on our ability to
effectively meet the service requirements of our community.

Throughout the coming budget process, the issues outlined above and others which may
arise will be addressed in greater detail.

I would like to express my thanks and appreciation to the City’s Department Heads and
the large number of City employees who have participated in developing this proposed
budget. In particular, Finance Director Heather Hunter and her staff have been
instrumental in performing the detailed work necessary to produce a complete and
accurate proposal.

I look forward to the coming Council review process and to working with you to adopt a
FY12 budget which meets the needs of our community. As always, your staff and I
stand prepared to assist you in this effort.

Sincerely yours,

Edward A. Barrett
City Administrator

City Hall• 27 Pine Street • Lewiston, Maine • 04240 • Voice Tel. 207-513-3121 • Fax 207-795-5069 •
TTY/TDD 207-513-3007 www.ci.lewiston.me.us